Published on 14 November 2019
Solvency II: Maintenance of the transitional measure on technical provisions - PS25/19
Overview
This Prudential Regulation Authority (PRA) Policy Statement (PS) provides feedback to responses to Consultation Paper (CP) 11/19 ‘Solvency II: Maintenance of the transitional measure on technical provisions’ (see page 2 of 2). It also contains the PRA’s final Supervisory Statement (SS) 6/16 ‘Maintenance of the ‘transitional measure on technical provisions’ under Solvency II’ (see Appendix).
The final policy is intended to provide:
- further clarity on the consistency of Solvency I and Solvency II methodologies; and
- additional guidance for firms seeking to simplify the recalculation methodology of the transitional measure on technical provisions (TMTPs).
This PS is relevant to UK insurance and reinsurance firms within the scope of Solvency II that have been granted approval to use the TMTP; the Society of Lloyds; and firms that are considering applying to use this transitional measure.
Changes to draft policy
After considering the responses, the PRA has made some changes to the draft policy, as follows:
- new text to acknowledge that the distinction between a methodology and assumption change may rely on judgement (paragraph 3.2 of the SS); and
- a new paragraph providing additional clarity of the PRA’s expectations for firms using a simplified methodology for TMTP recalculation (paragraph 4.18E of the SS).
Implementation and next steps
The expectations set out in the attached SS will come into effect on the publication of the PS on Thursday 14 November 2019.
The policy set out in this PS 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.
In the event that the UK leaves the EU with no implementation period in place, the PRA has assessed that the policy would not need to be amended under the EU (Withdrawal) Act 2018 (EUWA). Please see PS5/19 ‘The Bank of England’s amendments to financial services legislation under the European Union (Withdrawal) Act 2018’ for further details.
Policy Statement 25/19Appendix
Published on 22 May 2019
Solvency II: Maintenance of the transitional measure on technical provisions - CP11/19
Overview
This consultation paper (CP) sets out the Prudential Regulation Authority’s (PRA) proposals to update Supervisory Statement SS6/16 ‘Maintenance of the ‘transitional measure on technical provisions’ under Solvency II’.
The proposals are aimed at:
- providing additional guidance for firms proposing to use a proportionate approach to the transitional measure on technical provisions (TMTP) recalculation methodology; and
- providing further clarity on the consistency of Solvency I and Solvency II methodologies.
The CP is relevant to: UK insurance and reinsurance firms within the scope of Solvency II that have been granted approval to use the TMTP; the Society of Lloyds; and firms that are considering applying to use this transitional measure.
In the PRA’s response to the Treasury Select Committee’s (TSC) report on Solvency II, it recognised the burden of maintaining multiple systems for recalculation of the TMTP and committed to considering the feasibility of simplifying the TMTP calculations.
The proposed updates to SS6/16 (appendix) should be read in conjunction with
- the Transitional Measures Part of the PRA Rulebook;
- the Solvency 2 Regulations 2015 (2015/575);
- the Solvency II Directive (Article 308(d));
- the European Insurance and Occupational Pension Authority (EIOPA) Level 3 Guidelines; and
- SS17/15 ‘Solvency II: transitional measures on risk-free interest rates and technical provisions’.
Responses and next steps
This consultation closed on Wednesday 21 August 2019. Please address any comments or enquiries to CP11_19@bankofengland.co.uk.
The proposals set out in this CP have been designed in the context of the current UK and EU regulatory framework. The PRA has assessed that the proposals will not be affected in the event that the UK leaves the EU with no implementation period in place.