Published by Kim Durniat on
The PRA was open and delivered some important messages but as expected there are still lots of technical questions unanswered and firms will need to precede without the clarity they desire and plan for alternative outcomes. Sessions covered included: an update from the PRA on implementation and policy review, standard formula, internal models, other approvals, and reporting.
The key things to take away are:
The review of ORSAs to date has identified good practices but make sure that:
If using the standard formula the Board will need to be satisfied that it picks up all quantifiable risks and that it is appropriate. The PRA will be reviewing the appropriateness of the SCR in 2015 and firms should expect a communication in Q4 2014. The starting point will be a comparison to the ICA. If you deviate significantly from this expect some questions……
One key area identified where the standard formula may be inappropriate for both life and non-life firms is pension risk; there should also be a communication on this shortly.
If a capital add on is required this is only a temporary measure so expect to move a partial internal model, undertaking-specific parameters or change of your business model! The PRA did say to remember that complexity is not necessarily a good thing, so a simple PIM may be the way forward!
The PRA set out how it will get assurance on a firm’s SII balance sheet. This will apply to all internal model firms and some large standard formula firms. This will be a 2 step approach:
If firms are in scope then they will be contacted by mid-November. The review can be carried out by an external firm or internal audit if appropriate.
Matching adjustment information provided was mainly a summary of the Fisher letter and contained no new technical information or clarification. What was new was that firms will only receive individual feedback from the pre-application simultaneously towards the end of March. Partial pre-applications are allowed with supplementary information to follow if agreed with the firm’s supervisor.
There was a lot of information covered and if you didn’t attend it is worth checking out the PRA website.