Prudential Regulation Authority Rulebook

1.1

This supervisory statement is addressed to all UK Solvency II firms and to the Society of Lloyd’s, its members and managing agents. It sets out the Prudential Regulation Authority’s (PRA) expectations of firms regarding internal models.

1.2

This statement should be read in conjunction with the PRA’s rules in the Solvency II Firms Sector of the PRA Rulebook, the statement of policy (SoP) setting out the PRA’s approach to permissions and ongoing monitoring of internal models,^[1] supervisory statement (SS) 1/24 – Expectations for meeting the PRA’s internal model requirements for insurers under Solvency II^[2] and the PRA’s insurance approach document.^[3]

1.3

This supervisory statement expands on the PRA’s general approach as set out in its insurance approach document. By clearly and consistently explaining its expectations of firms in relation to the particular areas addressed, the PRA seeks to advance its statutory objectives of ensuring the safety and soundness of the firms it regulates, and contributing to securing an appropriate degree of protection for policyholders.

1.4

In this SS, the PRA sets out its expectations for firms in the following areas:

• internal model applications;
• dealing with variability in premium provisions;
• the role of non-executive directors;
• model justification and validation and the role of boards;
• the PRA’s use of quantitative analysis as part of model permission;
• scope, identification and classification, governance and reporting of internal model changes; and
• reporting of analysis of change in SCR.

1.5

Firms should also refer to:

• the Bank of England and PRA SoP – Interpretation of EU Guidelines and Recommendations: Bank of England and PRA approach after the UK’s withdrawal from the EU;^[4]
• SS1/19 – Non-binding materials: The PRA’s approach after the UK’s withdrawal from the EU;^[5] and
• SS2/19 – PRA approach to interpreting reporting and disclosure requirements and regulatory transactions forms after the UK’s withdrawal from the EU.^[6]

1.6

Any reference to any provision of direct EU legislation is a reference to it as it forms part of retained EU law.