Solvency II firms, which includes Lloyd’s and managing agents, have been required to comply with Solvency II from 1 January 2016. Article 275 (Remuneration policy) of the directly applicable Solvency II Delegated Regulation (EU 2015/35, (the Regulation)) requires that Solvency II firms comply with various requirements in respect of their remuneration policy. These requirements include the deferral of variable pay and the requirement to include financial and non-financial performance measurements as a basis for variable remuneration.
As part of the Solvency II implementation programme undertaken by the Prudential Regulation Authority (PRA) in 2015, the PRA identified that, in respect of significant PRA-regulated insurers: (a) market participants would welcome guidance on the identification of “risk takers” in order to prevent inconsistencies; and (b) there were significant discrepancies in the variable remuneration thresholds to which the deferrals might apply and the proportion of deferral applied. Therefore, the PRA considers that further guidance is necessary in order to ensure that firms adopt “a broadly consistent approach” to the Regulation requirements and recently published consultation paper CP13/16 entitled “Solvency II: Remuneration requirements”, setting out the proposed PRA supervisory statement in respect of article 275 of the Regulation.
The consultation paper includes key factors to consider when determining which staff are within the scope of the article 274 requirements and also a reporting template intended to be used by category 1 and 2 firms if they chose to do so, this template may also be of use to smaller Solvency II firms. All Solvency II firms are expected to comply with the Regulation and the PRA intends to monitor compliance.
Once the PRA supervisory statement is published, firms will need to consider the following legislation, guidance and regulation when setting remuneration policies:
- The PRA Rulebook, in particular the Group Supervision part.
- The Regulation.
- EIOPA’s “Guidelines on system of governance” finalised on 14 September 2015.
- The PRA’s supervisory statement.
The consultation closes on Thursday 2 June 2016.