PRA has written a letter to directors of life and general insurance firms which sets out information on implementation of Solvency 2. It covers:
- PRA’s intention to carry out an industry-wide review of equity release mortgage valuations and capital treatment;
- the fact that reports from a balance sheet review of the appropriateness of firms’ risk margin methodologies revealed that the range of methodologies and approximations used by firms in projecting the future non-hedgeable solvency capital requirement varied widely;
- PRA’s expectation that the calculation of the transitional deduction for technical provisions, and the resulting quantum of the deduction, will be overseen by a firm’s audit committee;
- PRA continuing to expect firms to manage and mitigate reinsurance counterparty default risk under Solvency 2;
- the fact that Solvency 2 implementation will be accompanied by substantial changes to the PRA Rulebook and most of the current waivers and modifications in force will expire on 31 December 2015. PRA is not able to grant waivers relating to any rules that are transposed from EU directives or that emanate directly from Solvency 2 regulations; and
- a timetable of PRA Solvency 2 activity from November to the end of 2015.
(Source: PRA Update Letter on Solvency 2)