05 May 2016

Bank of England: Solvency II - consolidation of Directors’ letters

In this consultation paper, the Prudential Regulation Authority sets out its proposals for streamlining the presentation of the ways in which it expects firms to meet various requirements of Solvency II.

The CP consolidates existing Solvency II guidance, but does not propose any new rules or guidance for firms not previously consulted on. The topics covered in appendices 1-7 are:

• Solvency II: internal models – assessment, model change policy and the role of non-executive directors. The PRA previously issued expectations through a number of Directors’ letters, setting out the PRA’s expectations on internal model approval assessments, maintenance of the model and the PRA’s quantitative framework for assessment.
• Solvency II: longevity risk transfers. The PRA previously set out expectations in a Directors’ letter covering the use and management of these transfers.
• Solvency II: ORSA. The PRA issued an Executive Director’s letter, covering the PRA’s expectations with regard to policy and processes, and the required documents for an effective ORSA policy.
• Solvency II: reinsurance. This is a consolidation of two letters dealing with the PRA’s expectations on reinsurance covering the way the PRA expects firms to deal with conflicting priorities, and soft markets for general insurance firms including reinsurance
• Solvency II: recognition of deferred tax. Consolidates a Directors’ letter and Supervisory Statement (SS) 2/14 covering the PRA’s expectations on the EIOPA Guidelines on the loss-absorbing capacity of technical provisions and deferred taxes, the recognition text, contract boundaries, the risk margin and projection methodology. The SS is updated in light of subsequent guidance provided by the PRA.
• Solvency II: transitional measures on risk-free interest rates and technical provisions. This section updates SS17/15 with information contained in a subsequent Solvency II Directors’ update letter.
• Solvency II: the treatment of pension scheme risk. This section updates SS5/15 in light of information contained in a subsequent Directors’ letter which contained feedback on the way firms’ internal models treated pension risk.

Appendices 8 and 9 include mapping tables for issues both included and not included as draft supervisory statements in Consultation Paper 20/16.

The PRA welcomes views on this consultation by Friday 5 August 2016.

Consultation paper

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