Solvency II: Internal models update

Policy Statement 20/18 | Consultation Paper 27/17

Solvency II: Internal models update - PS20/18

Published on 13 July 2018

This Prudential Regulation Authority (PRA) Policy Statement (PS) provides feedback to responses to Consultation Paper (CP) 27/17 ‘Solvency II: Internal models update’ and the final updated expectations of firms in respect of the model change process set out in Supervisory Statement (SS) 12/16 ‘Solvency II: Changes to internal models used by UK insurance firms’ (Appendix 1), and internal model change policies set out in SS17/16 ‘Solvency II: internal models – assessment, model change and the role of non-executive directors’ (Appendix 2).

This PS is relevant to all UK Solvency II firms, the Society of Lloyd’s and its managing agents. It is most relevant to firms that have an internal model approval. It may also be of interest to UK Solvency II firms seeking approval to use an internal model and to UK Solvency II firms that are part of the European Economic Area (EEA) or non-EEA groups with a group internal model.

The PRA received four responses to the proposals in CP27/17. Respondents welcomed the PRA’s proposals but also asked for further clarification, guidance and alternative wording in some areas. The PRA’s feedback to responses, and decisions, are set out in Chapter 2.

The PRA proposes that the updates to the minor model change accumulation process and reporting processes would take effect from the day of publication of this PS. Changes to the model change policy are subject to supervisory approval in accordance with Regulation 48 of the Solvency II Regulations (2015/575) and the PRA’s expectations of that procedure, set out in paragraph 2.14 of the updated SS12/16.

Policy Statement 20/18 Opens in a new window

Appendices

Supervisory Statement 12/16 ‘Solvency II: Changes to internal models used by UK insurance firms’

Supervisory Statement 17/16 UPDATE ‘Solvency II: internal models – assessment, model change and the role of non-executive directors’

Solvency II: Internal models update - CP27/17

Published on 12 December 2017

The PRA has reviewed the effectiveness of certain aspects of the model change process. This review, together with the recent discussions with the ABI and industry participants, has resulted in the proposed updates to the PRA’s guidance on the model change process, model change policies and the reporting of minor model changes.

In this consultation paper (CP), the PRA proposes updated expectations of firms in respect of the model change process set out in Supervisory Statement (SS) 12/16 ‘Solvency II: Changes to internal models used by UK insurance firms’ and internal model change policies set out in SS17/16 ‘Solvency II: internal models – assessment, model change and the role of non-executive directors’. This CP also proposes a process for quarterly model change reporting.

The proposals in this CP have been developed by the PRA as part of its work on adjustments to the insurance prudential framework in the light of experience following the introduction of Solvency II in the United Kingdom. This includes a series of improvements that support the PRA’s commitment to the Treasury Select Committee. The proposals are aimed at reducing the burden on firms and making better use of supervisory resources in pursuit of the PRA’s objectives.

This CP is relevant to all UK Solvency II firms, the Society of Lloyd’s and its managing agents. It is most relevant to firms that have an internal model approval. It may also be of interest to UK Solvency II firms seeking approval to use an internal model and to UK Solvency II firms that are part of the European Economic Area (EEA) or non-EEA groups with a group internal model.

Alongside the publication of this CP, the PRA has also published a statement setting out its review of the time it had taken to assess model change applications approved since the implementation of Solvency II on 1 January 2016; how firms had completed the Common Application Package (CAP) when making model change applications; and how firms have defined model changes in model change policies.

This consultation closed on Tuesday 20 March 2018. The PRA invites feedback on the proposals in this consultation set out by chapter. Please address any comments or enquiries to CP27_17@bankofengland.co.uk.

Consultation paper - CP27/17 Opens in a new window

Appendix 2:

QMC01 template