BoE: Consistency of UK Generally Accepted Accounting Principles with the Solvency II Directive

10 April 2015

This consultation paper seeks feedback on a draft supervisory statement which sets out the Prudential Regulation Authority’s expectations of firms that may apply the Solvency II Regulation.

The Solvency II Regulation contains a derogation for firms within the scope of Solvency II for which annual financial statements and consolidated financial statements (if any) are prepared under UK GAAP. This allows them the option of recognizing and valuing assets and liabilities under UK GAAP for Solvency II purposes if:

• UK GAAP is consistent with Article 75 of the Solvency II Directive
• The valuation method is proportionate to the nature, scale, and complexity inherent in the business of the undertaking
• The process of valuing the assets and liabilities using international accounting standards would impose costs which are disproportionate with respect to the total administrative expenses of the firm

This derogation permits a firm to value some assets and liabilities using local generally accepted accounting principles (GAAP) if they fulfil some very specific criteria listed in that Article.

The statement expands on the PRA’s general approach as set out in its Insurance Approach document.

This consultation (CP16/15) closes on 10 July 2015.

Full consultation paper

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