Cp19/23

A lot is riding on this. The Government is cp19/23 that the Solvency II reforms, of which this consultation is a significant part, cp19/23, will free up billions of pounds of capital for investment. As is generally the case with regulatory reform of this importance, cp19/23, the changes that insurers, and others, will welcome come with significant strings attached.

These key areas are:. Given the short timelines available to make model changes before YE24, firms will need to quickly form a view on their approaches to each of the areas described above. Firms should identify changes needed for the end of the year and those that could be made later and prioritise accordingly. This will help minimise nasty surprises close to year-end and provide valuable insight on the net effect on capital and solvency of the overall reforms. Board members, senior executives, and actuaries of UK insurers with MA and Internal Model approvals who work on balance sheet management, pricing, reporting, capital optimisation, risk, finance, and compliance.

Cp19/23

Charlie Finch , Partner. James Silber , Principal. The final consultation proposals have now been published on the UK's transition from Solvency II, which determines the capital reserves insurers are required to hold. Will it improve pricing and insurer capacity? Will it water down policyholder security? The insurance regulator the PRA has published the final two consultation papers in recent months:. In the rest of this blog we focus on the second consultation paper and the proposed changes to asset eligibility. The MA is an easement that was negotiated as part of the introduction of Solvency II and is used almost exclusively by UK insurers that write annuities. The MA arises from the insurers holding to maturity a portfolio of assets with a closely matching cashflow profile to their long-term liabilities. The fact that these assets are held to maturity effectively eliminates market risk with the key remaining risk being default risk. The insurers are therefore permitted to calculate their BEL using a discount rate above risk-free — effectively adding on the additional yield on their assets after having made a deduction for defaults — this is the MA benefit. This approach of taking advance credit for investment returns not yet earned is not without its critics. The MA is a significant capital benefit meaning insurers can only price pension buy-ins competitively if the assets they will hold are MA eligible.

The insurers are therefore permitted cp19/23 calculate their BEL using cp19/23 discount rate above risk-free — effectively adding on the additional yield on their assets after having made a deduction for defaults — this is the MA benefit, cp19/23. The Part is intended to be free-standing and so capable of implementation alongside the other changes to the MA regime, in advance of the wider changes the PRA proposes to make to its Rulebook as part of the Solvency II reforms, cp19/23.

This will result in:. The draft SI published by HMT in June gives the PRA the power to make additional rules governing the MA and it had been expected that additional controls would be introduced to counter-balance some of the loosening of restrictions. This has indeed been the case, in particular in the context of limits on the use of assets with non-fixed cash flows, expectations in respect of the use of sub-investment grade assets and the new matching adjustment attestation. HMT confirmed in its response document that MA asset eligibility would be loosened to allow assets with highly predictable cash flows to be included in the MA portfolio. The draft SI published in June allows assets with non-fixed cash flows to be included where the risks to the quality of matching are not material and subject to a limit to be determined by the PRA.

We use necessary cookies to make our site work for example, to manage your session. Necessary cookies enable core functionality on our website such as security, network management, and accessibility. You may disable these by changing your browser settings, but this may affect how the website functions. We use analytics cookies so we can keep track of the number of visitors to various parts of the site and understand how our website is used. For more information on how these cookies work please see our Cookie policy. This may include your name, contact details including, if provided, details of the organisation you work for , and opinions or details offered in the response itself. The response will be assessed to inform our work as a regulator and central bank, both in the public interest and in the exercise of our official authority. We may use your details to contact you to clarify any aspects of your response.

Cp19/23

We use necessary cookies to make our site work for example, to manage your session. Necessary cookies enable core functionality on our website such as security, network management, and accessibility. You may disable these by changing your browser settings, but this may affect how the website functions. We use analytics cookies so we can keep track of the number of visitors to various parts of the site and understand how our website is used. For more information on how these cookies work please see our Cookie policy. Solvency II came into force on 1 January Firms can apply for a Solvency II approval , a waiver or modification of rules , and find out about regulatory reporting under Solvency II.

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Chapter 10 of this CP contains analysis of the expected costs and benefits of the specific proposals. A summary of key benefits and costs is outlined below. Posted: 13 Feb. The baseline for the CBA is the current onshored legislative framework as supplemented by PRA Rulebook material in force, together with the anticipated legislation in line with the November statement. The materiality of this additional spread can be expected to vary, but in some cases, it could be material. To stay logged in, change your functional cookie settings. This is where it considers that the provisions will cease to be relevant or appropriate in the new regime. HMT confirmed in its response document that MA asset eligibility would be loosened to allow assets with highly predictable cash flows to be included in the MA portfolio. The work firms do in this area should allow the PRA to target its supervisory resources more efficiently. The PRA considers that the upper bounding of cash flow amounts for such assets may be demonstrated through the use of appropriate assumptions for the rate of any future escalation.

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As per the HMT November response document, the PRA proposes to increase the sensitivity of the fundamental spread to credit risk by introducing a requirement to take into account different ratings notches in the MA calculation. The PRA considers that alternative reduction factors may be required for assets with HP cash flows, but this is more appropriately considered in the next review of the standard formula. The PRA will expect firms to assess the ongoing adequacy of the provision for the risks arising from cash flow variability and update the allowance within the agreed methodology as necessary. The PRA proposes that firms consider voluntary FS add-ons for assets where the basic FS parameters based on corporate and government bonds do not capture all risks retained from holding those assets. The potential prize on offer is significant, and the deadline for feedback on the proposals is 5 January Undo My Deloitte. This means using a probability weighted approach where they have the data, and a deterministic or median approach where more reliance on expert judgement is required. An automatic confidentiality disclaimer generated by your IT system on emails will not, of itself, be regarded as binding on the Bank. In the latter case this could be by the creation of mezzanine notes, where those notes have HP cash flows. You've previously logged into My Deloitte with a different account. The Government is hoping that the Solvency II reforms, of which this consultation is a significant part, will free up billions of pounds of capital for investment. Firms may need to exercise expert judgement where there is a lack of credible or high-quality data to appropriately calibrate stressed scenarios, as well as ensure that the lack of data does not undermine compliance with the Prudent Person Principle PPP. The PRA therefore proposes this individual, who would usually be the Chief Financial Officer but may differ depending on how responsibility is allocated within the firm , must provide the attestation. Despite her deep technical skills, clients have appreciated her ability to make complex matters accessible to less technical users.