Prudential regulation

Insurers come under the Senior Managers and Certification Regime
On 10 December, the Senior Managers and Certification Regime (SM&CR) was extended to all insurers regulated by the Financial Conduct Authority (FCA) and Prudential Regulation Authority.

The SM&CR, which aims to increase individual accountability within the financial sector, already applied to the banking sector. 

The SM&CR now applies to all dual regulated insurance and reinsurance firms and replaces the Senior Insurance Managers Regime (SIMR) and the revised Approved Persons Regime for insurance firms.
Compliance officers should be checking the Financial Services Register to ensure that the revised details for their firms are correct.

Solvency II: Equity release mortgages – PS 31/18
On 10 December, the PRA published a Dear CEO Letter from David Rule, Policy Statement 31/18 ‘Solvency II: Equity release mortgages’ (ERMs) together with an updated Supervisory Statement SS3/17 ‘Solvency II: Matching adjustment - illiquid unrated assets and equity release mortgages’. 

The PRA received 27 responses to its CP. The comments received fall under seven broad categories:

  • the approach for assessing no negative equity guarantee (NNEG) risk for the purposes of the Effective Value Test (EVT);
  • calibration of the NNEG assessment;
  • allowance for other risks within the EVT;
  • implications if the EVT is not met;
  • proposals in respect of transitional measure on technical provisions (TMTP);
  • Solvency Capital Requirement (SCR) calculations; and
  • PRA objectives and other areas where clarification is sought.
The details of the responses and the PRA’s feedback and final decisions are set out in Chapter 2, grouped under the above categories. In early 2019, the PRA will consult on additional proposals: 
  • when and how the PRA will periodically review and publish updated values for the property volatility and deferment rate parameters to be used in the EVT; 
  • where firms include assets other than ERMs in the special purpose vehicle (SPV) used to restructure ERM loans, how those other assets should be allowed for in the EVT; 
  • the frequency with which the PRA would expect firms to assess the EVT; and 
  • principles for how the PRA would assess the approaches firms could use to model the risks associated with ERMs in their internal models against the Solvency II tests and standards, including whether and how the PRA would expect firms to apply the EVT in stress, taking account of the PRA’s proposals for how it would vary the deferment rate.  
The policy takes effect from 31 December 2019.

PRA firm feedback survey 2017/18
On 14 December, the PRA published the results of the firm feedback survey 2017/18. The annual firm feedback survey gives PRA-authorised firms the opportunity to comment on their experience of being supervised.

charles.portsmouth@moorestephens.com