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The Insurance and Reinsurance Undertakings (Prudential Requirements) (Transitional Provisions and Consequential Amendments) Regulations 2024

Type Statutory-Instrument

Publication 2024-05-01

Last updated 2024-12-31

State In force

Department King's Printer of Acts of Parliament

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Made: 1st May 2024

Laid before Parliament: 3rd May 2024

Coming into force: 30th June 2024

The Treasury make the following Regulations in exercise of the powers conferred by sections 83(1) and (2) and 84(2) of the Financial Services and Markets Act 2023[^f00001].

Citation, commencement and extent

1

(1) These Regulations may be cited as the Insurance and Reinsurance Undertakings (Prudential Requirements) (Transitional Provisions and Consequential Amendments) Regulations 2024.

(2) These Regulations come into force on 30th June 2024.

(3) These Regulations extend to England and Wales, Scotland and Northern Ireland.

Interpretation

2

(1) In these Regulations—

“insurance undertaking” has the meaning given in section 417(1) of FSMA 2000[^f00002];

“matching adjustment permission” has the meaning given in regulation 3(2);

“PRA rules” means the rules made by the PRA under FSMA 2000, as they have effect from time to time;

“regulation 42 approval” means an approval referred to regulation 3(1) as it has effect immediately before 30th June 2024;

“reinsurance undertaking” has the meaning given in section 417(1) of FSMA 2000.

(2) Any other term used in these Regulations which is used in PRA rules applicable to insurance and reinsurance undertakings has the same meaning as in those rules.

Transitional provision - approvals under regulation 42 of the Solvency 2 Regulations 2015

3

(1) This regulation applies where immediately before 30th June 2024 an insurance or reinsurance undertaking has an approval pursuant to regulation 42 of the Solvency 2 Regulations 2015[^f00003] to apply a matching adjustment to a risk-free interest rate term structure in order to calculate the best estimate of a portfolio of life insurance or reinsurance obligations.

(2) On 30th June 2024 the insurance or reinsurance undertaking’s regulation 42 approval becomes a permission granted by the PRA under section 138BA of FSMA 2000[^f00004] to apply the PRA rules with the modifications set out in paragraph (4) such that the undertaking can continue to apply the matching adjustment to a relevant risk-free interest rate term structure in order to calculate the best estimate of a portfolio of life insurance or reinsurance obligations (a “matching adjustment permission”).

(3) A matching adjustment permission is to be treated as if—

(a) it were granted on the basis of the information supplied by the undertaking and referred to in the undertaking’s regulation 42 approval,

(b) an application had been made for it in accordance with and in compliance with the applicable requirements of section 138BA of FSMA 2000 and the Financial Services and Markets Act 2000 (Disapplication or Modification of Financial Regulator Rules in Individual Cases) Regulations 2024[^f00005], and

(c) all the applicable requirements of regulation 4 of the Insurance and Reinsurance Undertakings (Prudential Requirements) Regulations 2023[^f00006] (application of the matching adjustment) were complied with.

(4) The PRA rules listed in the first column of the table, the relevant text of which is set out in the second column of the table in the same row, are modified as set out in the third column of the table in the same row.

PRA rule	Relevant text of rule	Relevant text of rule as modified
Matching Adjustment rule 1.1	Unless otherwise stated, this Part applies to:(1) a UK Solvency II firm;	Unless otherwise stated, this Part applies to:(1) an insurance or reinsurance undertaking in accordance with the undertaking’s matching adjustment permission;
Matching Adjustment rule 2.1	A firm must not apply a matching adjustment to the relevant risk-free interest rate term structure to calculate the best estimate of its insurance or reinsurance obligations unless it has a matching adjustment permission	An insurance or reinsurance undertaking may only apply a matching adjustment to the relevant risk-free interest rate term structure to calculate the best estimate of its insurance or reinsurance obligations in accordance with, and only to the extent of, its matching adjustment permission.

(5) Nothing in this regulation prevents the PRA from varying or revoking a matching adjustment permission in accordance with section 138BA of FSMA 2000 and the Financial Services and Markets Act 2000 (Disapplication or Modification of Financial Regulator Rules in Individual Cases) Regulations 2024.

Consequential amendments to the Solvency 2 Regulations 2015

4

(1) The Solvency 2 Regulations 2015 are amended as follows.

(2) In regulation 53 (transitional measures on risk-free interest rates), in paragraph (2)(c), after “regulation 42” insert “, or on or after 30th June 2024, a permission given in accordance with section 138BA of FSMA and regulation 4 of the Insurance and Reinsurance Undertakings (Prudential Requirements) Regulations 2023”.

(3) In regulation 54[^f00007] (transitional measures on technical provisions), in paragraph (10), in Table 3, in the second column corresponding to condition 1, for “or 43” substitute “, a permission given in accordance with section 138BA of FSMA and regulation 4 of the Insurance and Reinsurance Undertakings (Prudential Requirements) Regulations 2023, or an approval granted under regulation 43”.

(4) In regulation 58 (modification or waiver of rules), in paragraph (2) omit “42,”.

Consequential amendments to the Solvency 2 and Insurance (Amendment, etc.) (EU Exit) Regulations 2019

5

In the Solvency 2 and Insurance (Amendment, etc.) (EU Exit) Regulations 2019[^f00008], in paragraph 9 of Schedule 1 (matters in respect of which the Treasury may make regulations)—

(a) omit sub-paragraphs (g) and (h);

(b) in sub-paragraph (i) omit the words from “, including a formula” to the end.

Consequential amendments to Regulation (EU) 2015/35

6

(1) Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) [^f00009] is amended as follows.

(2) In Article 1 (definitions)—

(a) after paragraph 35 (definition of “future discretionary bonuses” and “future discretionary benefits”) insert—

(35a) “matching adjustment” has the meaning given in rules made by the PRA under the Financial Services and Markets Act 2000, as they have effect from time to time; (35b) “assigned portfolio of assets” means the portfolio referred to in regulation 4(3) of the Insurance and Reinsurance Undertakings (Prudential Requirements) Regulations 2023;

(b) in paragraph 37 (definition of “matching adjustment portfolio”) omit “as referred to in Article 77b(1)(a) of Directive 2009/138/EC”.

(3) In Article 43[^f00010] (general provisions), in paragraph 2 omit “referred to in regulation 4B of the Solvency 2 Regulations 2015 (S.I. 2015/575)”.

(4) In Article 46 (extrapolation), in paragraph 3—

(a) in the first sentence for “Article 77b of Directive 2009/138/EC” substitute “a matching adjustment”;

(b) in the second sentence omit “referred to in that Article”.

(5) In Article 51 (risk-corrected spread), after “Article 54 of this Regulation” insert “as if Article 54 had not been revoked”.

(6) In Article 180 (specific exposures), in paragraphs 12(b) and 15(b) for “Article 77b(2) of Directive 2009/138/EC” substitute “the Insurance and Reinsurance Undertakings (Prudential Requirements) Regulations 2023”.

(7) In Article 181 (application of the spread risk scenarios to matching adjustment portfolios), in the opening words omit “referred to in Article 77b of Directive 2009/138/EC”.

(8) In Article 216 (calculation of the Solvency Capital Requirement in the case of ring-fenced funds and matching adjustment portfolios), in paragraph 1 omit “in accordance with Article 77b of Directive 2009/138/EC”.

(9) In Article 264 (valuation of technical provisions: validation), in paragraph 3 omit “referred to in Article 77b of Directive 2009/138/EC”.

(10) In Article 278[^f00011] (assessment of a significant deviation as regards adjustments to the relevant risk-free rate and transitional measures), in paragraph 1—

(a) omit “referred to in Article 77b of that Directive”;

(b) for “Article 77d of that Directive” substitute “Article 77d of Directive 2009/138/EC”.

(11) In Article 296 (valuation for solvency purposes), in paragraph 2(d)—

(a) for the first reference to “the matching adjustment” substitute “a matching adjustment”;

(b) omit “referred to in Article 77b of Directive 2009/138/EC”.

(12) In Article 308 (system of governance), in paragraph 3(f), for the words from “the extrapolation” to the end substitute “the matching adjustment, and the extrapolation of the risk-free rate and the volatility adjustment as referred to in Article 44(2a) of Directive 2009/138/EC”.

Signed

Joy Morrissey — Amanda Milling — Two of the Lords Commissioners of His Majesty’s Treasury — 1st May 2024

Explanatory note

(This note is not part of the Regulations)

EXPLANATORY NOTE

Regulation 42 of the Solvency 2 Regulations 2015 (S.I. 2015/575) (matching adjustment) and related legislation, including in particular regulation 4B of those Regulations (duty to publish technical information) and Articles 53 (calculation of the matching adjustment) and 54 (calculation of the fundamental spread) of Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II), are revoked by section 1(1) of, and Schedule 1 to, the Financial Services and Markets Act 2023 (c. 29). The revocations come into force on 30th June 2024, see the Financial Services and Markets Act 2023 (Commencement No. 4 and Transitional and Saving Provisions) (Amendment) Regulations 2023 (S.I. 2023/1382).

Regulation 42 requires insurance and reinsurance firms wishing to apply a matching adjustment to first obtain the approval of the Prudential Regulation Authority (“PRA”). Approval to apply a matching adjustment allows a firm which holds long-term assets which match the cash flows of long-term insurance liabilities to recognise as capital part of as yet unearned future cash flows. With effect from 30th June 2024, regulation 42 and related provisions are restated with modifications by the Insurance and Reinsurance Undertakings (Prudential Requirements) Regulations 2023 (S.I. 2023/1347). Further provision about the calculation of the matching adjustment is to be set out in PRA rules.

Regulation 3 ensures that existing matching adjustment approvals granted by the PRA to firms under regulation 42 of the Solvency 2 Regulations 2015 continue to be effective from 30th June 2024. Matching adjustment approvals are converted to matching adjustment permissions under section 138BA of the Financial Services and Markets Act 2000. Firms holding matching adjustment approvals will not need to apply to the PRA for fresh permissions as of 30th June 2024. The rule modifications for the purposes of section 138BA(2)(b) are set out in regulation 3(4).

Regulations 4 to 6 make amendments to legislation consequential on the revocation of regulations 4B and 42 of the Solvency 2 Regulations 2015 and Articles 53 and 54 of Commission Delegated Regulation (EU) 2015/35.

Rules made by the PRA are available on www.prarulebook.co.uk and copies of the rules can be obtained from the PRA, 20 Moorgate, London EC2R 6DA, where they are also available for inspection.

A full impact assessment has not been produced for this instrument as no, or no significant, impact on the private, voluntary or public sector is foreseen. A de minimis impact assessment is available from HM Treasury, 1 Horse Guards Road, London SW1A 2HQ and is published with the Explanatory Memorandum alongside this instrument on www.legislation.gov.uk.

Footnotes

[^f00001]: 2023 c. 29.

[^f00002]: 2000 c. 8. The definitions of “insurance undertaking” and “reinsurance undertaking” in section 417(1) were inserted by S.I. 2015/575 and substituted by S.I. 2019/632.

[^f00003]: S.I. 2015/575. Regulation 42 was amended by S.I. 2019/407.

[^f00004]: Section 138BA was inserted by section 34(1) and (2) of the Financial Services and Markets Act 2023.

[^f00005]: S.I. 2024/539.

[^f00006]: S.I. 2023/1347.

[^f00007]: Regulation 54 was amended by S.I. 2023/1346.

[^f00008]: S.I. 2019/407.

[^f00009]: EUR 2015/35.

[^f00010]: Article 43 was amended by S.I. 2019/1233.

[^f00011]: Article 278(1) was amended by S.I. 2019/407.

Editorial notes

[^key-48378121326897dd17a4f535fa4e9f93]: Reg. 4 in force at 30.6.2024, see reg. 1(2)

[^key-1d85b2c9f78ebf0bdecf403e557cadd7]: Reg. 3 in force at 30.6.2024, see reg. 1(2)

[^key-21c4181ad8233b9fd2ca97be94bc7ad3]: Reg. 1 in force at 30.6.2024, see reg. 1(2)

[^key-ee3b26d04be45741aed6cc9fa12d7e3d]: Reg. 5 in force at 30.6.2024, see reg. 1(2)

[^key-2cfb5488ac6c590204241a4ed48f5095]: Reg. 6 in force at 30.6.2024, see reg. 1(2)

[^key-72ffd6df6c9241a26d30867a9c23d83b]: Reg. 2 in force at 30.6.2024, see reg. 1(2)

[^key-93786fdd91724fe5ccdb37904a862a31]: Reg. 7 inserted (31.12.2024) by The Insurance and Reinsurance Undertakings (Overseas Insurance Regime, Transitional Provisions, etc.) Regulations 2024 (S.I. 2024/1116), regs. 1(2), 5(1)

Transitional provision – other approvals under the Solvency 2 Regulations 2015

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(1) This regulation applies where immediately before 31st December 2024 an insurance undertaking, a reinsurance undertaking, or an intermediate holding company, as the case may be, has an approval under a regulation of the Solvency 2 Regulations 2015[^f00008] listed in the first column of the table in the Schedule (“the table”).

(2) On 31st December 2024 any approval to which paragraph (1) applies, including an approval applied at the level of the group where the PRA is group supervisor in accordance with regulation 28 of the Solvency 2 Regulations 2015[^f00009], becomes a permission granted by the PRA to apply the listed PRA rule with the specified modifications to the relevant text.

(3) In paragraph (1), an “approval” means an approval as it has effect immediately before 31st December 2024;

(4) In paragraph (2)—

(a) “a permission granted by the PRA” means a permission granted under section 138BA of FSMA 2000[^f00010] (disapplication or modification of rules in individual cases);

(b) “the listed PRA rule” means the PRA rule listed in the second column of the corresponding row of the table;

(c) “the specified modifications” means the modifications set out in the fourth column of the corresponding row of the table;

(d) “the relevant text” means the text set out in the third column of the corresponding row of the table;

(e) in paragraphs (b) to (d), “the corresponding row of the table” means the row in which the regulation under which the approval was granted is listed in the first column.

(5) The permissions are to be treated as if—

(a) they were granted on the basis of the information supplied by the undertaking or holding company and referred to in the approval;

(b) any requirements that applied to the approval immediately before 31st December 2024 continue to apply;

(c) in the case of an approval under regulation 45 of the Solvency 2 Regulations 2015 (eligible own funds for an intermediate holding company), the permissions were granted to insurance or reinsurance undertakings in the group;

(d) in the case of an approval under regulation 54 of the Solvency 2 Regulations 2015[^f00011] (transitional measures on technical provisions) the following conditions do not apply—

(i) any condition limiting the amount of an approved deduction imposed upon the undertaking in accordance with regulation 54(5) of the Solvency 2 Regulations 2015.

(ii) any condition providing an expiry referred to in the approval, which applied immediately before 31st December 2024.

(e) an application had been made for each of the permissions under and in compliance with all the applicable requirements of section 138BA of FSMA 2000 and the Financial Services and Markets Act 2000 (Disapplication or Modification of Financial Regulator Rules in Individual Cases) Regulations 2024.

(6) Nothing in this regulation prevents the PRA from varying or revoking a permission in accordance with section 138BA of FSMA 2000 and the Financial Services and Markets Act 2000 (Disapplication or Modification of Financial Regulator Rules in Individual Cases) Regulations 2024.

SCHEDULE — Approvals under the Solvency 2 Regulations 2015

Approval under the Solvency 2 Regulations 2015	PRA rule	Relevant text of rule	Relevant text of rule as modified
Regulation 43: Volatility adjustment	Technical Provisions rule 8.1	A firm may only apply a volatility adjustment to the relevant risk-free interest rate term structure to calculate the best estimate of its insurance or reinsurance obligations:(1) if it has been granted a volatility adjustment permission;(2) the volatility adjustment has been published by the PRA under regulation 3 of the IRPR regulations; and(3) to the extent of its volatility adjustment permission.	An insurance or reinsurance undertaking may only apply a volatility adjustment to the relevant risk-free interest rate term structure to calculate the best estimate of its insurance or reinsurance obligations:(1) if the volatility adjustment has been published by the PRA under regulation 3 of the IRPR regulations; and(2) in accordance with, and only to the extent of, its volatility adjustment permission.
	Technical Provisions rule 8.5	A firm with a volatility adjustment permission must not apply the volatility adjustment with respect to insurance or reinsurance obligations where the relevant risk-free interest rate term structure used to calculate the best estimate for those obligations includes a matching adjustment.	An insurance or reinsurance undertaking:(1) may only apply the volatility adjustment to the relevant risk-free interest rate term structure used to calculate the best estimate of its insurance or reinsurance obligations in accordance with, and only to the extent of, its volatility adjustment permission; and(2) must not apply the volatility adjustment with respect to insurance or reinsurance obligations where the relevant risk-free interest rate term structure used to calculate the best estimate for those obligations includes a matching adjustment.
Regulation 44: Supervisory approval of ancillary own-funds	Own Funds rule 2.5	2.5 When determining its own funds, a firm must not take into account any item of ancillary own funds unless, subject to 2.6, it has received an ancillary own funds permission in respect of that item specifying either:(1) a monetary amount for the relevant item of ancillary own funds; or(2) the method by which to determine the amount of the relevant item of ancillary own funds, together with the amount determined in accordance with that method for a specified time period.	2.5 When determining its own funds, an insurance or reinsurance undertaking may only take into account an item of ancillary own funds in accordance with, and only to the extent of, its ancillary own funds permission in respect of that item.
	Own Funds rule 2.6	2.6 Where, in respect of an ancillary own funds item, a firm has received an ancillary own funds permission:(1) that specifies a monetary amount, in accordance with 2.5(1), the firm may only include that item in its own funds up to the monetary amount set out in the ancillary own funds permission; or(2) that specifies a method by which to determine a monetary amount in accordance with 2.5(2), the firm may only include that item in its own funds up to the monetary amount that has been determined by the method set out in, and only for the time period specified by, the ancillary own funds permission.	2.6 Where, in respect of an ancillary own funds item, an insurance or reinsurance undertaking has received an ancillary own funds permission:(1) that specifies a monetary amount, the insurance or reinsurance undertaking may only include that item in its own funds up to the monetary amount set out in the ancillary own funds permission; or(2) that specifies a method by which to determine a monetary amount, the insurance or reinsurance undertaking may only include that item in its own funds up to the monetary amount that has been determined by the method set out in, and only for the time period specified by, the ancillary own funds permission.
Regulation 45: Eligible own funds for an intermediate insurance holding company	Group Supervision rule 10.3	(4) Any eligible own funds of an intermediate holding company, which would require permission from a supervisory authority by an ancillary own funds permission or in accordance with Solvency II EEA implementing measures implementing Article 90 of the Solvency II Directive, must not be included in the calculation of the group solvency of the group unless a firm has permission from the supervisory authority to do so pursuant to section 138BA of FSMA or Solvency II EEA implementing measures implementing Article 90 of the Solvency II Directive, and only to the extent of its permission.	(4) Any eligible own funds of an intermediate holding company, which would require an ancillary own funds permission, may only be included in the calculation of the group solvency of the group by an insurance or reinsurance undertaking in accordance with, and to the extent of, its permission pursuant to section 138BA of FSMA.
Regulation 46: Classification of funds	Own Funds rule 3.4	(2) A firm must not include an own funds item in its Tier 1 own funds, Tier 2 own funds or Tier 3 own funds if that own funds item is not covered by the own funds lists, unless it has received a classification of own funds permission in respect of that item.	(2) An insurance or reinsurance undertaking may only include an own funds item not covered by the own funds lists in its Tier 1 own funds, Tier 2 own funds or Tier 3 own funds in accordance with, and only to the extent of its classification of own funds permission.
Regulation 47: Basic Solvency Capital Requirement for undertaking specific parameter approvals	Solvency Capital Requirement – Undertaking Specific Parameters rule 1.1	Unless otherwise stated, this Part applies to:(1) a UK Solvency II firm; and(2) in accordance with Insurance General Application 3, the Society.	Unless otherwise stated, this Part applies to an insurance or reinsurance undertaking in accordance with the undertaking’s undertaking specific parameter permission.
	Solvency Capital Requirement – Undertaking Specific Parameters rule 2.1	A firm must not apply an undertaking specific parameter unless it is a USP firm.	An insurance or reinsurance undertaking may only apply an undertaking specific parameter in accordance with, and only to the extent of, its undertaking specific parameter permission.
	Solvency Capital Requirement – Standard Formula rule 2.1	For a firm calculating its SCR on the basis of the standard formula, its SCR is the sum of the following items:(1) the basic SCR;	For an insurance or reinsurance undertaking calculating its SCR on the basis of the standard formula, its SCR is the sum of the following items:(1) the basic SCR, adjusted to take account of any undertaking specific parameters;
Regulation 47: Basic Solvency Capital Requirement for group specific parameter approvals	Groups Supervision Chapter 11A	11A.1 A firm must not apply a group specific parameter unless it is a GSP firm.11A.6(4) a reference to ‘USP Permission’ is to be interpreted as a reference to ‘GSP Permission’.	11A.1 An insurance or reinsurance undertaking may only apply a group specific parameter in accordance with, and only to the extent of, its GSP Permission.11A.6(4) a reference to ‘USP Permission’ is to be interpreted as a reference to ‘GSP Permission’.11A.7 The basic SCR of the consolidated group SCR must be adjusted to take account of any group specific parameters.
Regulation 48: Models	Solvency Capital Requirement - Internal Models rule 1.1	Unless otherwise stated, this Part applies to:1. a UK Solvency II firm; and2. in accordance with Insurance General Application 3, the Society.	Unless otherwise stated, this Part applies to an insurance or reinsurance undertaking in accordance with the undertaking’s internal model permission.
Regulation 49: Group applications	Solvency Capital Requirement - Internal Models rule 1.1	Unless otherwise stated, this Part applies to:1. a UK Solvency II firm; and2. in accordance with Insurance General Application 3, the Society.	Unless otherwise stated, this Part applies to an insurance or reinsurance undertaking in accordance with the undertaking’s internal model permission.
Regulation 53: Transitional measures on risk-free interest rates	Transitional Measure rule 10.1	A firm may only apply the risk-free interest rate transitional measure:(1) in respect of admissible insurance and reinsurance obligations; and(2) if it has received permission to do so from the PRA pursuant to section 138BA of FSMA.	An insurance or reinsurance undertaking may only apply the risk-free interest rate transitional measure to its admissible insurance or reinsurance obligations in accordance with, and only to the extent of, its s138BA permission to do so.
Regulation 54: Transitional measures on technical provisions	Transitional Measure on Technical Provisions Rule 1.1	This Part applies to:(1) a UK Solvency II firm;(2) the Society, in accordance with Insurance General Application 3; and(3) managing agents, in accordance with Insurance General Application 3.	This Part applies to an insurance or reinsurance undertaking in accordance with the undertaking’s TMTP permission.

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