Solvency II: consistency of UK generally accepted accounting principles with the Solvency II Directive - CP16/15 |
Summary
This consultation paper seeks feedback on a draft supervisory statement which sets out the PRA’s expectations of firms which are considering applying the derogation within Article 9 (4) of the Commission Delegated Regulation (EU) 2015/35 (‘the Solvency II Regulation’). 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 draft statement is relevant for firms within the scope of Solvency II for which annual financial statements and consolidated financial statements (if any) are prepared under UK generally accepted accounting principles.
Background
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; and 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. The statement expands on the PRA’s general approach as set out in its Insurance Approach document.
Consultation Paper download below
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