# The Solvency 2 and Insurance (Amendment, etc.) (EU Exit) Regulations 2019, Regulation 8: Supervision


(1) Part 2 (supervision) is amended as follows.
(2) In regulation 3 (exercise of PRA and FCA functions), in paragraph (1)—
(a) for “the Solvency 2 Directive” substitute “the United Kingdom law which implemented the Solvency 2 Directive”;
(b) omit sub-paragraph (a) and (b).
(3) After regulation 4 (review of capital add-ons) insert—
“Non-compliance with solvency capital requirement and exceptional adverse situations
4A. (1) The PRA may extend the period of six months in which an insurance undertaking or reinsurance undertaking must take the measures necessary to achieve the re-establishment of the level of eligible own funds covering the solvency capital requirement or the reduction of its risk profile to ensure compliance with the solvency capital requirement by up to—
(a) three months, or
(b) in the event of a declaration by the Prudential Regulation Committee of the Bank of England under paragraph (2) and considering all relevant factors including the average duration of the technical provisions, seven years.
(2) The Prudential Regulation Committee of the Bank of England must declare the existence of exceptional adverse situations in the conditions set out in paragraph (3).
(3) Exceptional adverse situations exist where the financial situation of insurance or reinsurance undertakings representing a significant share of the market or of the affected lines of business are seriously or adversely affected by one or more of the following conditions—
(a) a fall in financial markets which is unforeseen, sharp and steep;
(b) a persistent low interest rate environment;
(c) a high-impact catastrophic event.
(4) The Prudential Regulation Committee of the Bank of England must assess on a regular basis whether the conditions referred to in paragraph (3) still apply.
(5) The Prudential Regulation Committee of the Bank of England must declare when an exceptional adverse situation has ceased to exist.
(6) An extension granted under paragraph (1)(b) must be withdrawn where the insurance undertaking or reinsurance undertaking submits to the PRA a progress report that shows that there was no significant progress in achieving the re-establishment of the level of eligible own funds covering the solvency capital requirement or the reduction of the risk profile to ensure compliance with the solvency capital requirement between the date of the observation of non-compliance of the solvency capital requirement and the date of the submission of the progress report.
Duty to publish technical information
4B. (1) On or before 10 April 2019, for the quarter ending 31 March 2019, and every quarter thereafter, by the 10th day of the month at the latest, the PRA must publish on its website the following information for each relevant currency—
(a) the relevant risk-free interest rate term structure used to calculate the best estimate, without any matching adjustment or volatility adjustment,
(b) for each relevant duration, credit quality and asset class, a fundamental spread for the calculation of the matching adjustment to the relevant risk-free interest rate term structure used to calculate the best estimate for a portfolio of life insurance or reinsurance obligations, and
(c) for each relevant national insurance market, a volatility adjustment to the relevant risk-free interest rate term structure used to calculate the best estimate.
(2) Paragraph 17(9)(b) of Schedule 6A to the Bank of England Act 1998 does not prohibit the making of a rule that imposes an obligation on PRA-authorised persons by reference to information published by the PRA under this regulation.
(3) The volatility adjustment referred to in paragraph (1) must, for each relevant currency—
(a) be based on the spread between the interest rate that could be earned from the assets included in the reference portfolio for that currency and the rates of the relevant basic risk-free interest rate term structure for that currency, and
(b) correspond to 65% of the risk-corrected currency spread.
(4) The reference portfolio for a currency is one that is representative of the assets which are denominated in that currency and which insurance and reinsurance undertakings are invested in to cover the best estimate for insurance and reinsurance obligations denominated in that currency.
(5) The risk-corrected currency spread must be calculated as the difference between the spread referred to in paragraph (3)(a) and the portion of the spread that is attributable to a realistic assessment of expected losses or unexpected credit or other risk of the assets.
(6) For each relevant country, the volatility adjustment to the risk-free interest rates referred to in paragraph 3(b) for the currency of that country must, before application of the 65% factor, be increased by the difference between the risk-corrected country spread and twice the risk-corrected currency spread, whenever that difference is positive and the risk-corrected country spread is higher than 100 basis points.
(7) For the purposes of paragraph (6), the risk-corrected country spread must be—
(a) calculated in the same way as the risk-corrected currency spread for the currency of that country, but based on a reference portfolio that is representative for the assets which insurance and reinsurance undertakings are invested in, to cover the best estimate for insurance and reinsurance obligations of products sold in the insurance market of that country, and
(b) denominated in the currency of that country.”
(4) Omit regulations 5 (passporting: notification of home state regulator), 6 (EIOPA: information), 7 (EIOPA and EBA: notifications), 8 (Other EEA States: information) and 9 (Non-compliance with the minimum capital requirement: provision of information to other supervisory).

---
Source: https://www.legislation.gov.uk/ukdsi/2019/9780111177938/regulation/8 (the official version)
Page: https://openlegislation.uk/draft-solvency-2-and-insurance-amendment-etc-eu-exit-regulations-2019/regulation-8
Contains public sector information licensed under the Open Government Licence v3.0. Source: legislation.gov.uk, The National Archives.