Out-Law News | 20 Aug 2014 | 5:13 pm | 2 min. read
In a letter to directors of insurance firms (2-page / 193KB PDF), the Prudential Regulation Authority (PRA) provided details of the communications it expects to issue to firms before the end of 2014. The letter also indicates whether these communications will be dependent on policy certainty, and whether the communications will be intended for information only or for action by firms.
"The PRA is fully aware that there are some important areas of Solvency II policy where there is still uncertainty and that this is creating challenges for firms," said the letter, which was signed by the regulator's directors of life insurance and general insurance, Andrew Bulley and Chris Moulder.
"The PRA will, wherever possible, continue to provide clarity or involve firms in the development of Solvency II work, although we highlight that the final areas of the delegated acts, implementing technical standards and guidelines are still being agreed … To help firms find information we are currently updating the Solvency II pages on the Bank of England website and this will become the main channel for all future correspondence," the letter said.
The letter, dated 19 August, was issued shortly after the publication of the PRA's third consultation paper on how it intends to transpose the remaining areas of the new regime, known as Solvency II. This consultation closes on 7 November and includes a number of proposed supervisory statements to reflect the PRA's expectations of firms, proposed national specific templates and feedback from the previous consultation paper, which was issued in 2012.
Earlier this month, the UK Treasury issued its own consultation paper through which it intends to resolve some of the outstanding policy issues before Solvency II can be imported into national law. This consultation sets out the UK's proposed approach to the 'volatility adjustment', which is intended to protect insurers with long-term products from artificial fluctuations in volatility; and to removing firms' regulatory permissions if they do not meet minimum capital requirements under the new rules. The PRA said that its own planned communication on the volatility adjustment would depend on the outcome of this consultation.
The Solvency II regime sets out broader risk management requirements for European insurers and dictates how much capital firms must hold in relation to their liabilities. The legislation was originally scheduled to come into force in 2012; however the Omnibus II Directive, which completed and finalised the new framework, was only approved by the European legislative authorities earlier this year. It must be transposed into national laws by 31 March 2015, to come into force on 1 January 2016.
In its letter to directors, the PRA also confirmed that it would hold its next conference on Solvency II on 17 October. The agenda of this conference was still being developed and could depend on upcoming policy announcements by EU regulator the European Insurance and Occupational Pensions Authority (EIOPA). However, items currently on the agenda include the latest policy situation and associated impacts; the application process for IMAP and other approvals; regulatory reporting; standard formula appropriateness; and the PRA supervisory approach under Solvency II. The PRA expects to be able to confirm the final agenda next month, the letter said.