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PRA Sets Out How the UK Will Implement Solvency II

25 March 2015
Mayer Brown Newsletter

On February 12, 2015, the Prudential Regulation Authority (“PRA”) sent a letter, a copy of which is available here, to life and general insurance firms setting out the information relating to the UK implementation of the Solvency II directive, including a timetable for the PRA's activities in the next few months.

The letter provides information on matters including:

  • Matching adjustment pre-approval applications. The PRA will provide individual firm feedback on these applications on March 28, 2015 and general feedback to all firms by the end of April 2015.
  • Own-funds transitional provisions. The entry into force of Solvency II on January 18, 2015 is the cut-off date for own-fund transitional provisions. Any firm issuing capital instruments between now and January 1, 2016 must ensure that the instrument is Solvency II-compliant so that it is eligible for transitional treatment.
  • Regulatory reporting. The PRA invites firms to send it partial or full XBRL files by April 2, 2015 for planning and testing purposes. XBRL is a standard format for describing financial data, and facilitate the creation, distribution and re-use of business reports.
  • Solvency II approvals. The PRA expects firms that are planning to submit applications for multiple Solvency II approvals to consider the dependencies between these applications and prepare contingency plans in case approval is not obtained for all applications. Firms should also devise an overall plan setting out the proposals that they are planning to submit for Day 1 decision, identifying the dependencies between these approvals.
  • Internal model. The internal model pre-application period ends on March 31, 2015. The PRA describes the work of the commitment panel that will assess whether firms are likely to make a credible model application after April 1, 2015. The PRA has already identified areas where some firms are not meeting the standards expected, including contingency plans, expert judgment documentation and validation. The Appendix to the letter provides more information on these areas. On March 9, 2015, the PRA sent a letter, a copy of which is available here, to firms regarding internal model approvals and a matching adjustment update. As anticipated, firms will be able to start formal submissions of applications for approval with effect from April 1, 2015. We expect more detail to be included in a PRA Policy Statement to be published towards the end of March.
  • Standard formula. In the second quarter of 2015, PRA supervisors will contact firms that took part in a pilot exercise concerning standard formula appropriateness where interventions are considered necessary. The PRA will provide general guidance to all firms by the second quarter of 2015 if its work highlights thematic issues.
  • Policy documents. The PRA intends to publish a policy statement on Solvency II on March 20, 2015. In the timetable, it states that it intends to publish a consultation paper in the first quarter of 2015 on volatility adjustment (subject to HM Treasury's decision) and a consultation paper which has since been released on February 19 and considers the guidelines produced by the EIOPA.
  • Data collection exercise. The PRA will issue templates and guidance for the 2015 data collection exercise. The guidelines were subsequently issued on March 2, 2015.

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