On 3 November 2015, the Bank of England’s Executive Director of Insurance Supervision, Sam Woods, gave a speech to the Association of British Insurers on the countdown to Solvency II and the current status of implementation.
Mr Woods stated that the PRA is currently reviewing approximately 300 Solvency II applications, including around 20 applications from firms seeking approval to use an internal model with effect from 1 January 2016. He explained that each internal model application will be considered by a panel made up of PRA senior management, following which it will be reviewed by a separate senior decision-making panel which will have the final say on whether to approve the application. He added a note of caution for firms that receive internal model approval, reminding them that they should “make sure their models remain fit for purpose on an ongoing basis and…assure [the PRA] that this is the case.”
In terms of the PRA’s timetable for determining applications, Mr Woods expected each firm to receive the decision on its application in early December. Mr Woods expected this to be preceded by the PRA’s decisions on matching adjustment applications, which he envisaged would be issued early this month.
Mr Woods went on to discuss the:
- Introduction of the risk margin and its role in the new regime. He extolled the benefits of the risk margin and set out his belief that it should help to provide extra protection for policyholders.
- Use of transitional measures by firms. He reminded the audience of his statement from earlier in the year which confirmed that the PRA will allow a firm to use transitional measures if it qualifies to use them.
- Implementation of the volatility adjustment. Mr Woods noted that differences of opinion exist across Europe regarding the use of the volatility adjustment and that these different views will need to be “ironed out” in order to create a level playing field across Europe.
Mr Woods concluded by discussing the level of capital that firms must hold in order to satisfy regulators. He addressed concerns in the market that the PRA would expect firms to hold capital far in excess of the Solvency Capital Requirement (SCR) by explaining that firms were free to hold capital in excess of the SCR, but dismissing the idea that the PRA had in mind a specific figure.