Solvency II: external audit of the public disclosure requirement – July 2016
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
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).
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.
Clarification on duties of auditors
The PRA is proposing the following changes to the draft rules and supervisory statement to help clarify the requirements being placed on the auditor:
A specific duty on auditors that their reasonable assurance report must be prepared with due skill, care and diligence
A statement of the auditing standards and guidance the PRA expect auditors to use to meet the requirements of the PRA rule.
Feedback from the PRA on points raised by CP43/15
Addressee of the report
The PRA had proposed that they should be the addressee to the audit report. Several concerns were raised about this and the PRA have accepted that they do not need to be an addressee as it is clear that the PRA is a primary user of the SFCR and audit report.
The PRA have clarified the terminology of the audit opinion so that it is now that the relevant elements have been prepared ‘in all material respects’ in accordance with the PRA rules and Solvency II regulations rather than ‘meets the requirements’ of the PRA rules.
Also the auditor now has to identify whether the other elements of the SFCR are materially inconsistent with information they have access to as part of the external audit of the SFCR rather than any information they have access to.
Relevant elements of the SFCR
The PRA excluded any information that ‘relates to’ the SCR calculated using a full or partial internal model from the external audit. Despite feedback that it may be useful to have assurance on the SCR calculated via an internal model the PRA has not made any changes to these rules other than to modify the exclusion to ‘is, or derives from’ the SCR calculated using an internal or partial internal model.
Governing body responsibility
The PRA received responses from CP35/15 asking that the PRA require the governing body to acknowledge its responsibility for the preparation of the SFCR in the SFCR. The PRA has agreed with this and has emphasised the expectation in the draft supervisory statement.
Approvals, waivers and supervisory determinations
The PRA has confirmed that the auditor does not have to express an opinion on the validity of an approval, waiver or other supervisory determination. However the auditor is expected to consider them as part of the framework against which the audit opinion is given.
Concern was raised that the guidance for auditors would not be available in time for the first disclosures. The PRA has therefore deferred the date at which the external audit requirements apply to insurers with years ending on or after 15 November 2016.
For insurers with year ends before this date the PRA expect them to ask the auditor for assurance over the public disclosures where it is practicable. For example by using ISA 800 and ISA 805.
The proposals are not yet final but are worth discussing with your auditors.
If you have any concerns about the new regime then they can be raised directly with the PRA by emailing email@example.com.
Alternatively you can raise them with your auditors who may make representation on your behalf.
The consultation period is very short and ends on 4th August 2016.