Consistency of Article 75 of the Solvency II Directive with UK GAAP to which the derogation may apply

Guidance

SS38/15 – Solvency II: consistency of UK generally accepted accounting principles with the Solvency II Directive

Chapter

Consistency of Article 75 of the Solvency II Directive with UK GAAP to which the derogation may apply

Printed on: 15/10/2024

Rulebook at: 28/08/2015

Consistency of Article 75 of the Solvency II Directive with UK GAAP to which the derogation may apply

2.1

The PRA has analysed the financial reporting standards (FRS) to consider whether these are consistent with Article 75 of the Solvency II Directive and therefore within the possible scope of the derogation. Its conclusions are set out in the table below.

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2.2

Where a firm is discussing with its usual supervisor contact whether the conditions for an application of the derogation apply, the PRA expects that firm to apply this supervisory statement’s conclusions on FRS consistency with Article 75 of the Solvency II Directive as regards which provisions of UK GAAP it may use.

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	Derogation permits use of FRS?	Reason
FRS100	n.a.	Provisions do not contain valuation methodologies.
FRS101	n.a.	Provisions do not contain valuation methodologies that differ from IFRS.
FRS102
Chapters 1–10	n.a.	Provisions do not contain valuation methodologies.
Chapter 11: Basic financial instruments	Yes, with amendments	Assets: The fair value measurement methodology is consistent with Article 75 of the Solvency II Directive. Liabilities: The fair value measurement methodology is consistent with Article 75 of the Solvency II Directive when an item is initially recognised. Subsequently, the second sentence of Article 14 of the Solvency II Regulation applies; there shall be no valuation adjustment to take account of the change in own credit standing of the insurance or reinsurance undertaking.
Chapter 12: Other financial instruments	Yes, with amendments	The fair value measurement methodology is consistent with Article 75 of the Solvency II Directive when an item is initially recognised. Subsequently, the second sentence of Article 14 of the Solvency II Regulation applies; there shall be no valuation adjustment to take account of the change in own credit standing of the insurance or reinsurance undertaking.
Chapter 13: Inventories	No	Article 16 (5) of the Solvency II Regulation still applies.
Chapter 14: Investment in associates	No	Article 13 of the Solvency II Regulation still applies.
Chapter 15: Investment in joint ventures	No	Article 13 of the Solvency II Regulation still applies.
Chapter 16: Investment property	Yes, for one valuation option	Only the fair value model methodology is consistent with Article 75 of the Solvency II Directive.
Chapter 17: Property plant and equipment	Yes, for one valuation option	Only the revaluation model is consistent with Article 75 of the Solvency II Directive.
Chapter 18: Intangibles other than goodwill	No	Article 12 of the Solvency II Regulation still applies.
Chapter 19: Business combinations and Goodwill	Yes, in part	Business combinations — Acquisition accounting: the fair value valuation is consistent with Article 75 of the Solvency II Directive. Goodwill — Article 12 of the Solvency II Regulation still applies.
Chapter 20: Leases	No	Article 16 (4) of the Solvency II Regulation still applies.
Chapter 21: Provisions and contingencies	No, because Article 9(4)(d) of the SII Regulation does not apply	Provisions and contingent assets — provisions consistent with IFRS valuation methodology so using IFRS would not impose any additional costs. Contingent liabilities — Article 11 of the Solvency II Regulation still applies.
Chapter 22: Liabilities and equity	No	Solvency II regulatory capital is not dependent on accounting treatment.
Chapter 23: Revenue recognition	n.a.	Provisions do not contain valuation methodologies.
Chapter 24: Government grants	Yes	Both the recognition and fair value measurement are consistent with Article 75 of the Solvency II Directive.
Chapter 25: Borrowing costs	No	Provisions are based on a cost model so are not consistent with Article 75 of the Solvency II Directive.
Chapter 26: Share based payments	Yes	This fair value valuation methodology is consistent with Article 75 of the Solvency II Directive.
Chapter 27: Impairment of assets	No	Provisions are based on a cost model so are not consistent with Article 75 of the Solvency II Directive.
Chapter 28: Employee benefits	Yes	The measurement principles for employee benefits are consistent with Article 75 of the Solvency II Directive.
Chapter 29: Income tax	No, because Article 9(4)(d) of the SII Regulation does not apply	Tax — provisions consistent with IFRS valuation methodology so using IFRS would not impose any additional costs. Deferred tax — Provisions are consistent with IFRS as regards Article 15(1) of the Solvency II Regulation so using IFRS would not impose disproportionate costs. Article 15(2) and (3) of the Solvency II Regulation still applies.
Chapter 30: Foreign currency translation	No, because Article 9(4)(d) of the SII Regulation does not apply	Provisions consistent with IFRS valuation methodology so using IFRS would not impose any additional costs.
Chapter 31: Hyperinflation	Yes	The figures of current and corresponding prior periods are restated in terms of the measuring unit current at the end of the reporting period, which is consistent with Article 75 of the Solvency II Directive.
Chapter 32	No, because Article 9(4)(d) of the SII Regulation does not apply	Events after the End of the Reporting Period — Provisions are consistent with IFRS valuation methodology so using IFRS would not impose any additional costs
Chapter 33	n.a.	Provisions do not contain valuation methodologies.
Chapter 34: Specialist activities
Agriculture	Yes, (in part)	Fair value less cost to sell is consistent with Article 75 of the Solvency II Directive where estimated cost to sell is immaterial. If costs to sell are material, then the adjustment required by Article 16 (7) of the Solvency II Regulations should be applied.
Extraction activities	n.a.	PRA does not expect these provisions to apply to insurance undertakings.
Service concession arrangements	n.a.	PRA does not expect these provisions to apply to insurance undertakings.
Financial Institutions	n.a.	Provisions do not contain valuation methodologies.
Retirement benefit plans	n.a.	PRA does not expect these provisions to apply to insurance undertakings.
Heritage assets	n.a.	PRA does not expect these provisions to apply to insurance undertakings.
Funding commitments	In part, with amendments	Liabilities — Where the funding commitment is a liability the fair value measurement methodology is consistent with Article 75 of the Solvency II Directive at the point the funding commitment is initially recognised. Subsequently, there shall be no valuation adjustment to take account of the change in own credit standing of the insurance or reinsurance undertaking. Contingent liabilities — Where the funding commitment is a contingent liability Article 11 of the Solvency II Regulation still applies.
Income resources from non-exchange transactions	Yes	The fair value valuation basis is consistent with Article 75 of the Solvency II Directive.
Public benefit entity combinations	n.a.	PRA does not expect these provisions to apply to insurance undertakings.
Public benefit entity concessionary loans	n.a.	PRA does not expect these provisions to apply to insurance undertakings.
Chapter 35	No	This chapter provides transitional provisions from the previous UK GAAP regime.
FRS 103	No	Articles 76 to 86 of the Solvency II Directive and Chapter III of the Regulation still apply.

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