7
Loss-absorbing capacity of technical provisions and deferred taxes (Guidelines 1–22)
7.1
These Guidelines provide guidance on how firms should calculate loss-absorbing capacity of technical provisions (LACTP) and deferred tax (LACDT) in both the solo and group SCR calculation using the standard formula.
- 23/07/2015
Adjustment for the loss-absorbing capacity of deferred taxes – calculation (Guidelines 6–9)
7.2
These Guidelines address how firms should calculate the loss-absorbing capacity of deferred tax at a solo level. They cover the appropriate level of granularity which firms should apply to the calculation, valuation principles to be used and the extent to which undertakings can use group relief. The PRA expects firms to refer to SS2/14[16] which sets out further details regarding PRA expectations in relation to group relief and the need to avoid inappropriate set-off.
Footnotes
- 16. PRA Supervisory Statement SS2/14, ‘Solvency II: recognition of deferred tax’, updated February 2015; www.bankofengland.co.uk/pra/Documents/publications/ss/2015/ss214update.pdf.
- 23/07/2015
Adjustment for the loss-absorbing capacity of deferred taxes — recognition (Guidelines 10–14)
7.3
These Guidelines address how firms should recognise the loss-absorbing capacity of deferred tax at a solo level. In complying with these Guidelines firms should also refer to SS2/14, in particular regarding:
- double counting of deferred tax liabilities;
- assumptions regarding the post shock environment;
- projection horizons;
- contract boundary assumptions;
- and risk margin.
- 23/07/2015