Published on 9 September 2016
Solvency II: external audit of the public disclosure requirement – PS24/16
Overview
This policy statement (PS) provides feedback on responses received to Consultation Paper (CP) 23/16 ‘Solvency II: external audit of the public disclosure requirement’.
The PRA consulted in November 2015 in CP43/15 ‘Solvency II: external audit of the public disclosure requirement’. An account of responses received to CP43/15 and how the PRA proposed dealing with those responses was given in CP23/16. In CP23/16, the PRA consulted on rules and a supervisory statement for external audit of the Solvency II public disclosure. The appendices to this PS set out the final rules and supervisory statement (SS11/16) to implement the proposals consulted on in CP23/16.
This PS is relevant to firms in scope of Solvency II including the Society of Lloyd’s (collectively ‘insurers’), auditors and those individuals or firms who are likely to use the Solvency and Financial Condition Report (SFCR). The rules apply to insurers with financial year ends on or after 15 November 2016.
Overall, the PRA does not consider that the responses received to CP23/16 require significant changes to its proposals. The PRA has however made minor amendments to the proposed rules and supervisory statement in light of feedback received, to add further clarity to the PRA’s expectations.
This policy has been designed in the context of the current UK and EU regulatory framework. The PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework, including those arising once any new arrangements with the European Union take effect.
Appendices
PRA Rulebook: Solvency II firms and non-authorised persons: external audit instrument 2016
Published on 4 July 2016
Solvency II: external audit of the public disclosure requirement – CP23/16
The PRA consulted on its proposal for external audit of the Solvency II public disclosure in CP43/15. Following feedback, the PRA has made some minor amendments to the rules, though the broad policy approach has not changed. The draft rules and supervisory statement set out in Appendices 1 and 2 include those minor amendments and the PRA’s responses to consultation feedback have been included in Chapter 3. In addition to those minor amendments the PRA proposes a clarification of the duty of care of auditors to the PRA in the proposed rules. While there is no substantive change in the PRA’s policy, and the amendment does not change the substance of what an auditor or actuary must do to comply with the PRA’s rules, the rule has been amended to provide clarity. This consultation paper (CP) seeks views on this proposed clarification.
Summary of proposals
In CP43/15, the PRA set out its proposal for a policy to require the external audit of elements of the disclosure requirement under Solvency II and sought feedback on the proposal. Firms in scope of Solvency II are required to disclose publicly an SFCR. The PRA proposed to require external audit of quantitative and qualitative information included in the ‘Valuation for solvency purposes’ and ‘Capital management’ sections of the SFCR (relevant elements of the SFCR) of insurers prepared at the solo, group and sub group level subject to two exemptions. First, the Solvency Capital Requirement (SCR) would be exempt if calculated using an approved full or partial internal model (internal model). Secondly, where Solvency II requires information in the SFCR to be produced using sectoral rules, that information would not be subject to external audit.
Some respondents were concerned that guidance for auditors would not be available in time for the first disclosure. The PRA has assessed these concerns and has decided that the requirement for external audit of the public disclosure should be deferred and apply to firms with years ending on or after 15 November 2016.
Subject to the changes and clarifications described in Chapter 3, the rules proposed in this CP continue to reflect the proposals in CP43/15. The proposals clarifying the duties of auditors are discussed in Chapter 2.
Responses
This consultation closed on Thursday 4 August 2016. The consultation period has been reduced to one month because the PRA has already consulted on the proposed policy for external audit of the public disclosure requirement, and other than the changes proposed in Chapter 2, is proposing other amendments and clarifications in response to comments received on CP43/15. The PRA invites feedback on the proposal as described in Chapter 2.
The PRA will consider the feedback received and will publish a policy statement with the final rules, and a supervisory statement.
Published on 20 November 2015
Solvency II: external audit of the public disclosure requirement – CP43/15
This consultation paper (CP) is relevant to firms in scope of Solvency II including the Society of Lloyd’s (insurers), auditors and those individuals or firms who are likely to use the Solvency and Financial Condition Report (SFCR). For insurers not in scope of Solvency II (non-directive firms) Prudential Regulation Authority (PRA) Rule 9.6 of The Interim Prudential Sourcebook for Insurers (IPRU INS) will continue to apply. The PRA plans to consult in 2016 Q1 on rules for non-directive firms.
This CP sets out the PRA’s proposal for a policy to require the external audit of elements of Pillar 3 disclosure under Solvency II and seeks feedback on the proposal, draft rules and draft supervisory statement. Under Pillar 3, firms in scope of Solvency II are required to disclose publicly a SFCR. The proposed policy would require external audit of quantitative and qualitative information included in the ‘Valuation for solvency purposes’ and ‘Capital management’ sections of the SFCR (relevant elements of the SFCR) of insurers prepared at the solo, group and sub group level.
Where Solvency II requires the production of a SFCR, the PRA proposes to require the relevant elements to be externally audited, subject to two exemptions. First, the Solvency Capital Requirement would be exempt if calculated using an approved full or partial internal model. Secondly, where Solvency II requires information in the SFCR to be produced using sectoral rules, that information would not be subject to external audit.
The proposal is intended to give users of the SFCR, including investors, policyholders and the PRA, greater confidence in the quality of the disclosure. Investors may need this information to make informed investment decisions, which should contribute to market discipline and the PRA’s objectives of promoting the safety and soundness of firms and securing an appropriate degree of protection for policyholders.
Responses
This consultation closed on Friday 19 February 2016. The PRA invited feedback on the proposal, draft rules and draft supervisory statement set out in this consultation.
The PRA will consider the feedback received and will publish a policy statement with the final rules, and a supervisory statement.