Reporting requirements for non-Solvency II insurance firms – May 2016

Summary of CP 18/16

Highlights

• Major simplification for Incorporated friendly societies
• All friendly societies to report triennially using FSC2 with FSC4 forms in between
• Some simplifications to Forms required from non-Solvency II insurance companies but no change to frequency of reporting
• Not clear yet if Actuarial Function Holder and With Profits Actuary are still required for Incorporated friendly societies

Overview

In May 2016 the PRA published CP 18/16—Reporting requirements for non-Solvency II insurance firms. This CP does exactly what the title suggests and sets out the PRA’s proposal for the reporting requirements for insurance firms outside the scope of Solvency II—referred to as non-Solvency II insurance firms (NDFs).

Background

The PRA consulted on transposing the PRA Handbook material relevant to NDFs into the Rulebook format in CP27/15 ‘The prudential regime for non-Solvency II insurance firms and consequential amendments’. These proposals included deleting the Handbook modules IPRU(INS) and IPRU(FSOC) from 1 January 2016. This CP sets out these proposals.

The Proposal

Non-Solvency II firms (except friendly societies):

The draft rules do not propose any major changes. The structure of the reporting forms remains unchanged although they will now need to be submitted to the PRA in electronic format. Therefore any company currently sending the PRA printed copies of the reporting forms will need to ensure they are in the position to send them electronically which may require purchasing additional software.

The PRA proposes simplifying many of the forms. In particular Forms 18, 19, 37, 38, 39, 47-49 and 51-59B are being deleted as the detail given in other forms is seen by the PRA as fit for purpose.

There will also be a revised and simplified Abstract of Valuation Report (previously IPRU(INS) Appendix 9.4).

Non-solvency II firms—friendly societies:

Although the PRA state that the proposals do not change the substance of the current policy there are significant changes proposed for incorporated friendly societies. (For unincorporated friendly societies the only change is to the date of the next triennial valuation).

The proposal is that all NDF friendly societies will now have a simplified reporting return FSC2. FSC1 and FSC3 will no longer be required.

For those societies who currently produce FSC1 and FSC3, the FSC2 return is effectively:

• Form 9
• Synopsis of valuation report
• Actuary’s certificate

The frequency of the FSC2 return is every three years. The first FSC2 return for all NDF friendly societies will be for the financial year end 2017. The PRA want this so that they can compare and benchmark all friendly societies. However this will cause peaks in work for both Societies and their advisors and we will be raising this concern with the PRA.

On an annual basis an FSC4 return will be required. This form is signed by the appropriate actuary and is basically confirming that there no material change in the financial condition the society in respect of its insurance business since the society sent the last abstract of the appropriate actuary’s report.

Actuarial appointments

The new proposals require an incorporated friendly society to appoint an appropriate actuary to carry out the triennial valuation. However the PRA have not removed the need for incorporated friendly society to appoint an actuarial function holder and with profits actuary. We will be seeking clarity on this with the PRA and we are not sure how this will work in practice.

Rulebook mapping

For those of you who are interested in references to rules the table below shows how the handbook modules map to the new Rulebook.

Handbook Module

IPRU(INS) Chapter 9

IPRU(INS) Appendix 9.1, 9.2, 9.3, 9.4, 9.5, 9.6, 9.8 9.3

IPRU(FSOC) 5.2, 5.3 5.13, 5.21-25

Rule Part

Non Solvency II Firms—Insurance Company– Reporting

Non Solvency II Firms—Insurance Company– Reporting and supervisory statement

Non Solvency II Firms—Friendly Society – Reporting

What is unaffected?

Partnership pension friendly societies and flat rate benefit societies are not impacted by the changes.

The Statutory submissions of accounts under the Friendly Societies Acts 1992 and 1974 are not affected by the rule changes.

Timing

The proposed reporting rules will apply to all NDFs (except friendly societies) with financial year ends on or after 1 July 2016.

The first FSC4 will be required for the 31 December 2016 year end for NDFs (friendly societies) and the first FSC2 for the 31 December 2017 year end.

What next?

The proposals are not yet final but are worth discussing with your advisers.

If you have any concerns about the new regime then they can be raised directly with the PRA by emailing cp18_16@bankofengland.co.uk.

Alternatively you can contact us and we will include your concerns in our response.

The consultation period ends on 13th June 2016.