The PRA, which set out proposals on 25 October, has begun by consulting on the matching adjustment (MA), which helps insurers invest in long-term assets as a natural match to their long-term liabilities.
The regulator is set to provide additional guidance around asset eligibility, criteria for assessing ‘sufficient compensation’, restructuring asset cash flows using special purpose vehicles, trading in the MA portfolio, consequences of breaches of MA requirements and changes to MA portfolio approval.
The Association of British Insurers (ABI) has also called for the regulator to make targeted improvements as the new regime beds in, which could lead to changes in 2018.
The PRA has already committed to making further improvements to other areas the ABI has highlighted, including on internal model change, and on the burden of Solvency II reporting.
The consultation is relevant to all UK Solvency II firms and to the Society of Lloyd’s and its managing agents where they are applying or have applied to use the MA.
Welcoming the move, Steven Findlay, head of prudential regulation at ABI, said: “Solvency II has been in force for almost two years – and it is sensible for the PRA to now review and improve it. The industry has consistently and unanimously highlighted concerns about the rigid nature of the matching adjustment, the burden firms face when trying to keep their internal model up-to-date and the excessive cost of regulatory reporting.”
Findlay added: “The ABI has worked closely with the PRA over the summer on each of these areas. These proposals, which address a number of our recommendations, are an important step forward.
“We look forward to further proposals from the PRA to address other areas of concern.”
The consultation closes on 31 January 2018. The PRA invites feedback on the proposals set out in this consultation. Click here to read the full consultation paper.