The Prudential Regulation Authority (PRA) has issued a consultation paper on transitional measures and the treatment of participations under the Solvency II Directive. In CP3/15, the PRA consults on draft rules to implement Solvency II transitional measures for risk-free interest rates and technical provisions. The transitional measures aim to avoid market disruption potentially associated with the move to a new regulatory regime, and to limit interference with the existing availability of insurance products. The proposed rules are designed to ensure a smooth transition towards the full requirements of the Solvency II regime.

Solvency II specifies a transitional measure on risk-free interest rates in Article 308c, which is designed to enable firms to transition from their current discount rate requirements to the corresponding Solvency II requirements. This transitional measure is a deduction from the amount of Solvency II technical provisions. Solvency II also specifies a transitional measure on technical provisions in Article 308d, which is calculated as an adjustment to the relevant risk-free interest rate term structure used to discount admissible insurance obligations. Both transitional measures apply for 16 years. Firms need to apply to the PRA for approval to rely on the transitional measures.

Comments can be made on CP3/15 until February 20, 2015. The PRA plans to publish a policy statement, together with the final rules and supervisory statements, as part of a wider policy statement providing feedback and final rules to implement Solvency II in March 2015.

CP3/15 Solvency II: transitional measures and the treatment of participations