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    PRA Findings and Expectations on Solvency II Remuneration Requirements

    July 12, 2019

    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

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