[Insurance] PRA consults on further measures for implementation under Solvency II

On 21 November the PRA issued consultation paper CP24/14 concerning further measures for implementation of Solvency II in the UK.

Among the areas being consulted are:

  • the appointment of actuaries;
  • schemes of operations in a Solvency II world; and
  • national specific templates for Lloyd’s.

The PRA has also included five draft supervisory statements setting out the PRA’s expectations regarding:

  1. regulatory reporting exemptions;
  2. reporting of internal model outputs;
  3. the ORSA and the ultimate time horizon for non-life firms;
  4. the quality of capital instruments; and
  5. the treatment of pension scheme risk.

Appointment of actuaries

The PRA has largely followed the changes set out by the FSA in CP12/13, there are no surprises in the proposals and firms will still be permitted to appoint an external actuary if they do not have the capability to provide the actuarial function internally. The proposed rules apply to all companies within scope of Solvency II, the Society of Lloyds and individual Lloyd’s managing agents and third country branches (excluding Swiss general insurers).

Schemes of operations

The PRA is consulting on the changes to the requirements for firms in run off to prepare schemes of operations when Solvency II is implemented. Again the proposals are pretty much in line with those proposed by the FSA in CP12/13 and are broadly aligned with current requirements. The main clarifications relate to application of the rules to the Society of Lloyd’s and third country branches and changes in terminology to bring it in line with Solvency II.

In particular the PRA has provided a definition of ‘material transaction’ so that firms will be required to disclose all transactions with close links above this limit in the scheme of operations. The firm will be required to provide the PRA with 28 days notice of any transaction with close links above this limit which is not in accordance with those disclosed in the scheme of operations. This represents a tightening up of rules applicable to firms in run off and, in some cases, may restrict the flow of funds from the regulated entity.

National specific templates for Lloyd’s

The PRA also proposes adding two national specific templates (NSTs), NS.12 and NS.13, for the Society of Lloyd’s. These templates will be collected from the Society of Lloyd’s only and there is no intention to introduce any equivalent NSTs for individual managing agents. The approach proposed by the PRA is consistent with the way in which the other quantitative reporting templates will be submitted by the Society of Lloyd’s to the PRA. The proposed templates will report the Solvency Capital Requirement (SCR) and Minimum Capital Requirement (MCR) in a Lloyd’s context.  

Supervisory statement – regulatory reporting exemptions

The PRA has clarified the circumstances in which it will consider exempting firms from submitting the full quarterly Pillar 3 reporting package when Solvency II is introduced. Broadly, category 4 and 5 firms may be exempted. Certain other firms may also take advantage of the exemptions in certain circumstances; this may include small firms which are part of a larger group.  Notwithstanding any exemptions granted, the PRA will still expect firms to be able to produce the full quarterly reporting package should the PRA request this information on an adhoc basis. Firms will therefore need to continue to put systems in place to report this information if required.

Firms will need to apply to the PRA to take advantage of the exemptions. The formal application for the 2016 reporting year will be required by Tuesday 1 September 2015 and firms are required to have contingency plans in place should their applications be rejected.

The following QRTs will be required from firms granted with an exemption:


Quarter 1

Quarter 2

Quarter 3

Quarter 4

Basic information (s.01.02.a)





Content of the submission (s.01.01.a)





Balance sheet (s.02.01a)





Information on own funds (s.23.01.a)





MCR – non composite undertakings (s.28.01.a)





MCR – composite undertakings (s.28.02.a)





Supervisory statement – regulatory reporting, internal model outputs

The draft supervisory statement includes a number of templates for internal model and partial internal model firms. The templates are to be submitted to the PRA at the same time as the main annual reporting package in an Excel file. There is no proposal to submit the information using XBRL. There are four separate files to be completed, the two relating to non life business contain up to ten templates. Not all will be relevant to all firms and groups are required to check with their supervisor as to which templates will be required.

The following templates are included in the consultation:



NL.IMS.01 – NL.IMS.10

Internal model outputs (non life)

NL.MOU.01- NL.IMS.10

Internal model outputs (non life) – ultimate basis*


Internal model outputs



Internal model counterparty risk (life)

*these templates are a copy of NL.IMS.01 – NL.IMS.10, except that they are to be completed on an ultimate basis – see also proposals for ORSA below.

The templates will also apply to the Society of Lloyd’s, assuming the internal model is approved, and the Society will be expected to report the internal model outputs produced by each individual managing agent as well as the internal model output for the Society of Lloyd’s as a whole.

Supervisory statement – ORSA and the ultimate time horizon – non life firms

This supervisory statement is of interest to all non life firms and the Society of Lloyd’s. In the draft statement the PRA clarify their expectation that firms should be able to demonstrate that they have considered risk over the time horizon of the run-off of the firms obligations to policyholders, including obligations from business planned to be written in the next twelve months.

The PRA suggests in the statement that the firms may wish to demonstrate that they have done this in the ORSA supervisory report. For internal model firms the PRA suggests there may be efficiencies to be gained by completing the ultimate time horizon internal model output templates referred above (NL.MOU.01 – NL.MOU.10). Whilst there appears to be no requirement to complete the templates firms that do are expected to submit them at the same time as the other internal model reporting outputs (along with the annual quarterly reporting package).

Supervisory statement – quality of capital instruments

The supervisory statement sets out the PRA’s expectations regarding the quality of capital instruments in the period prior to 1 January 2016, and after the commencement of Solvency II. Further clarity is provided regarding:

  • the prohibition on redemption of instruments within five years of the date of issue;
  • liability management and capital reduction;
  • principal loss-absorbency mechanism for Tier 1 instruments subject to limitation; and
  • additional considerations for instruments intended to contribute to group own funds.

Supervisory statement – the treatment of pension scheme risk

In this draft supervisory statement the PRA provides clarity for firms who are sponsors of defined benefit pension schemes or who are part of a group which sponsors a defined benefit pension scheme. In particular the PRA highlights the need to consider any risks arising when determining the SCR. The proposals should be read carefully as the risks posed to an authorised firm will vary, depending on the nature of the group arrangements in place.    

How can we help?

If you would like any further information please contact:

Sarah Ouarbya, Director, Regulatory Centre of Excellence