PRA Issues Policy Statement on Liquidity Risk Management for Insurers
PRA published a policy statement (PS18/19) that contains the final supervisory statement (SS5/19) on liquidity risk management for insurers. PS18/19 also provides feedback to responses to the consultation paper CP4/19 on liquidity risk management for insurers. PS18/19 is relevant to all UK Solvency II firms, including in respect of the Solvency II groups provisions, the Society of Lloyd’s and its managing agents, and non-directive insurers.
The areas addressed in SS5/19 include the following:
- Development and maintenance of proper policies, systems, controls, and processes (Chapter 2)
- Identification of material liquidity risk drivers (Chapter 3)
- Design and undertaking of forward-looking scenario analysis and stress testing programs (Chapter 4)
- Considerations for the inclusion of highly liquid assets in the liquidity buffer (Chapter 5)
- Use of quantitative metrics and tools for measuring and monitoring liquidity risk drivers (Chapter 6)
- Effective contingency planning (Chapter 7)
PRA received thirteen responses to CP4/19. Respondents generally welcomed the proposals, and made a number of observations and requests for clarification. PRA’s feedback to these responses is set out in Chapter 2 of PS18/19. After considering the responses, PRA has made some changes to the draft policy. The most significant amendments involve clarifying expectations of PRA on the definition of risk limits within the liquidity risk appetite framework of an insurer and the role of the board in managing liquidity risk. In addition, the function and characteristics of the liquidity buffer have been clarified. A number of editorial amendments were made to improve the clarity of SS5/19 and are not explicitly addressed in PS18/19.
The expectations set out in SS5/19 and the withdrawal of Legacy Supervisory Statement (LSS) 2/13 on expectations in relation to firms' risk management practices have immediate effect. SS5/19 should be read in conjunction with SS1/19 on the PRA approach after the withdrawal of UK from EU and with the joint BoE and PRA Statement of Policy (SoP) on interpretation of EU guidelines and recommendations related to the BoE and PRA approach after the withdrawal of UK from EU.
Related Links
Effective Date: September 24, 2019
Keywords: Europe, UK, Insurance, Solvency II, Stress Testing, Liquidity Risk, PS 18/19, SS 5/19, Liquidity Risk Management, PRA
Featured Experts
Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.
Adam Koursaris
Asset and liability management expert; capable modeler; risk and capital specialist
Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager
Previous Article
EC Approves Prolongation of Irish Credit Union Resolution SchemeRelated Articles
EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models
The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.
EP Reaches Agreement on Corporate Sustainability Reporting Directive
The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).
PRA Consults on Model Risk Management Principles for Banks
The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.
EC Regulation Amends Standards for Calculating Credit Risk Adjustments
The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
BIS Hub Updates Work Program for 2022, Announces New Projects
The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.
EIOPA Issues Cyber Underwriting Proposal, Statement on Open Insurance
The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.
US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule
Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)
EIOPA Consults on Review of Securitization Framework in Solvency II
The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.
UK Authorities Issue Regulatory and Reporting Updates for Banks
The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.
BCBS Issues Climate Risk Principles while HKMA Expresses Its Support
The Basel Committee on Banking Supervision (BCBS) issued principles for the effective management and supervision of climate-related financial risks.
