UK insurance companies entering Icas+ are wrong to assume they will get a final stamp of approval of their Solvency II internal model at this stage, according to a senior official at the Prudential Regulation Authority.
Andrew Bulley, London-based director of life insurance at the PRA, said that although the authority would provide an indication of its final assessment on some elements of a firm's internal model it could still require changes to the model before Solvency II comes into force. "Following our review [of the model's suitability to enter Icas+], we will give feedback on whether we have sufficient information and therefore intend to close any further review on that particular element of the model – albeit reserving the right to review areas at a later stage", Bulley said at an insurance industry event last week.
Insurers entering the Icas+ regime will be able to use their Solvency II internal models to meet current UK risk-based capital requirements. This transitional regime is a response to repeated delays to Solvency II's implementation and industry concerns about the burden of running two regulatory capital models.
About half of the UK firms in the Solvency II internal model approval process (IMAP) have expressed an intention to apply for Icas+, according to the PRA, as they look to reap some benefit from the work put into developing their internal models. However, it is not clear how many will be able to enter Icas+.
Bulley said the entry requirements for Icas+ are set "deliberately high". Firms must have been selected for an Icas+ review and must have completed their Solvency II internal model in three to five material risk review areas. In addition, the model must have been independently validated and the firm's board must have approved the relevant parts of it before the supervisor's review.
The PRA, Bulley added, will require firms to complete a self-assessment template on whether they have met Solvency II tests and standards, before carrying out its review of some of the material risk areas of the internal model. In cases where the regulatory review is negative, the PRA will issue recommendations that will be included in a formal work plan to bring the model up to the required standard, he said.
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