Implementation and policy overview
Title of the event – (Arial 28pt bold)
Subtitle for event – (Arial 28pt)
Chris Moulder, Andrew Bulley and Victoria Saporta
Date (Arial 16pt)
Directors of General Insurance, Life Insurance and
Financial Policy
Implementation overview
Development of new regime is difficult and demanding
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Successful Solvency II implementation is a priority for the PRA
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Finding balance between policy stability and providing information to
firms
– PRA consultation papers and supervisory statements
– Technical actuarial events, website updates and Directors’ letters
As implementation approaches and policy is published, more information will be
available for all firms via the website and supervisors
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Implementation overview
Similarities and differences between current and future regimes
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Currently operating in advanced risk sensitive regime with many firms
using complex modelling techniques. ICAS+ has supported this
– But internal models are far more complex, expert judgment is subjective and
PRA has to make significant decisions in a short space of time
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ICAS regime has withstood shocks of last decade and PRA understands
capital requirements under old regime
– But Solvency II is different to ICAS in a number of respects and the PRA is
using data collection to calibrate expectations of capital
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The existing regime expects regular reporting returns from the industry
– But Solvency II will give the PRA a far greater quantity of data than ever
before to supervise firms
Solvency II is changing the operations and procedures of insurers and the PRA
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Implementation overview
Implementation of the EIOPA preparatory guidelines
PRA supervisory statement 4/13 provided a consistent and convergent
framework for firms’ Solvency II preparations
Forward Looking Assessment of Own Risks
• Concise, focused on key issues
• Considers business model and strategy
• Includes stress and scenario testing
• Used by the Board
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Internal Models
Long running internal model approval
process with ICAS+ to help transition
Compressed review timetable
Documentation and validation, more focus on
assumptions and justifications
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System of Governance
Similar to current Pillar II regime
Need more evidence of prudent person
principle and outsourcing arrangements
Crucial role of Board and support from
actuarial function
Submission of Information
Previously insufficient emphasis on asset
composition
Increase in frequency and detail,
significant effort to be ready for reporting
in summer 2015
Preparatory guidelines are an important step towards Solvency II implementation
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Policy overview - European framework
Level 1 – Solvency II Directive
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Maximum harmonising
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Rules are being transposed into national law and the PRA Rulebook
Level 2 – Delegated Act and Implementing Technical Standards
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Directly applicable to firms as law, PRA will be enforcing and
supervising against those standards
Level 3 – Guidelines
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Generally addressed to National Competent Authorities and/or Member
States
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Addressees are obliged to “Comply or Explain”
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Addressees to interpret how they comply with these Guidelines
Both the PRA and firms will need to adjust to the new EU framework
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Policy overview - resolving uncertainty
Asset eligibility in the matching adjustment
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The PRA will not produce a prescriptive list of assets that can/cannot be
used for MA
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Eligibility is determined on a principles basis
‘Non-hedgeable’ risks in risk margin
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Risk margin has a clear definition in the legislation
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Longevity risk calibrations should not be influenced by the presence of
the risk margin
Capital resources under Solvency II – availability of group own funds
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Groups need to consider both legal and regulatory restrictions when
considering limitations on availability
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Policy overview - current policy questions
Short term
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Models - balancing the use of internal models, partial internal models
and standard formula
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Quantifying other risks:
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Pensions risk
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Diversification benefit
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Quality of capital
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Third country branches
Looking ahead
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Utilising the Bank’s analytical capacity
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Timeline to Solvency II implementation
Q4 2014
Delegated Act
published on 10
October
Q1 2015
Further CPs due
in Q4 – including
reporting and
pensions
Q3 2015
Further
information –
including more on
reporting and
branches
Up to six month
scrutiny period for EP
and Council on DA
Q4 2015
Implementation
1 January 2016
Transposition
31 March 2015
Set 1 Guidelines
published
Public consultation
on set 2 ITS and
Guidelines
CP23/14
published – Other
approvals
Q2 2015
Set 2
Guidelines
published
Post- transposition
issues
European timeline
Domestic timeline
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