Solvency II (near) final rules

Direction for insurers on internal models, capital add-ons and reporting

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The PRA has released a suite of materials to bring Solvency UK (SUK) closer to implementation. These cover reporting requirements, internal models (IM), capital add-ons, third country branch capital, mobilisation and the thresholds for entering the Solvency II regime.

The publications include:

Policy statement PS2/24opens in a new tab — Review of Solvency II: Adapting to the UK insurance market. This sets out the PRA's response to most areas of the June 2023 consultation.

Supervisory statement SS1/24opens in a new tab — setting out expectations for meeting the PRA's internal model requirements.

Four further Statements of Policy (SoP) — on capital add-onsopens in a new tab, the approachopens in a new tab to granting regulatory permissions in relation to the transitional measure on technical provisions (TMTP), insurance group supervisionopens in a new tab (in particular the calculation of group Solvency Capital Requirement (SCR)) and the use of internal modelsopens in a new tab.

Policy Statement PS3/24opens in a new tab — Review of Solvency II: Reporting and disclosure phase 2 `near-final' policy, following the PRA's CP12/23 and CP14/22.


These all have an effective implementation date of 31 December 2024, as expected.

In addition, HM Treasury (HMT) has laid down a Statutory Instrumentopens in a new tab (SI), which enables the PRA to give firms permission to disapply or modify the application of aspects of certain rules to them.

The publication package does not include:

Matching Adjustment reform (further to PRA's CP19/23) — the PRA is expected to publish final rules on this in June 2024, to come into (almost) immediate effect. The HMT SI is expected at the same time. The PRA has signalled that insurers have all the information they need to plan adjustments to their investment portfolios.

Transposition of assimilated (EU retained) law into the PRA Rulebook — this is expected in Q2 2024. In the meantime, existing applicable EIOPA guidelines continue to apply as per this SoPopens in a new tab.



Final reporting taxonomy —
this is to follow shortly.

 

 

 


The final policies and SS provide helpful clarity on the PRA's approach and processes. They bring no major surprises and overall closely mirror what the PRA has already consulted on.

This reinforces the PRA's message to firms that they should not expect material changes from the package consulted on and, given the timing of next supervisory statements, firms need to continue to progress SUK change programmes based on reliable working assumptions from the CPs.

What is in the PRA's new Solvency UK policies?


What does this mean for insurers?

The PRA's publications are a step closer towards a fully operational Solvency UK. While the policy changes are not major, there is a significant level of detail on how SUK will operate in practice. Firms with internal models and TMPT permissions in particular will want to familiarise themselves with the PRA's expectations and application processes.

How KPMG in the UK can help

KPMG professionals in the UK can assist with all aspects of both Day 1 compliance and systems changes, as well as act as a strategic advisor on operational, balance sheet and governance implications.

While not covered in this package, for firms with MA permissions, getting the attestation processes up and running remains a key priority.

Examples of where we can help include:

  • Assessing current Analysis of Change (AoC) capability for internal models against PRA requirements.
  • Fostering appropriate governance and management information (MI) for CROs to make their annual attestations to comply with SCR and IM requirements, and developing a credible plan for any areas requiring a remediation plan.
  • Assess TMTP approaches, including benefits of each approach under a range of scenarios and the cost of maintaining each one.
  • Evaluating the merits and/or assisting with full or partial IM applications or adjustments.
  • Supporting with reporting system changes, drawing on KPMG's recent experience in operationalising IFRS17 programmes.

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