PRA Solvency II Directors Update January 2015

The PRA issued its latest Solvency II Directors’ update on 12 February. This covered, at a high level, a large variety of topics demonstrating the sheer numbers of priorities firms are currently trying to juggle. As such it will be of interest to all firms.

For many firms this letter will be the key way that the PRA communicates with them so it is important to consider the contents and the implications for your individual firm. This blog covers the key areas touched on and key points of interest for each one.

AreaUpdateWhat firms should be doing
Solvency II (SII) approvals
  • The PRA highlighted again that firms applying for SII approvals should consider the dependencies between applications and prepare contingency plans should the outcome not be as expected.
  • They also emphasised the need for credible and realistic applications.
PRA update says it all!
Internal Models
  • 31st March sees the end of the pre application period.
  • A commitment panel will assess if firms are likely to make a credible application.
  • The panel will be made up of a range of PRA personnel.
  • The PRA identified areas where firms are currently not meeting standards:
  1. Contingency plans
  2. Expert judgement
  3. Documentation
  4. Validation.

These are discussed in more detail in our blog on internal models.

Firms are advised to make sure that their supervisory team has a clear understanding of the model strengths and weakness and status of model developments.
Balance Sheet Review
  • PRA reiterated that it needs to be satisfied with firms SII balance sheets, technical provisions and own funds.
  • They have proposed a two tier approach designed to provide this assurance to the PRA. 
  • PRA provided a feedback document on 9 February on issues identified to date.
In October PRA said that all firms that would be required to follow the two tier approach would be notified by mid-November.

However it would be good practice for other firms to consider undertaking a similar independent review.

Appropriateness of SCR
  • PRA have identified pilot firms for which they will review in more detail their standard formula appropriateness.
  • Two internal panels have been held to ensure consistency and that approach is in line with PRA objectives and SII requirements.
  • If the output of this results in any thematic issues the PRA will issue general guidance to firms.
PRA will contact firms that they deem not to fit the standard formula in Q2 2015.

If any thematic issues are identified the PRA will provide general guidance in Q2 2015.

Data Collection

  • This will be similar to previous years with the information used to inform SII preparations and transition. 
  • PRA require firms to provide high quality submissions with an increased level of sign off.
PRA to issue template and guidance before the end of February.

Although not mentioned we suspect that firms will have 3 months to complete.

  • At the PRA’s regulatory reporting working party they highlighted changes to the templates and gave a demo of the portal the firms will use to submit their returns.
  • PRA request that firms submit test XBRL files.
  • PRA also reminded firms that they need to provide them with details of their user in order for the PRA to set up an account for them on the portal.
  • The PRAs pillar 3 readiness survey indicated that majority of firms in the preparatory phase are on track.
If you haven’t already done so submit your test returns by the 2nd April.

You need to provide PRA with user details if you haven’t done so already.

Our commentary

As you can see there is a huge amount going on for both firms and the PRA. Careful planning will be required by firms to ensure that they keep up to date with the PRA feedback and guidance as well as ensuring that they meet all of the deadlines and supply documentation and applications of a suitable quality to ensure a smooth transition to Solvency II.

We expect that even the best prepared firms are likely to require support to ensure a smooth pain free transition to Solvency II. We expect the support required to vary from additional ‘hands on’ support at peak periods to an independent review of key aspects of your Solvency II programme or documentation to provide assurance to senior management or the board. We are happy to discuss your firm’s specific requirements and our flexible approach can ensure that we support you in the most efficient manner.