Cp19/23

This will result in:, cp19/23. The draft SI published by HMT in June gives the PRA the power to make additional rules cp19/23 the MA and it had been expected that additional controls would be introduced to counter-balance some of the loosening of restrictions. This has indeed been the case, in particular in the context of limits on the use of assets with non-fixed cash flows, cp19/23, expectations in respect of the use of sub-investment grade assets cp19/23 the new matching adjustment attestation.

These key areas are:. Given the short timelines available to make model changes before YE24, firms will need to quickly form a view on their approaches to each of the areas described above. Firms should identify changes needed for the end of the year and those that could be made later and prioritise accordingly. This will help minimise nasty surprises close to year-end and provide valuable insight on the net effect on capital and solvency of the overall reforms. Board members, senior executives, and actuaries of UK insurers with MA and Internal Model approvals who work on balance sheet management, pricing, reporting, capital optimisation, risk, finance, and compliance.

Cp19/23

Charlie Finch , Partner. James Silber , Principal. The final consultation proposals have now been published on the UK's transition from Solvency II, which determines the capital reserves insurers are required to hold. Will it improve pricing and insurer capacity? Will it water down policyholder security? The insurance regulator the PRA has published the final two consultation papers in recent months:. In the rest of this blog we focus on the second consultation paper and the proposed changes to asset eligibility. The MA is an easement that was negotiated as part of the introduction of Solvency II and is used almost exclusively by UK insurers that write annuities. The MA arises from the insurers holding to maturity a portfolio of assets with a closely matching cashflow profile to their long-term liabilities. The fact that these assets are held to maturity effectively eliminates market risk with the key remaining risk being default risk. The insurers are therefore permitted to calculate their BEL using a discount rate above risk-free — effectively adding on the additional yield on their assets after having made a deduction for defaults — this is the MA benefit. This approach of taking advance credit for investment returns not yet earned is not without its critics. The MA is a significant capital benefit meaning insurers can only price pension buy-ins competitively if the assets they will hold are MA eligible. So the MA eligibility rules have a significant bearing on the nature of assets the insurers invest in and their ability to price competitively.

Notably, among other considerations, firms may need to demonstrate that there is no significant bias in the asset mix towards the cp19/23 notch at each credit rating. Expanding the types of insurance business that may claim MAto permit more insurance liabilities to benefit from the MA, cp19/23. The PRA considers that this is an cp19/23 risk management incentive, recognising the lower risk of higher-notched assets, cp19/23.

A lot is riding on this. The Government is hoping that the Solvency II reforms, of which this consultation is a significant part, will free up billions of pounds of capital for investment. As is generally the case with regulatory reform of this importance, the changes that insurers, and others, will welcome come with significant strings attached. There is a lot to work through in the consultation, and insurers will need to establish whether the increased costs are proportionate to the additional returns and risks that might accrue. We look forward to working with insurers and our clients more generally to help them consider the proposals.

We use necessary cookies to make our site work for example, to manage your session. Necessary cookies enable core functionality on our website such as security, network management, and accessibility. You may disable these by changing your browser settings, but this may affect how the website functions. We use analytics cookies so we can keep track of the number of visitors to various parts of the site and understand how our website is used. For more information on how these cookies work please see our Cookie policy. This may include your name, contact details including, if provided, details of the organisation you work for , and opinions or details offered in the response itself. The response will be assessed to inform our work as a regulator and central bank, both in the public interest and in the exercise of our official authority. We may use your details to contact you to clarify any aspects of your response. The consultation paper will explain if responses will be shared with other organisations for example, the Financial Conduct Authority. If this is the case, the other organisation will also review the responses and may also contact you to clarify aspects of your response.

Cp19/23

We use necessary cookies to make our site work for example, to manage your session. Necessary cookies enable core functionality on our website such as security, network management, and accessibility. You may disable these by changing your browser settings, but this may affect how the website functions. We use analytics cookies so we can keep track of the number of visitors to various parts of the site and understand how our website is used. For more information on how these cookies work please see our Cookie policy. Solvency II came into force on 1 January Firms can apply for a Solvency II approval , a waiver or modification of rules , and find out about regulatory reporting under Solvency II. However, all industry participants are free to nominate individuals to participate at the event.

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He has led various actuarial transformation programs, encompassing step-change change to actuarial cash flow systems, development and reporting processes, team and responsibility structures, and operating controls. Should the PRA remove the SIG MA cap, such firms may still choose to retain the cap within their internal models, at least in the short term, to ensure the continued adequacy of the internal model calibration for SIG assets. Our use of cookies We use necessary cookies to make our site work for example, to manage your session. Journal of Financial Economics 95 Javascript is disabled. The latest changes are not as fundamental, but the benefits may still take a while to fully implement. The fact that these assets are held to maturity effectively eliminates market risk with the key remaining risk being default risk. The FCA found that most firms complied with the request and were able to take necessary actions in line with the rule. The Solvency UK reforms remove this requirement. The draft SI published by HMT in June gives the PRA the power to make additional rules governing the MA and it had been expected that additional controls would be introduced to counter-balance some of the loosening of restrictions. At Deloitte, Kareline leads a team of experts to carry out horizon scanning and assess the strategic impact of regulation on the market. The implementation cost for firms that conclude they need to amend their internal models will vary by firm depending on the overall complexity of their internal models as a whole. The MA attestation HMT suggested in its November response document that additional risk management tools to be deployed by the PRA in respect of the MA might include requiring a formal attestation as to whether or not the level of the fundamental spread reflects all retained risks on matching adjustment assets.

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The attestation requirement would further support this by holding firms accountable to ensuring the sufficiency of the FS and the quality of the MA. As such, firms will have flexibility to develop their own methodologies on projecting the best estimate cash flows and adjusting the FS. This could, in part, be due to reinsurers being able to invest in a wider range of high yielding assets than UK firms. The PRA does not consider that these remain relevant for future UK insurance regulation and is therefore proposing that they be deleted. Respectively, these cover adjustments to own funds to reflect any reduced transferability between the MA portfolio and non-MA portfolio, and the reflection of any reduced scope for diversification in the SCR. Kareline has more than 15 years of experience in both prudential and conduct insurance regulation, providing high quality advice to firms in the UK market. In order to make the MA application process more flexible, the PRA is proposing to remove the current requirement for it to formally undertake a completeness assessment of an MA application as well as any provisions that refer to an application clock. How are the insurers responding to demand? Nevertheless, the PRA does not consider regular or frequent breaching and restoration of MA compliance, within the two-month window, to be acceptable for normal management of the MA portfolio. This would also continue to support the robust regulatory regime under which the UK insurance industry currently operates, and which underlies customer confidence in UK insurers. However, the PRA recognises that firms may not be able to rate or obtain ratings for a small number of their exposures on a notched basis or there may be delays in doing so. The PRA considers that its proposals may produce a similar response, resulting in improved risk management for MA portfolios. Given the short timelines available to make model changes before YE24, firms will need to quickly form a view on their approaches to each of the areas described above. The PRA therefore proposes this individual, who would usually be the Chief Financial Officer but may differ depending on how responsibility is allocated within the firm , must provide the attestation. In aggregate, the PRA considers that the package of proposals taken together will enable insurers - if they choose - to invest more in a way that advances the PRA's growth objective over the medium to long term.