Published on 20 February 2019
Solvency II: Adjusting for the reduction of loss absorbency where own fund instruments are taxed on write down - PS4/19
Overview
This Prudential Regulation Authority (PRA) Policy Statement (PS) provides feedback on responses to Consultation Paper (CP) 27/18 ‘Solvency II: Adjusting for the reduction of loss absorbency where own fund instruments are taxed on write down’. It also contains the PRA’s final policy on updating Supervisory Statement (SS) 3/15 ‘Solvency II: The quality of capital instruments’, see Appendix 1.
The PRA has also issued a reporting clarification on how such adjustments should be reflected in the Solvency II reporting templates (Appendix 2).
This PS is relevant to UK insurance firms within the scope of Solvency II, the Society of Lloyd’s, and firms that are part of a Solvency II group that will determine and classify capital instruments under the Solvency II own funds regime, together with their advisors.
The rationale for the expectation was to address the prudential implications of tax changes introduced by HMRC in the Budget on Monday 29 October 2018 pertaining to hybrid instruments.
Summary of responses
The PRA received six responses to the CP. Respondents made a number of observations and requests for clarification which, together with the PRA’s feedback, are set out in Chapter 2. Changes to the draft policy are set out in Chapter 1.
Implementation
The new policy will come into effect for all instruments issued on or after Thursday 21 February 2019.
Policy Statement 4/19