On 20 March 2015, the Prudential Regulation Authority (PRA) published a policy statement of its final rules and supervisory statements (together, the Rules). The Rules set out how Solvency II Directive (Solvency II) will be implemented in the UK.
At the same time, the PRA published a consultation paper which seeks feedback on the draft process for applications for a volatility adjustment (VA). The VA allows insurers to avoid market volatility and avoid having to compensate for that volatility.
The Rules incorporate the proposals by the PRA, but also some new changes introduced following feedback from the prior consultation on the Rules. The Rules apply to UK Solvency II firms and Lloyd’s, and do not address everything in Solvency II. It is worthwhile noting, where issues are not addressed, the PRA maintains the approach set out in the prior consultation.
Some of the new changes to the proposals since the consultation on the Rules concern:
The VA: The PRA published a draft supervisory statement to provide clarity on the application process for a VA. Although the consultation on the VA will close on 20 April 2015, a firm wishing to apply can make a formal application from 1 April 2015. Their aim is to decide on applications in a shorter time period, rather than six months (the statutory requirement), but ultimately it seems this will depend on the volume of the applications made.
Transitional measures: The PRA amended its Rules to reflect the HM Treasury inserting a specific reference to INSPRU 7 in the current PRU handbook that simplified the approach to the transitional measure.
Third-country branches: The PRA responded to concerns that there would be extensive requirements resulting from Solvency II on branches carrying on only reinsurance business, by proposing to consider applications to waive these requirements. Firms are requested to raise the matter with their supervisory contact. There will also be further consultations by the PRA on adoption of the European Insurance and Occupational Pensions Authority Guidelines for branch supervision in the summer of 2015.
With profits insurance business: The PRA has amended the definitions “with-profits fund” and “with-profits policy liabilities”, and also the supervisory statement, to clarify the material regarding affordable and sustainable distribution strategies. This clarification does not indicate a change in policy intent.
Appointment of actuaries: Amendments have been made to make clarifications, and allow the Chief Actuary, which is required to be appointed under the Rules, to be an individual in another group company, provided they meet certain requirements.
There will need to be amendments to Statutory Legislation, and minor amendments to the FCA Handbook in addition to the Rules. The statutory instrument including the Rules, established by PRA with its powers under the Financial Services and Markets Act 2000 (see Sections 137G and 137T) comes into force on 1 January 2016.
A copy of the PRA policy statement of the final rules and supervisory statements to implement Solvency II can be found here: http://www.bankofengland.co.uk/pra/Documents/publications/ps/2015/ps215.pdf
A copy of the PRA consultation paper on application process for the VA can be found here:http://www.bankofengland.co.uk/pra/Documents/publications/cp/2015/cp1115.pdf