Prudential Regulation Authority Rulebook

2.1

The PRA intends to operate an efficient and proportionate process for considering applications for permission to apply a VA. This supervisory statement seeks to minimise additional administrative burden on firms.

2.2

The PRA will need to be satisfied that the conditions set out in regulation 43(4) of the Statutory Instrument are met before granting permission to apply a VA. When compiling an application, firms should consider these conditions and ensure that the content they include in their applications is sufficient and adequate for the PRA to make this determination.

2.3

When considering the level of explanation, description or evidence to provide in their applications, firms should have regard to the principle of proportionality. The greater the impact of the VA on the firm’s financial position and risk profile, the greater the expected level of detail and justification in the application. The PRA will adopt a proportionate approach when reviewing applications, consistent with its general supervisory approach.

2.4

Applications should include the following information, required under the Solvency II Directive (‘the Directive’):

• the written policy on risk management required by Conditions Governing Business 2.4 of the PRA Rulebook, including:
  • the firm’s policy on the criteria for the application of the VA, in accordance with Conditions Governing Business 2.5(2) of the PRA Rulebook;
  • the firm’s assessment of: the sensitivity of the technical provisions and eligible own funds to the assumptions underlying the calculation of the VA; the possible effect of a forced sale of assets on the eligible own funds; and the impact of a reduction of the VA to zero in accordance with Conditions Governing Business 3.2(3) of the PRA Rulebook;
• as required by Conditions Governing Business 3.1(3), the liquidity plan projecting the incoming and outgoing cash flows in relation to the assets and liabilities subject to the VA;
• where the reduction of the VA to zero would result in non-compliance with the Solvency Capital Requirement (SCR), an analysis of the measures the firm could apply in such a situation to re-establish the level of eligible own funds covering the SCR or to reduce its risk profile to restore compliance with the SCR, in accordance with Conditions Governing Business 3.3;
• as required by Conditions Governing Business 3.8(4), the assessment of compliance with the capital requirements referred to in Conditions Governing Business 3.8(2)(b), with and without taking into account the VA;
• any information not listed above that the firm believes is relevant; and
• a cover letter stating that the application is endorsed by the senior manager who is responsible for the ORSA that is presented to the firm’s governing body, and explaining how the conditions set out in Regulation 43(4) of the Statutory Instrument are met.