Prudential Regulation Authority Rulebook

1.1

This Prudential Regulation Authority (PRA) supervisory statement is relevant to firms with an internal model approval under Solvency II. ¹ It may also be of interest to UK Solvency II firms seeking approval to use an internal model in the future and also to UK Solvency II firms that are part of European Economic Area (EEA) or non-EEA groups with a group internal model. For the remainder of this supervisory statement reference to internal models should be taken to mean both full and partial internal models.

1.2

This supervisory statement sets out the PRA’s expectations in respect of firms applying for approval for a major change to their approved internal models (either an individual major change or major change triggered by an accumulation of minor changes) or an extension of scope to an approved internal model (eg to cover new business units or risks). This supervisory statement also sets out the PRA’s expectations in respect of firms applying to alter their approved internal model change policy. Where the firm is part of an EEA or non-EEA group the college of supervisors may need to co-ordinate and agree the overall process for approving a major change application, which may differ to that set out in the supervisory statement.

1.3

In the remainder of this supervisory statement the use of the phrase ‘model change application’ should be taken to mean any of these applications set out in paragraph 1.2, unless otherwise specified.

1.4

In particular, the supervisory statement covers the:

• interaction with the PRA before and during a model change application;
• quality of a model change application; and
• information to be provided with a model change application.

1.5

The PRA’s approach to reviewing model change applications will have similarities to the internal model approval process (IMAP). It will form part of the PRA’s overall approach in ensuring a firm’s internal model continues to meet the Solvency II requirements and the Solvency Capital Requirement (SCR) remains appropriate for its risk profile.

1.6

The PRA will adopt the same supervisory approval process for: model change applications in respect of individual major changes; major changes triggered by an accumulation of minor changes; and extensions of the scope of the internal model (eg to cover new business units or risks). Applications to alter the internal model change policy will be subject to a standalone review process; however, a firm may wish to align an application to alter its internal model change policy with a model change application.