Prudential Regulation Authority Rulebook

5.1

This section sets out the PRA’s expectations of firms and provides guidance on applications for the following:

• exclusion of entity from scope of group supervision;
• single group Own Risk and Solvency Assessment (ORSA);
• SFCR dispensation; and
• calculation method for group SCR.

5.2

For the approvals discussed in this section, the Directive is silent as to any mandated timeframes that the PRA must comply with. The PRA, however, intends to make every effort to communicate, in writing the decision to approve or reject the application, within six months of receiving a completed application.

5.3

It should be noted that while the PRA will make every effort to act within this timeframe and in many cases will be able to communicate a decision in shorter timeframes for straightforward or standalone approvals, it reserves the right to exceed these deadlines when necessary.

5.4

If during the review it is established further information is required from the firm, the PRA will request this information in writing. This may delay the decision on the approval application. 

5.5

For the approvals discussed in this section, the PRA has produced a checklist which firms should use when submitting their applications. These checklists are not mandatory but are designed to help firms submit the necessary information to allow the PRA to consider the application and avoid delays that may arise from incomplete applications. The application checklists are based on requirements set out in the Solvency II Directive, and the Solvency II Regulations.

5.6

All approvals discussed in this section may be effected by use of the statutory waiver power (s.138A of the Financial Services and Markets Act 2000 (FSMA)). Firms should refer to the Bank of England website for further information on the relevant waiver process.

5.7

Article 214(2) of the Solvency II Directive allows the PRA, in consultation with other concerned supervisory authorities, to exclude an entity from the scope of group supervision. This Article is the mechanism to exclude any entity from the scope of group supervision, regardless of its type.

5.8

If the PRA decides that an entity is to be excluded from the scope of group supervision under Article 214(2), then the provisions in the Solvency II Directive will not apply to that entity. However, the group should ensure that any risks which that excluded entity may pose to the rest of the group are adequately identified and managed. Those risks should be reflected in the ORSA and the capital adequacy assessments of group entities that are at risk (including modelled assessments).

5.9

 Under Article 246 of the Solvency II Directive, a group can apply to produce a single ORSA report which covers the group and the firm-level ORSA for all the firms in the group.

5.10

Groups that wish to apply for the single ORSA report are encouraged to complete the application checklist which details:

• the group’s motivation for producing a single ORSA report;
• how the group Board has sought to ensure that all solo risks are individually identifiable in the single ORSA; and
• how the single group ORSA submission presents a true picture of solo entity solvency.

5.11

If permission is granted to produce a single ORSA report covering the group and the firm-level ORSA findings, the group will be required to submit the single ORSA report at the same time to the group supervisor and all the relevant supervisory authorities whose firms report their ORSA findings in the single ORSA report. The exercise of that option shall not exempt the firms concerned from the obligation to ensure that the requirements of Article 45 of the Solvency II Directive are met. For clarity, firms still need to carry out a full ORSA and provide output of this process to the group for inclusion in the single ORSA report, rather than share its full output with their solo supervisor.

5.12

Groups intending to seek approval for a single ORSA report covering the group and the firm-level ORSA findings, should provide a draft single ORSA report as part of their application process based on the forward-looking assessment of own risks (FLAOR) performed by groups during the EIOPA preparatory phase in 2014 and 2015.

5.13

Under Article 53(1) of the Solvency II Directive a firm can apply to the PRA for reporting exemptions, allowing them to exclude certain information from their SFCR, for example, the public narrative report.

5.14

Under Article 256 of the Solvency II Directive, groups may also apply to the PRA for this exemption. Groups that wish to apply for non-disclosure are also encouraged to submit the application checklist.

5.15

Under Article 220 of the Solvency II Directive, the PRA as group supervisor may decide to require groups to calculate their group capital requirements using the deduction and aggregation method (‘method 2’) instead of the default accounting consolidation-based method (‘method 1’), or to use a combination of method 1 and method 2.

5.16

If groups do not think that the exclusive use of method 1 is appropriate and therefore propose to use method 2, or a combination of method 1 and method 2, the PRA expects groups to indicate this by submitting the PRA’s application checklist. This form includes the necessary information the PRA needs to make its decision on the choice of calculation method and includes the financial and solvency position of subsidiaries, availability of data, and rationale for using an alternative to method 1.

5.17

The PRA will review the submission from groups and, where applicable, in co-operation with the college of supervisors, decide on whether the exclusive use of method 1 is appropriate and whether to allow groups to use method 2, or a combination of the two. The PRA will make its decision based on the factors outlined in the Solvency II Regulations. As part of this assessment, the PRA will review the impact of the use of method 2 or a combination method on the solvency position of the group, own funds availability, and the interconnectedness of any entity for which method 2 would be used and the rest of the group.