European Insurance: Solvency II (31 October)

OAC Digest
EU / European Parliament / EIOPA, Life insurance, Mutuals, PRA / Bank of England, Solvency II

31 October 2016

Selected recent Solvency II news items: 

The PRA's Chief Executive spoke of the end of the UK's prudential revolution and the now necessary evolution. In Sam Woods' speech on 26 October he referred to the PRA's goal of "a resilient insurance sector which does not pass risks back to policyholders when they crystallise". He flagged plans in summer 2017 to publish a Discussion Paper "seeking an open exchange of views on a disclosure framework for banks’ and insurers’ regulatory data". With this year's SFCR being a public report, we will have to wait and see what further disclosure is intended. He repeated the regulator's comments that Solvency II's risk margin introduces unwarranted volatility and welcomes a review by EIOPA. He closed on the recurring theme of the pressures created by the low rate environment and persistent soft conditions in general insurance.

On 25 October, the PRA published a consultation on moving to XBRL reporting for NSTs from end 2016. The regulator proposes to allow the option of "XBRL-enabled Excel" format as a transitional measure for firms with their financial year ending on or after 30 June 2016 but before 1 June 2017. Two new NSTs (NS.00.01.01 and NS.00.02.01 for firms excluding Lloyds with no ring fenced funds or matching adjustment portfolios) containing content of submission and basic information have been added. (The basic information template repeats what is already provided in the harmonised template of the same name.) The regulator also updated and corrected the instructions for a number of the UK specific templates. We have asked the PRA if they have widened the scope of firms required to submit NS.06 (it is unclear if they now require submission from non-composite insurers with less than £500m gross technical provisions). Friendly Societies continue to have the option of submitting by post or hand to the regulator. The PRA has also added a rule directing users to follow the "Notifications" part of the rulebook where the PRA systems fail and online submission is unavailable for 24 hours or more. (The PRA has posted updates to the Taxonomy webpage - this is primarily for the purposes of reporting software providers.)  

On the same date, they published Supervisory Statement S15/16 to enable the regulator to monitor model drift for internal model firms.

On 25 October, the Financial Reporting Council published a consultation on revisions to Practice Note 20: The Audit of Insurers in the UK. The new version of PN20 includes material dealing with the PRA’s external audit requirement in respect of the Solvency and Financial Condition Report. The FRC has now incorporated material specific to the audit of friendly societies into the new version of PN20, and proposes to withdraw PN24. The consultation has been launched alongside the adoption in the UK of international auditing standards, ISAs 800 and 805, which primarily support the Solvency II audit. PN20 was last updated in 2011, and this revision also allows for the implementation of the EU Audit Regulation and Directive and revisions to international standards.  

On 25 October, HMT published a consultation on the new process by which proprietary Solvency 2 life firms will calculate their distributable profits.

Commission Implementing Regulation (EU) 2016/1868 of 20 October 2016 was published in the Official Journal of the European Union on 21 October and enters into force 20 days after publication. The regulation amends and corrects Implementing Regulation (EU) 2015/2450 laying down implementing technical standards with regard to the Solvency II templates. The amendments relate to qualifying infrastructure investments as well as investments in ELTIFs and equities traded on MTFs. Annex I contains the amendments to the Solvency Capital Requirement — Market risk template to be included in the annual submission.

The EC is of the view that "there are currently no feasible alternatives that could entirely replace external credit ratings." Their report of 19 October refers to fees charged to CRA's clients stating "Under the CRA Regulation, ESMA has the power to supervise CRAs to ensure that fees charged to client are not discriminatory and based on actual cost. The Commission invites ESMA to ensure strict compliance with the CRA Regulation of fees charged to insurers."  

David Gray

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David Gray
Consultant Actuary

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