Featured Product

    PRA Publishes Policy on Equity Release Mortgages Under Solvency II

    September 27, 2019

    PRA published a policy statement (PS19/19) that contains the final supervisory statement (SS3/17) on matching adjustment under Solvency II. PS19/19 also provides feedback to the responses to the consultation paper CP7/19 that proposed amendments to PRA expectations from firms investing in equity release mortgage portfolios. The expectations set out in the updated SS3/17 will come into effect on December 31, 2019. The updated SS3/17 will supersede the version of SS3/17 that was published in December 2018 and was due to come into effect on the same date—that is, December 31, 2019. PRA also released parameters to be used in the Solvency II Effective Value Test (EVT), along with the rationale for parameters, which apply from December 31, 2019.

    PS19/19 is relevant to insurance and reinsurance companies holding equity release mortgages. PRA received 12 responses to the consultation on the equity release mortgages. The responses were generally supportive in several areas, but asked for some clarifications and opposed some of the proposals. Most respondents sought additional transparency about the PRA approach to reviewing the EVT parameters. PRA has amended the draft supervisory statement after further analysis and after considering responses to the consultation. The key changes are as follows:

    • Amended paragraph 3.13A to note that in some circumstances, it may be appropriate for firms to reach agreement with their supervisors on how to value certain assets other than equity release mortgages for the purpose of the EVT.
    • Amended paragraph 3.20A(iv) to note that there is no expectation for firms to allow for the impact on existing lending from discretionary future lending that is not part of a pre-agreed facility.
    • Amended paragraph 3.21A to give more information on inputs to the PRA analysis of real interest rates, to clarify that the movement in the minimum deferment rate of at least 0.5 percentage points applies in general but not necessarily in all circumstances and to state that PRA will publish a rationale for the parameters as a matter of course.
    • Amended paragraph 3.30 to clarify PRA expectations on the scenarios that firms are expected to consider when using the EVT in stress as a validation technique

    PRA has made some additional changes to the draft supervisory statement on its own initiative. These include amendments to paragraph 3.25 to clarify how PRA expects the results of EVT to be reported, along with the minor typographical corrections and clarifications to internal cross-references. The policy set out in PS19/19 has been designed in the context of the current UK and EU regulatory framework. PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework, including those arising once any new arrangements with EU take effect.

    If UK leaves EU with no implementation period in place, PRA has assessed that the policy would not need to be amended under the EU (Withdrawal) Act 2018. SS3/17 should be read in conjunction with SS1/19 on non-binding PRA materials related to PRA approach after UK’s withdrawal from EU.

     

    Related Links

    Effective Date: December 31, 2019

    Keywords: Europe, UK, Insurance, Solvency II, Equity Release Mortgage, PS 19/19, SS 3/17, CP 7/19, Matching Adjustment, Effective Value Test, PRA

    Featured Experts
    Related Articles
    News

    FSI Paper Examines Use of Suptech Initiatives by Financial Authorities

    The Financial Stability Institute (FSI) of BIS published a paper that examines the suptech developments by analyzing suptech initiatives of 39 financial authorities globally.

    October 17, 2019 WebPage Regulatory News
    News

    US Agencies Consult on Policy Statement on Allowance for Credit Losses

    US Agencies (FDIC, FED, NCUA, and OCC) are consulting on the policy statement on allowances for credit losses and on the guidance on credit risk review systems.

    October 17, 2019 WebPage Regulatory News
    News

    PRA Consults on Approach to Supervising Liquidity and Funding Risks

    In consultation paper (CP27/19), PRA published a proposal (CP27/19) to update the supervisory statement SS24/15 on the PRA approach to supervising liquidity and funding risk.

    October 17, 2019 WebPage Regulatory News
    News

    FSB Report Examines Implementation and Impact of G20 Financial Reforms

    FSB published fifth annual report on the implementation and effects of the G20 financial regulatory reforms.

    October 16, 2019 WebPage Regulatory News
    News

    EBA Launches Consultation on Comprehensive Pillar 3 Disclosures

    EBA proposed the new comprehensive implementing technical standard (ITS) for public disclosures by financial institutions.

    October 16, 2019 WebPage Regulatory News
    News

    EBA Consults on Revised Technical Standards on Supervisory Reporting

    EBA launched a consultation on the revised implementing technical standards, or ITS, on supervisory reporting.

    October 16, 2019 WebPage Regulatory News
    News

    BoE and FCA Examine Use of Machine Learning in Financial Sector in UK

    BoE and FCA published a report on the results of a joint survey by BoE and FCA in 2019 to better understand the use of machine learning in the financial services sector in UK.

    October 16, 2019 WebPage Regulatory News
    News

    BCBS Report Examines Progress on Adoption of Basel Framework

    BCBS published the seventeenth progress report on adoption of Basel regulatory framework.

    October 16, 2019 WebPage Regulatory News
    News

    APRA Proposes Measures to Strengthen Capital for Bank Depositors

    APRA proposed changes to APS 111, which is the prudential standard on measuring capital adequacy and establishes the criteria for regulatory capital requirements of authorized deposit-taking institutions.

    October 15, 2019 WebPage Regulatory News
    News

    EIOPA Consults on Technical Advice for the 2020 Review of Solvency II

    EIOPA is consulting on an opinion that sets out technical advice for the 2020 review of Solvency II.

    October 15, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 3981