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Recalculation of the Solvency II transitional measures on technical provisions

  • J. Cooke, A. Scott, D. Smith, A. Rogan, R. Cooper, S. Morgan, A. Plotnek, N. Kenyon and S. Bhalla...

Abstract

Solvency II came into force on 1 January 2016 and included a transitional measure on technical provisions (“TMTP”) designed to help smooth in the capital impact of Solvency II over a 16-year period. The working party’s view is that the main intention of the TMTP is to mitigate the impact of the introduction of the risk margin, which significantly increases the technical provisions of firms, relative to their Solvency I Pillar 2 liabilities.

The majority of firms who hold a TMTP have now had at least one recalculation approved by the Prudential Regulation Authority (PRA); or are in the process of applying for a recalculation. Despite this large number of approved recalculations, there remains significant uncertainty in the industry around the approach and triggers for recalculation.

This paper considers aspects of TMTP recalculation for regulated UK life firms, for example practicalities of the calculation, asset and liability considerations, and communications/announcements.

In this paper, we outline the need for pragmatism when considering the approach to recalculation of a measure originally intended to serve as the bridge between two regimes. We call for an allowance for doing what is sensible in a principles-based regime balancing what might be more theoretically correct with what is practical and possible to support effective management of the business.

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Copyright

This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted re-use, distribution, and reproduction in any medium, provided the original work is properly cited.

Corresponding author

*Correspondence to: Jamie Cooke, Aviva UK and Ireland Life, Wellington Row Floor 4, Wellington Row, York YO90 1WR, UK. E-mail: Jamie.Cooke@aviva.com

References

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Bulley, A. & Moulder, C., to Solvency II Directors (2015). Available at http://www.bankofengland.co.uk/pra/Documents/solvency2/directorsletter16sep2015.pdf (accessed 31 July 2017).
EIOPA (2015). Final Report on public consultation No. 14/049 on Guidelines on the implementation of the long-term guarantee measures, available at https://eiopa.europa.eu/Publications/Reports/EIOPA-BoS-15111_Final%20report_GL_Long_Term_Guarantee.pdf (accessed 31 July 2017).
EIOPA (2016). Opinion of the European Insurance and Occupational Pensions Authority (EIOPA) on disclosure of information related to the use of transitional measures in the calculation of technical provisions – EIOPA-BoS-16/243, available at https://eiopa.europa.eu/Publications/Opinions/EIOPA-BoS-16-243_Opinion_on_Disclosure_of_Transitional_measures_on_TP.pdf (accessed 31 July 2017).
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British Actuarial Journal
  • ISSN: 1357-3217
  • EISSN: 2044-0456
  • URL: /core/journals/british-actuarial-journal
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