Friday 12 April 2024

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Prudential Regulation Authority

Transitional measure on technical provisions - PRA publishes statement - 15 November 2023

The PRA has published a statement on the recalculation of the transitional measure on technical provisions (TMTP) as at year-end 2023.

Under the Solvency 2 Regulations 2015 (SI 2015/575), insurers can apply to the PRA for permission to undertake a recalculation of the deduction applied pursuant to the TMTP every 24 months or less. An insurer may be required to undertake a recalculation sooner than this if there has been a material change in its risk profile. In line with expectations set out in paragraph 4.1 of PRA Supervisory Statement 6/16 (Maintenance of the transitional measure on technical provisions under Solvency II) (SS6/16), the PRA invites insurers to submit an application by email requesting permission to undertake a recalculation.

While all insurers are expected to carry out a recalculation (as set out in SS6/16), the PRA recognises that it may be a burden for those that have recalculated their TMTP shortly before the end of a 24-month period, as a result of a material change in risk profile, to be expected to carry out another recalculation if the resulting change would be minimal. Insurers in this position should contact their usual PRA supervisory contact in the first instance.

Applications must be submitted by 1 December 2023.

PRA statement on the recalculation of the Transitional Measure on Technical Provisions (TMTP) as at year-end 2023

Funded reinsurance - PRA consults in CP24/23 - 16 November 2023

The PRA has published a consultation paper (CP24/23) on funded reinsurance (which the PRA defines as “a form of collateralised quota share reinsurance contract which transfers part or all of the asset and liability risks associated with a portfolio of annuities to a third party”). The PRA is proposing a new draft supervisory statement (SS) contained in Appendix 1 to the paper. The draft SS sets out the PRA's expectations on the ongoing risk management of funded reinsurance arrangements, the modelling of the solvency capital requirement associated with these arrangements, and how firms should consider the structuring of funded reinsurance arrangements. The proposals are not expected to have any impact on the ability of firms to invest in UK productive assets directly.

The deadline for responses to CP24/23 is 16 February 2024. It is anticipated that the proposed changes will be implemented in the second quarter of 2024.

Consultation paper: Funded reinsurance (CP24/23)

If you would like to discuss any of the above in more details, please contact your relationship partner or speak to one of the contacts below.

Key contacts