Prudential Regulation Authority still worried about Solvency II


The Prudential Regulation Authority (PRA) is proposing a supervisory statement that sets out a new approach to monitoring model drift, in line with Solvency II. Within the proposal are new expectations for firms with approved internal models, relating specifically to their reporting formula and Solvency Capital Requirement (SCR).

Part of the new, proposed approach is that firms with internal models will privately report their SCR annually, using a template provided. By doing so, it is hoped that it will be simpler for firms to provide this information.

The Consultation Paper details that the proposal will be relevant to all solo insurance and reinsurance undertakings within the scope of Solvency II, the directive making a provision that when relevant SCR is calculated using an internal model, it must be approved by a supervisory authority.

Risk is created when models evolve over time. Capital levels subsequently drift downwards and fail to reflect the risk on the system.

The new expectations on the internal model will require firms to report their results of the SCR calculations to the PRA. From there, the PRA will use the information to monitor model drift and measures of risk.

The consultation closes on Wednesday 17 August 2016. Comments and enquiries should be to


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