One of our New Year’s Resolutions was to publish a series of blogs on the areas in the PRA’s supervisory statement. Here we set out what the guidelines are, what firms should be doing and how Barnett Waddingham can help.
Getting Solvency II Preparations Back on Track
Europe is (or should be!) preparing for the fast approaching 1 January 2016 Solvency II implementation date. The period between now and then is officially a transition phase and preparations need to keep pace if insurers and reinsurers are to be ready in time.
EIOPA has made clear its expectations of National Competent Authorities (NCAs) and the role they need to play to ensure this happens. It published Guidelines for NCAs, in September 2013, which are designed to ensure that a consistent approach is followed during the transition phase throughout Europe. These place requirements on NCAs, the Prudential Regulation Authority (PRA) in the case of the UK, which in turn lead to actions required from insurers.
The PRA’s Supervisory Statement, SS4/13 ‘ Solvency II: applying EIOPA’s preparatory guidelines ’, sets out the PRA’s expectations of firms during the preparatory phase for Solvency II. This paper also demonstrates to EIOPA the action that the PRA is taking.
The EIOPA guidelines and the PRA’s subsequent Supervisory Statement may have surprised some insurers, given that some questioned whether Solvency II would ever be implemented and even among the optimistic many were not confident that the implementation date would be 2016. However, the message is now strong and clear that progress is expected to be made during the coming two years and that such progress will be monitored by the PRA, in a proportionate and risk-based manner.
Those insurers for whom Solvency II was put on the back-burner during 2013 (and possibly even earlier than that) may face the biggest impact from these guidelines, although the PRA hopes that they do not cause shock amongst the industry as, in many cases, they are in line with best practice and existing rules.
The basic expectation of the PRA is that firms:
- assess; and
- implement …………the substantive provisions of the guidelines
In carrying out the above firms should give consideration to the usual parameters – the nature, scale and complexity of the business.
It is imperative now that all insurers dedicate the necessary time and resources to get their Solvency II schedules on track. At a high-level this will involve revisiting existing implementation plans and amending these to reflect the transitional steps that have to be taken in the run up to full implementation. Then these plans will need to be put into action.
To assist firms with their preparations we have produced four separate blogs covering each of the key areas to be focussed on during the preparatory phase.
- Systems of governance;
- Forward-looking assessment of undertakings’ own risks, based on the principles for the Own Risk and Solvency Assessment (ORSA);
- Submission of information; and
- Pre-application of internal models.
These blogs are designed to provide brief summaries of the key guidelines and the PRA’s expectations for UK firms; what firms should be doing and how we can help.
EIOPA have launched a Q&A tool for insurers, supervisors and other stakeholders to use should they have any questions on the guidelines and they aim to respond within 6 weeks.