Implementation and policy overview

Implementation and policy overview
Title of the event – (Arial 28pt bold)
Subtitle for event – (Arial 28pt)
Chris Moulder, Andrew Bulley and Victoria Saporta
Date (Arial 16pt)
Directors of General Insurance, Life Insurance and
Financial Policy
Implementation overview
Development of new regime is difficult and demanding
Successful Solvency II implementation is a priority for the PRA
Finding balance between policy stability and providing information to
– PRA consultation papers and supervisory statements
– Technical actuarial events, website updates and Directors’ letters
As implementation approaches and policy is published, more information will be
available for all firms via the website and supervisors
Implementation overview
Similarities and differences between current and future regimes
Currently operating in advanced risk sensitive regime with many firms
using complex modelling techniques. ICAS+ has supported this
– But internal models are far more complex, expert judgment is subjective and
PRA has to make significant decisions in a short space of time
ICAS regime has withstood shocks of last decade and PRA understands
capital requirements under old regime
– But Solvency II is different to ICAS in a number of respects and the PRA is
using data collection to calibrate expectations of capital
The existing regime expects regular reporting returns from the industry
– But Solvency II will give the PRA a far greater quantity of data than ever
before to supervise firms
Solvency II is changing the operations and procedures of insurers and the PRA
Implementation overview
Implementation of the EIOPA preparatory guidelines
PRA supervisory statement 4/13 provided a consistent and convergent
framework for firms’ Solvency II preparations
Forward Looking Assessment of Own Risks
• Concise, focused on key issues
• Considers business model and strategy
• Includes stress and scenario testing
• Used by the Board
Internal Models
Long running internal model approval
process with ICAS+ to help transition
Compressed review timetable
Documentation and validation, more focus on
assumptions and justifications
System of Governance
Similar to current Pillar II regime
Need more evidence of prudent person
principle and outsourcing arrangements
Crucial role of Board and support from
actuarial function
Submission of Information
Previously insufficient emphasis on asset
Increase in frequency and detail,
significant effort to be ready for reporting
in summer 2015
Preparatory guidelines are an important step towards Solvency II implementation
Policy overview - European framework
Level 1 – Solvency II Directive
Maximum harmonising
Rules are being transposed into national law and the PRA Rulebook
Level 2 – Delegated Act and Implementing Technical Standards
Directly applicable to firms as law, PRA will be enforcing and
supervising against those standards
Level 3 – Guidelines
Generally addressed to National Competent Authorities and/or Member
Addressees are obliged to “Comply or Explain”
Addressees to interpret how they comply with these Guidelines
Both the PRA and firms will need to adjust to the new EU framework
Policy overview - resolving uncertainty
Asset eligibility in the matching adjustment
The PRA will not produce a prescriptive list of assets that can/cannot be
used for MA
Eligibility is determined on a principles basis
‘Non-hedgeable’ risks in risk margin
Risk margin has a clear definition in the legislation
Longevity risk calibrations should not be influenced by the presence of
the risk margin
Capital resources under Solvency II – availability of group own funds
Groups need to consider both legal and regulatory restrictions when
considering limitations on availability
Policy overview - current policy questions
Short term
Models - balancing the use of internal models, partial internal models
and standard formula
Quantifying other risks:
Pensions risk
Diversification benefit
Quality of capital
Third country branches
Looking ahead
Utilising the Bank’s analytical capacity
Timeline to Solvency II implementation
Q4 2014
Delegated Act
published on 10
Q1 2015
Further CPs due
in Q4 – including
reporting and
Q3 2015
information –
including more on
reporting and
Up to six month
scrutiny period for EP
and Council on DA
Q4 2015
1 January 2016
31 March 2015
Set 1 Guidelines
Public consultation
on set 2 ITS and
published – Other
Q2 2015
Set 2
Post- transposition
European timeline
Domestic timeline

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