PRA Findings and Expectations on Solvency II Remuneration Requirements
PRA published a letter from David Rule (Executive Director, Insurance Supervision) to the Chairs of the Remuneration Committee of PRA-regulated insurers. The letter clarifies expectations of PRA from firms and Remuneration Committee Chairs in their implementation of the Solvency II remuneration requirements. The remuneration policies and practices of firms drive underwriting decisions, individual behavior, and organizational culture. This letter follows the PRA analysis of implementation by firms to date and highlights areas where firms would like further guidance. Insurers in the scope of the Solvency II regime must comply with requirements when setting remuneration policies and processes.
The key topics covered in the analysis include material risk-takers, variable remuneration, ex-post risk adjustment, and role of the Remuneration Committee. The analysis has concluded that there is a wide range of interpretations of the Solvency II remuneration requirements and that, while firms’ implementation of the rules has improved over time, inconsistencies in their approaches to implementation remain apparent. This is in line with the feedback received in the meetings with Remuneration Committee Chairs, which suggested an appetite for further clarification from PRA to help address these inconsistencies. The letter highlights that PRA will continue to focus on remuneration in the ongoing prudential supervision of firms. PRA will seek to address any inconsistencies in the interpretation of the Solvency II requirements and share any findings that may help to improve firms’ understanding. PRA will consider whether it is appropriate to provide more clarification or guidance for firms.
Related Link: Letter
Keywords: Europe, UK, Insurance, Solvency II, Remuneration Requirements, Operational Risk, Remuneration Committee, PRA
Featured Experts
Paul McCarney
Insurance product strategist; insurance domain expert; extensive experience developing risk assessment frameworks for insurers
Brian Robinson
Actuary; risk management specialist; corporate and capital modelling expert
Previous Article
ESRB Updates List of Countercyclical Capital Buffers in July 2019Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
