Date (Arial 16pt) Title of the event – (Arial 28pt bold) Subtitle for event – (Arial 28pt) Implementation and policy overview Directors of General Insurance, Life Insurance and Financial Policy Chris Moulder, Andrew Bulley and Victoria Saporta

Implementation overview Development of new regime is difficult and demanding Successful Solvency II implementation is a priority for the PRA Finding balance between policy stability and providing information to firms –PRA consultation papers and supervisory statements –Technical actuarial events, website updates and Directors’ letters 2 As implementation approaches and policy is published, more information will be available for all firms via the website and supervisors

Implementation overview Similarities and differences between current and future regimes Currently operating in advanced risk sensitive regime with many firms using complex modelling techniques. ICAS+ has supported this –But internal models are far more complex, expert judgment is subjective and PRA has to make significant decisions in a short space of time ICAS regime has withstood shocks of last decade and PRA understands capital requirements under old regime –But Solvency II is different to ICAS in a number of respects and the PRA is using data collection to calibrate expectations of capital The existing regime expects regular reporting returns from the industry –But Solvency II will give the PRA a far greater quantity of data than ever before to supervise firms 3 Solvency II is changing the operations and procedures of insurers and the PRA

Implementation overview Implementation of the EIOPA preparatory guidelines PRA supervisory statement 4/13 provided a consistent and convergent framework for firms’ Solvency II preparations 4 System of Governance Similar to current Pillar II regime Need more evidence of prudent person principle and outsourcing arrangements Crucial role of Board and support from actuarial function Submission of Information Previously insufficient emphasis on asset composition Increase in frequency and detail, significant effort to be ready for reporting in summer 2015 Forward Looking Assessment of Own Risks Concise, focused on key issues Considers business model and strategy Includes stress and scenario testing Used by the Board Internal Models Long running internal model approval process with ICAS+ to help transition Compressed review timetable Documentation and validation, more focus on assumptions and justifications Preparatory guidelines are an important step towards Solvency II implementation

5 Level 1 – Solvency II Directive Maximum harmonising Rules are being transposed into national law and the PRA Rulebook Level 2 – Delegated Act and Implementing Technical Standards Directly applicable to firms as law, PRA will be enforcing and supervising against those standards Level 3 – Guidelines Generally addressed to National Competent Authorities and/or Member States Addressees are obliged to “Comply or Explain” Addressees to interpret how they comply with these Guidelines Both the PRA and firms will need to adjust to the new EU framework Policy overview - European framework

6 Asset eligibility in the matching adjustment The PRA will not produce a prescriptive list of assets that can/cannot be used for MA Eligibility is determined on a principles basis ‘Non-hedgeable’ risks in risk margin Risk margin has a clear definition in the legislation Longevity risk calibrations should not be influenced by the presence of the risk margin Capital resources under Solvency II – availability of group own funds Groups need to consider both legal and regulatory restrictions when considering limitations on availability Policy overview - resolving uncertainty

7 Short term Models - balancing the use of internal models, partial internal models and standard formula Quantifying other risks: Pensions risk Diversification benefit Quality of capital Third country branches Looking ahead Utilising the Bank’s analytical capacity Policy overview - current policy questions

8 Q4 2014Q1 2015Q2 2015Q3 2015Q Transposition 31 March 2015 Implementation 1 January 2016 Delegated Act published on 10 October Up to six month scrutiny period for EP and Council on DA Set 1 Guidelines published Public consultation on set 2 ITS and Guidelines Set 2 Guidelines published Post- transposition issues CP23/14 published – Other approvals Further CPs due in Q4 – including reporting and pensions Further information – including more on reporting and branches European timeline Domestic timeline Timeline to Solvency II implementation