On 14 July 2015, the Prudential Regulation Authority (PRA) published a letter (http://www.bankofengland.co.uk/pra/Pages/solvency2/updates.aspx) from the PRA’s insurance directors for all Solvency II-affected firms. The letter sets out the PRA’s views on a number of matters as follows:

  • Internal model (IM) applications: From the perspective of the PRA, applications for IMs appear to have gone smoothly. The PRA intends to communicate its decisions in respect of IM applications to all firms simultaneously and expects this to be in December 2015.
  • Implementing technical standards (ITS) and guidelines: European Insurance and Occupational Pensions Authority (EIOPA) published its second set of ITS and guidelines for Solvency II on 6 July 2015. Once endorsed by the European Commission, it is expected that these will apply from 1 January 2016.
  • Output of general insurance (GI) technical workshop: The PRA summarises the key areas discussed with a number of Association of British Insurers (ABI) representatives in relation to GI and Solvency II.
  • Segmentation of UK motor insurance policies: Data the PRA has received from firms has demonstrated that motor insurance business is not being unbundled in accordance with Solvency II Delegated Regulation Article 55(6). This impacts on reporting and standard formula calculations and should be addressed.
  • Recognition of outwards reinsurance: Firms have made a number of different interpretations of the Solvency II requirements around the recognition of outwards reinsurance. The PRA sets out the key principles to take into account when considering outwards reinsurance cash-flows and the EIOPA guidelines to follow when considering how future reinsurance purchases should be recognised.
  • Allocation of employers liability insurance policies: Firms should take care to ensure they have assigned their employer’s liability policies to the correct line of business and should be able to explain and justify the allocation decisions they make.
  • Pension scheme risk: The PRA has reviewed the treatment of pension scheme risk for a number of Solvency II IMs and for some firms the treatment in relation to credit spread risk has fallen short of its expectations. Firms are referred to supervisory statement SS5/15 (http://uk.practicallaw.com/?view=cselement:IndividualIdentitySplash&displayHeader=false&pagename=PLCWrapper&wsrView=true) which sets out the PRA’s expectations.
  • Senior Insurance Managers Regime (SIMR): Firms are reminded of some practical steps to take in order to prepare for the SIMR implementation. These include a need to prepare a governance map, identify which existing controlled function (CF) roles will “grandfather” into the SIMR and consider whether individuals not currently approved as CFs will be performing a key function or significant influence management function under the SIMR.
  • Groups: Firms are reminded that there are significant changes to groups under Solvency II and that they should consider as a matter of urgency whether they are part of a group, or groups, that fall within the scope of the Solvency II requirements and what approvals and/or waivers they might require in order to comply with such requirements, amongst other things.
  • A timetable of activity from July to September 2015: Among other things, the PRA plans to issue a consultation paper on the Solvency II Set 2 ITS and guidelines, as well as a consultation paper on the PRA discretion in relation to regular quantitative reporting ITS, in August 2015.