The Insurance Insider
27 May 2015
The Prudential Regulation Authority (PRA) has warned that many UK insurance companies still have a “considerable amount of work” to do in preparation for the implementation of Solvency II on 1 January 2016.
According to feedback from internal model commitment panels released last week (22 May), the PRA said that firms had to be realistic about their chances of completing further work in time to submit a viable internal model application.
In particular, the UK regulator said that some firms had decided to make changes to models at a late stage, meaning they would now have to carry out further work to demonstrate that the amendments had been properly incorporated into the model.
In order to do this, firms must ensure that any revised approaches are technically sound, and have been reviewed and agreed by internal governance processes.
The PRA noted that it was not likely to have the opportunity to review any late changes, or give further feedback to firms still seeking model approval for 1 January 2016, before they would have to make a formal application.
Because there was limited opportunity for firms to make changes once a formal application had been submitted, the PRA explained that firms had to be confident that any revisions made at this stage would satisfactorily address any previous feedback.
If firms had to make material changes during the application period, the PRA cautioned that a new formal application could be required. Alternatively, firms have a final option to “stop the clock” on their current application.
The PRA also said that all firms should have a viable contingency plan in the event that they either do not gain model approval, or a dependant Solvency II approval is rejected. It added that individual firms had already been notified about any further progress required.
However, it said that it was encouraged to see that in a number of cases firms had made changes to their models to address weaknesses identified in previous feedback.