Prudential Regulation Authority Rulebook

1.1

This supervisory statement is addressed to UK Solvency II firms and to Lloyd’s. It sets out the Prudential Regulation Authority’s (PRA’s) expectations of firms applying for permission to apply a volatility adjustment (VA), in accordance with Regulation 43 of the Solvency II Statutory Instrument.¹

1.2

In particular, this statement clarifies:

• the items that should be included in an application to use the VA;
• how the PRA will use the content of applications to assess whether the statutory conditions for approval to use the VA have been satisfied;
• the VA’s intended purpose; and
• how the VA approval process will work; and its interaction with other Solvency II approval processes.

1.3

Firms should read this statement alongside the relevant European legislation, as well as relevant Parts of the PRA Rulebook and the Statutory Instrument.

1.4

This statement expands on the PRA’s general approach as set out in its insurance approach document² and the Technical Provisions Part of the PRA Rulebook. By clearly and consistently explaining its expectations of firms in relation to approving the VA, the PRA seeks to advance its statutory objectives of ensuring the safety and soundness of the firms it regulates, and contributing to securing an appropriate degree of protection for policyholders. The PRA has considered matters to which it is required to have regard, and it considers that this statement is compatible with the Regulatory Principles and relevant provisions of the Legislative and Regulatory Reform Act 2006.

1.5

The PRA believes that the benefits associated with this supervisory statement are proportionate to the costs. By providing firms with greater clarity regarding the approval process, the PRA seeks to ensure that firms have sufficient time to prepare applications and to meet regulatory requirements.

1.6

The PRA has also had regard to its secondary competition objective and considers that the content of this statement facilitates effective competition by providing all firms with a transparent framework regarding the application process.

1.7

This statement has been subject to public consultation and takes into account the feedback that was received by the PRA.³ The proposals in this statement are not expected to have any direct or indirect discriminatory impact under existing UK law.