PRA publishes annual report: PRA has published its 2015 annual report and accounts. The report's review of 2014/15 contains:
- details of PRA and the Financial Policy Committee's (FPC) stress test framework;
- PRA's work in providing firms with appropriate authorisations;
- PRA's role in addressing the issue of bank capital;
- details of PRA's supervision of international bank branches;
- information on the year's enforcement actions;
- contingency planning and event risk; and
- developing a strategy to use data more effectively.
The report also outlines how PRA is preparing for the implementation of Solvency 2 and the recast depositor guarantee scheme directive, changes to liquidity coverage requirements and the finalising of the fourth Capital Requirements Directive (CRD4) framework. The report also contains a detailed business plan for 2015/16 and financial review of 2014/15. (Source: PRA Annual Report 2015)
PRA issues Solvency 2 internal model statements: PRA has issued supervisory statements setting out:
- its expectations of UK insurance firms within the scope of Solvency 2 and the Society of Lloyd’s in respect of each syndicate, and providing further clarity on the information to be reported by firms using an internal model to calculate the solvency capital requirement (SCR). Where a firm uses an internal model, PRA must evaluate ongoing compliance with the Solvency 2 internal model requirements. To monitor the performance of the approved internal models over time, PRA expects firms to report the outputs of their approved internal model on an ongoing basis; and
- its expectations of how non-life firms should identify and manage all risks to which their business could be exposed over the long and short term, to capture all known risks in their own risk and solvency assessment (ORSA). This enables firms to assess their ability to meet obligations to policyholders in the event that the firm decides to cease writing business beyond that which it plans to write over the next 12 months, and to meet those obligations in stressed conditions. PRA also wrote to firms giving feedback on its ORSA expectations.
PRA publishes Solvency 2 balance sheet feedback: PRA published feedback on step 1 of its review of Solvency 2 balance sheets. The PRA feedback addresses:
- PRA's expectation that firms participating in the review will be able to demonstrate how their basis of preparation for step 2 has been assessed in step 1;
- materiality: the need for clearly defined and documented materiality assessments which are a key element of the validation processes;
- control framework: the need for well documented processes and controls, including defined responsibilities and approvals, for the preparation of a Solvency 2 balance sheet and supporting regulatory financial information;
- documentation and validation: firms are focusing significant effort on the system of governance around technical provisions but they also need to focus attention on achieving reliable valuations under the Solvency 2 valuation rules of other balance sheet items, such as amounts owed to and by related undertakings;
- deferred taxation: some of the differences between International Financial Reporting Standards (IFRS) and Solvency 2 balance sheets in the valuation and recognition of assets, liabilities and contingent liabilities require firms to adjust deferred tax balances from the IFRS balance sheet. The adjustments to deferred tax balances for inclusion in the Solvency 2 balance sheet must take into account the different tax jurisdictions in which a firm and group operates, and the way in which its activities are assessed to tax;
- own funds: the way in which group undertakings are consolidated to prepare a group Solvency 2 balance sheet differs from conventional accounting consolidation. Firms cannot rely upon processes for conventional financial reporting as sufficient for Solvency 2 purposes and may need to develop additional consolidation processes by 2016; and
- technical provisions and amounts recoverable from reinsurance: firms should have specific documentation in place which shows how they meet the different Solvency 2 requirements for technical provisions.
(Source: Solvency 2 Balance Sheet Feedback)
PRA urges firms to request LEI codes: PRA has updated its Solvency 2 webpage to request that firms within the scope of Solvency 2 request a Legal Entity Identifier (LEI) code by 30 June at the latest. Other insurers should request a code by 30 June 2016. For firms that are part of a group, PRA requests that all entities within the group obtain an LEI code, including holding and dormant companies. (Source:Detailed Technical Information: LEIs)