23 March 2015 Insurance

PRA publishes Solvency II rules

The Prudential Regulation Authority (PRA) has published its final rules setting out how it will implement the Solvency II Directive in the UK.

Andrew Bailey, deputy governor, Prudential Regulation, Bank of England and chief executive office (CEO) of the PRA said: “Solvency II represents a fundamental change in the way that insurers are regulated. The papers published today provide clarity for UK firms on how the PRA will implement the new regime – acting in the interests of the wider economy and ensuring an appropriate level of policyholder protection.

“These publications will allow firms to finalise their preparations for Solvency II in order to be ready for the start of the regime on January 1, 2016.”

The Bank of England said that it would apply Solvency II “proportionately with the emphasis on substance over form” as the regulator seeks to maintain its focus as a forward-looking and judgement-based regulator.

“I am pleased to say we have an effective and constructive relationship with the UK insurance industry, which remains supportive of the Solvency II framework. The new regime will not be perfect, but it is a welcome step in the right direction,” said Bailey.

The policy statement sets out how the PRA will implement the long-term guarantees package, which would allow insurers to reduce the level of risk on some types of long-term liabilities, such as annuities, if they hold closely-matched, long-term assets to back them.

“The long-term guarantees package allows a firm to reduce its capital and reserving requirements, where the firm is closely matched and invested for the long term,” said the statement.

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