Cp19/23

Charlie FinchPartner. James SilberPrincipal. The final consultation proposals have now been published on the UK's transition from Solvency II, which determines the capital reserves cp19/23 are required to hold, cp19/23.

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. In this blog, we discuss the main implications of these proposals for Internal Models.

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. The potential prize on offer is significant, and the deadline for feedback on the proposals is 5 January Now is the time to consider whether the proposals need to be changed, such that the aim of unlocking large amounts of capital to help grow the wider economy can be realised. In our publication here , we discuss the proposed regulatory changes in further detail and provide our thoughts on the impact that these changes are set to have on insurers, as well as potential recipients of insurer finance. Your email address will not be published. PRA consults on matching adjustment reforms: new-found freedoms or simply different chains? Geoffrey Maddock. Barnaby Hinnigan.

This is because:. This proposal allows for a cp19/23 approach in such cases while mitigating the associated prudential risks. Firm Information: The following data fields should be completed on a portfolio basis, cp19/23.

This will result in:. 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. This has indeed been the case, in particular in the context of limits on the use of assets with non-fixed cash flows, expectations in respect of the use of sub-investment grade assets and the new matching adjustment attestation. HMT confirmed in its response document that MA asset eligibility would be loosened to allow assets with highly predictable cash flows to be included in the MA portfolio. The draft SI published in June allows assets with non-fixed cash flows to be included where the risks to the quality of matching are not material and subject to a limit to be determined by the PRA. This requirement will only be satisfied if the contractual terms of the asset provide for a bounded range of variability in respect of the timing and amount of the cash flows, and breach of those terms is a default. In addition:.

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Cp19/23

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Where this is not possible, they should be reported at a firm level. Accept recommended cookies. The PRA considers there are no costs or benefits arising from the proposal to restate relevant parts of retained EU law. Technical Provisions 3. The proposals to extend MA eligibility to allow in-payment income protection liabilities and the guaranteed element of with-profits annuities would encourage firms to cover these liability cash flows with appropriately matched assets, improving the security of policyholder claims. Blog: Financial Services. The reforms are made possible by safeguards over the resulting risks to policyholders. The proposals would not require firms to provide the PRA with all the evidence underlying the attestation, however the PRA would expect suitable signposting of any evidence that the attestor has relied on. The PRA will consider reforms to the standard formula SCR framework at a future point in time, and as part of this will consider whether related reforms are necessary to ensure it remains coherent with the final MA rules. Matching Tests: Where possible the results of the PRA tests would be reported on a portfolio basis in the following fields.

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Simon Walpole Partner. The baseline is current regulations, which do not request data specifically relating to MA portfolios. The increased asset flexibility will be beneficial but it may take time for the insurers to get to grips with the new rules and for the benefits to fully materialise. However, the PRA is also providing a version with changes marked up relative to the current published version , to support an understanding of the changes. Firms will need to update Internal Models to be able to perform the new or amended matching tests. In the rest of this blog we focus on the second consultation paper and the proposed changes to asset eligibility. The PRA proposes that firms should assess the materiality of any validation failures which have not been remediated when considering whether an FS addition is needed in line with [x] of MA regulations, to compensate for the extent of any bias at an asset type or portfolio level. Firm Information: The following data fields should be completed on a portfolio basis. Does the higher materiality from any increase in SIG assets in the base position necessitate more accurate modelling? The PRA recognises that there may be some variation in the proportion of the additional MA benefit retained by firms given the range of sources of cash flow variability, and that where firms have credible data, they may be able to justify retaining a higher proportion for particularly remote risks. The proposed changes to the consequences for breaches of MA conditions would reduce the risk of any cliff-edge effects for UK insurance firms, which could threaten their safety and soundness. The PRA has also observed wide variation in the amount of MA across asset classes as a result of the current, largely mechanical approach to calculating the FS. However, we suspect at least some insurers will be disappointed by the limitations in place and the extent of the hurdles and reporting that is required to benefit from the easements.