PRA Publishes Final Policy Statements for Solvency II Insurers
PRA published the Policy Statements for Solvency II insurers, which include PS22/18 on volatility adjustment, PS23/18 on internal model modeling of the volatility adjustment, PS24/18 on updates to internal model output reporting, and PS25/18 on external audit of the public disclosure requirement. Alongside PS24/18, PRA also published version 1.0.0 of the BoE insurance XBRL taxonomy on the regulatory reporting for insurance sector; this version covers requirements for the reporting of internal model output (IMO), market risk sensitivities (MRS), National Specific Templates (NSTs), and standard formula reporting for firms with an approved internal model (SF.01).
The following are the key highlights of the published policy statements:
- PS22/18. This Policy Statement provides feedback to responses to the consultation paper CP22/17 on supervisory approval for the volatility adjustment under Solvency II. It also contains the updated Supervisory Statement SS23/15 on supervisory approval for the volatility adjustment under Solvency II. PS22/18 is relevant to insurance and reinsurance companies using, or intending to use, the volatility adjustment. In CP22/17, PRA proposed to clarify its expectations in respect of insurance and reinsurance firms seeking approval to apply a volatility adjustment. The expectations set out in SS23/15 will come into effect on the publication of the PS22/18 on October 17, 2018.
- PS23/18. This Policy Statement provides feedback to responses to the consultation paper CP9/18 on modeling of the volatility adjustment in internal models under Solvency II. It also contains the final Supervisory Statement SS9/18, which sets out the PRA expectations of internal model firms when determining the risks that might arise from the dynamic volatility adjustment when calculating the solvency capital requirement (SCR). It also contains amendments to SS17/16 on the internal model assessment,the model change, and the role of non-executive directors. The expectations set out in the updated supervisory statements will come into effect on the publication of PS23/18 on October 17, 2018.
- PS24/18. This Policy Statement provides feedback to responses to the consultation paper CP10/18 on updates to internal model output reporting for Solvency II. It also contains the final policy of PRA with respect to the updated Supervisory Statement SS25/15 on regulatory reporting and internal model outputs for Solvency II and the updated SS26/15 on Own Risk and Solvency Assessment (ORSA) and the ultimate time horizon for non-life firms under Solvency II. After considering the responses to CP10/18, PRA made a number of minor amendments to the expectations and LOG files. PRA considers that the changes continue to reduce the overall reporting burden on firms and provide further clarity on completion of the relevant templates. Chapter 2 of PS24/18 summarizes the issues raised by respondents and provides further details of the changes. The policy will take effect for all financial year-ends on, or after, December 31, 2018. The internal model output templates and LOG files that will take effect from December 31, 2018 are available in the internal model outputs section on the regulatory reporting webpage for insurance sector.
- PS25/18. This Policy Statement provides feedback to responses to the consultation paper CP8/18 on external audit of the public disclosure requirement under Solvency II. It also contains the final policy of PRA regarding amendments to the External Audit Part of the PRA Rulebook (Appendix 1) and the updated Supervisory Statement SS11/16 on Solvency II External Audit (Appendix 2). In CP8/18, PRA proposed to remove the external audit requirement for the Solvency and Financial Condition Reports (SFCRs) of certain small Solvency II firms and certain small Solvency II groups (collectively small insurers). The SFCR is the key public disclosure under Solvency II. The changes to the External Audit Part of the PRA Rulebook and the amendments to SS11/16 will be effective from November 15, 2018.
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Keywords: Europe, UK, Insurance, Solvency II, PS23/18, PS24/18, PS25/18, PS22/18, Reporting, Internal Models, PRA
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