The PRA has published a consultation paper on “Solvency II: Changes to internal models used by UK insurance firms” (CP19/16).

The consultation paper includes a short draft supervisory statement, which sets out the PRA’s expectations for UK insurers, when they apply for approval for:

  • an individual major change to their approved internal model;
  • a major change to their internal model, which has been triggered by an accumulation of minor changes;
  • an extension of an approved internal model (e.g.) so that it can be applied to new business units or risks; or
  • a change to an approved internal model change policy.

The proposed supervisory statement covers the insurer’s interaction with the PRA before and during a model change application; the quality of a model change application the PRA expects to see; and the information that must be provided with a model change application.

The PRA’s proposed approach to all 4 types of internal model change application will be the same, and it will be similar to the approach taken during the internal model approval process. The PRA is planning to use these change applications as part of its “overall approach [to] ensuring a firm’s internal model continues to meet the Solvency II requirements and [its] Solvency Capital Requirement … remains appropriate for its risk profile”.

The CP consultation period closes on 5 August 2016.