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Solvency UK: Greater clarity ahead

At a glance


  • The PRA has published PS2/24, and PS3/24 the first sets of near final rules on the Solvency UK regime (SUK). The rules are largely unchanged from those consulted on, with some exceptions that the industry is likely to welcome. Reporting and disclosure requirements are not covered in this blog.
  • The SUK regime will come into effect in its entirety from end of December 2024. Further Policy Statements and consultations are expected before mid-2024 including on matching adjustment.
  • Internal Models (IM) attracted most comments from industry but the PRA has not made material changes to its proposals. The industry raised the issue that changes to tests and standards, the introduction of Model Limitation Adjustments (MLAs), the Internal Model Ongoing Review (IMOR) framework and new reporting of Analysis of Change (AoC) could make the overall IM framework more complex than before. In response, the PRA clarified certain aspects of the definition of MLAs and mechanism of implementation.
  • On capital add-ons (CAOs) the industry will welcome confirmation that the new CAO MLAs will not need separate disclosure. The PRA is also proposing dynamic CAOs based on a formula so that they can change with the business risk profile.
  • On Transitional Measures on Technical Provisions (TMTPs), firms are reminded that if they choose to continue using the legacy calculation approach they will need to apply for permission to the PRA by June 2024.
  • Other areas such as third country branches (TCB), group SCR calculations and mobilisation remain as proposed in consultation.
  • The Policy Statements (PS) give the green light for firms to start preparations for SUK implementation in areas such as TMTP, IM applications or considering the benefits of removal of TCB requirements. This first step in shaping the new regime gives much needed clarity and should be a call to action for insurers.



The PRA has published PS2/24 “Review of Solvency II: Adapting to the UK Insurance market” (the PS) together with 14 documents (see Annex 1 below) including new Statements of Policy (SoPs) and updates to supervisory statements (SSs) following CP12/23 published in June 2023 (for more detail of the original consultation see our insight). The PS includes near final rules on:

  • Transitional measures on technical provisions (TMTPs)
  • Internal Models (IMs)
  • Capital add-ons (CAOs)
  • Group Solvency Capital Requirements (SCR)
  • Third Country Branches (TCB)
  • Mobilisation
  • Thresholds for the application of the Solvency II rules.

The PRA also published PS3/24: Review of Solvency II: Reporting and Disclosure Phase II near-final but reporting is outside the scope of this blog.

The near final rules in PS2/24 remain broadly aligned to the rules as consulted on, except for a number of clarifications, definitions and in some cases removal of proposals the industry challenged (such as on disclosure of certain capital add-ons). These publications bring us one step closer to the completion of the Solvency UK (SUK) reform and provide clarity for the industry at a time when insurers will need to take swift action to prepare for implementation.

Figure 1: Solvency UK reforms so far

The timeline towards completion of the SUK regime is relatively complex. We expect another PS on Matching Adjustment (MA), and in Q2 a consultation to bring into the PRA Rulebook the remaining firm‑facing SII requirements (no policy changes expected in this consultation). Finally, the PRA intends to consult separately on the transfer of EIOPA guidelines (where appropriate) into PRA policy materials in the future. For the time being, firms are expected to continue to comply where relevant with existing EIOPA guidelines.

The rules on MA are expected to be effective soon after publication of final rules in mid-2024 and the remainder will come into effect by the end of 2024.

What has changed since the proposals?



The PRA had proposed simplifying the calculation of TMTPs by introducing a new method of calculation which only uses Solvency II figures and excluding the Financial Resource Requirement (FRR) test. The PRA announced the removal of the FRR test on 8December 2023 partially bringing forward its implementation to YE 2023. For firms required to limit their TMTP due to the FRR test, this removal required PRA agreement. The FRR test will be removed for all firms from YE 2024.

The PRA has now proposed a few additional changes and clarifications to its TMTP:

  • clarification to allow MA- eligible business (rather than annuity business) to be used to calculate the dynamic best estimate liability (‘BEL’) component of the new TMTP method;
  • providing firms with more flexibility in how they can allocate MA-eligible business across the different components of the TMTP;
  • for the purpose of the ‘base TMTP’ calculation (i.e. the final recalculation based on the existing calculation method), firms should use their agreed methodology as at the last recalculation prior to 31 December 2024 that adjusts for a ‘double run-off’1;
  • Clarification that the PRA may grant new TMTP permissions in ‘exceptional circumstances'(most likely driven by acquisitions).
  • Key deadlines: Insurers using the new TMTP method should send the details of their initial TMTP method calculations to the PRA by 31 March 2025;
  • firms that wish to use the legacy approach should submit an application to the PRA by 30 June 2024.



The PRA had proposed changing the IM framework by reducing the number of tests and standards (T&S) required for new IMs, and changes to existing IMs. It also proposed IM approval safeguards to allow firms to use an IM that is not entirely compliant with calibration standards. The consultation also introduced requirements for firms to submit an AoC report and a new IMOR framework. The IM proposals seem to have received most comments within the consultation. However, the PRA is not changing its approach in response to industry concerns that the IM regime could end up being more complex following the reform. The PRA has only made targeted adjustments and is also clarifying some implementation matters including:

  • IM applications: the PRA clarifies that it intends to determine the outcome of a complete application within six months and that it will make reasonable efforts to achieve this, strengthening the wording of its intention to allow faster processing of applications;
  • MLA definition: the PRA has clarified that MLAs are not Expert Judgements and has provided further clarification to firms on whether an adjustment should be considered an MLA. It stresses that if the adjustment is an expert judgement or a model component, it is not an MLA. But we expect this will continue to be an area of debate as the regime is implemented and beds down;
  • the PRA has clarified that, in most cases, MLAs should result in an increase to the SCR. However, negative MLAs (resulting in an SCR reduction) could be appropriate in “rare circumstances” and would be subject to discussion with supervisors;
  • the PRA will allow firms to make administrative changes to their IM change policy without the need to apply to the PRA for a variation of permission.



The SUK reforms introduced a new CAO as a model permission safeguard named Residual Model Limitation CAOs (RML CAOs). This was to allow the PRA to grant permissions to a wider set of IMs than is currently possible. The industry raised concerns about the PRA extending the use of CAOs to increase capital requirements beyond current calibrations. The PRA has confirmed that it does not intend to use the new RML CAOs in that way and that CAOs mainly remain a tool to be used when the assumptions underlying the IM or standard formula significantly deviate from the risk profile of the business.

The PRA has proposed a few changes to the CAO approach it had consulted on. These will largely be welcomed by industry as they respond to concerns raised in responses:

  • separate disclosure of RML CAOs is no longer required in the SFCR. Firms can choose to include these RML CAOs in the SCR amount split by risk module (the imminent PS on SII reporting will clarify the mechanism of disclosure in more detail). To maintain transparency in the use of RML CAOs, the PRA will publish a summary report on its use of safeguards in 2027, including how RML CAOs have been used. This report will be at a high level to avoid individual firm identification;
  • explicit allowance of dynamic CAOs in relation to risk profile deviations. CAOs could be calculated with reference to a formula to allow the CAO to respond dynamically to changes in the business – this could include CAOs calculated as a percentage of IM or standard formula SCR or balance sheet calculations such as technical provisions.

Group SCR calculation


The PRA had proposed allowing groups to use multiple group IMs or SF calculations temporarily, following an acquisition or merger, when calculating the consolidated group SCR. The PRA is now proposing a few changes and clarifications that respond to industry concerns and provide greater flexibility:

  • firms will now have six months to prepare a realistic plan to integrate their calculation approaches rather than from the point the transaction takes place. The PRA considers this will result in better quality and realistic plans being submitted. Firms can use multiple methods during the first six months subject to meeting all other safeguards (any IM should have received permission, the group SCR calculation covers all material risks the group is exposed to and intra-group transactions not covered by the group SCR are not significant);
  • the PRA has decided to define significant intra‑group transactions as those that would materially influence the solvency or liquidity position of the group or of one of the firms involved in these transactions;
  • the definition of a significant branch has been simplified to denote any branch with a gross written premium that exceeds 5% of the gross written premium of the group.



The majority of respondents welcomed the PRA’s proposals to remove the requirements for TCBs to calculate and report branch capital requirements (including branch risk margin) and hold assets in the UK to cover the branch SCR. The PRA does not propose to change these proposals but does set out some helpful clarifications. Notably, the PRA reiterates that TCBs must still calculate and hold assets covering branch BEL. Specifically, the PRA expects TCBs to ‘provide a numerical illustration of how the available assets would be distributed in a winding up’ of the TCB, reflecting also the order of priorities of claims which would apply to the distribution of branch assets. The PRA also expects TCBs to continue to hold a security deposit in the UK. Notwithstanding these clarifications, we are of the view that the removal of the requirement to report branch capital will still make the UK a more attractive jurisdiction to set up an insurance branch than before.

The PRA notes its ongoing consultation on the authorisation and supervision of insurance branches (CP21/23) and that some of the amendments to existing supervisory expectations could be subject to further change given the PRA is still considering responses to that CP.

Mobilisation and Thresholds


The industry was also broadly in agreement with the PRA’s proposals to establish a mobilisation stage for new insurers (including lowering the Minimum Capital Requirement-floor for firms that enter mobilisation). The PRA has decided not to modify any of its draft rules based on the feedback received, although it does provide one clarification. Some respondents suggested that the mobilisation stage should last longer than 12 months – the PRA clarifies that new insurers in mobilisation should discuss with the PRA and the FCA if there are exceptional circumstances which mean they will not be able to meet this 12-month deadline. The PRA will publish further information and guidance on the mobilisation regime before 31 December 2024.

Lastly, in response to feedback received, the PRA has increased the Solvency II threshold relating to gross written premium to £25m (a further £10m increase compared to its original proposals) and left the technical provisions threshold unchanged at £50m (in line with original proposals). The PRA has also increased the Solvency II thresholds for reinsurance operations – meaning that firms will be subject to Solvency II if their business includes reinsurance operations exceeding £2.5m of gross written premium income, or £5m of gross technical provisions.



The SUK regime is moving at pace and firms can start to see the final shape of the rules in a range of areas. Interestingly, the rules have either remained aligned to those proposed during consultation or the PRA has clarified and made changes in response to industry concerns in a way that the industry is likely to welcome. These latest batch of final rules and publications can provide enough certainty for insurers to start firming up their SUK implementation in areas ranging from TMTP, exploring IM applications or considering the benefits of removal of TCB requirements. This first step in shaping the new regime gives insurers much needed clarity and should be a call to action.


[1] The PRA defines double run-off as a ‘situation where the natural run-off of the TMTP business, combined with an adjustment made for the purposes of amortisation, would result in an excessive degree of amortisation beyond what would be needed to ensure that TMTP reduces linearly to zero by 2032’.



Solvency UK reforms publications and ECRS Insights

  • PRA’s CP12/23 – Review of Solvency II: Adapting to the UK insurance market

o ECRS Insight: Solvency UK: Moving closer to reality | Deloitte UK

  • PRA’s CP19/23 – Review of Solvency II: Reform of the Matching Adjustment

o ECRS Insight: Solvency UK Matching Adjustment: Another piece of the puzzle falls into place | Deloitte UK

o Risk Margin reforms

o Matching Adjustment reforms

PS 2/24: Review of Solvency II: Adapting to the UK insurance market - resources.

  • Chapter 2: TMPT:

o Update to SS17/15 – Solvency II: transitional measures on risk-free interest rates and technical provisions

o Updated SoP – Permissions for transitional measures on technical provisions and risk-free interest rates

o Deleted SS6/16: [Deleted] Maintenance of the ‘transitional measure on technical provisions’ under Solvency II

  • Chapter 3: Internal models

o SoP – Solvency II internal models: Permissions and ongoing monitoring

o SS1/24 – Expectations for meeting the PRA’s internal model requirements for insurers under Solvency II

o Updated SS5/14 – Solvency II: calculation of technical provisions and the use of internal models for general insurers

o Updated SS17/16 – Solvency II: approvals and permissions

  • Chapter 4: Capital add-ons

o SoP - Solvency II: Capital add-ons

  • Chapter 5: Flexibility in calculating group SCR

o Updated SS 4/15 – Solvency II: the solvency capital requirements

o Updated SS12/15 – Solvency II: Lloyd’s

o Updated SS9/15 – Solvency II: Group Supervision

o SoP – The PRA’s approach to insurance group supervision

Meet the authors

Kareline Daguer


Kareline is a director in Deloitte’s EMEA Centre for Regulatory Strategy, specialising in insurance regulation. Kareline has more than 15 years of experience in both prudential and conduct insurance regulation, providing high quality advice to firms in the UK market. At Deloitte, Kareline leads a team of experts to carry out horizon scanning and assess the strategic impact of regulation on the market. Kareline provides advice to insurance clients on the impact of regulation on their business, finance, and operating models. Kareline has led engagements supporting clients with a number of regulatory challenges including Brexit and restructuring projects, advice on impact of Solvency II/ Solvency UK over capital decisions and investments, supporting a top 3 retail general insurer on interpretation and compliance with Pricing Practices rules, and design and implementation of insurance products and customer journeys for a large life insurer. Kareline is a member of the ICAEW Risk and Regulation Committee and the Solvency II working party. Kareline has authored several publications and columns on insurance regulation and Solvency II over the past ten years.  

Roger Simler


Roger is a Partner in Deloitte’s Insurance Practice and the EMEA Lead Partner for the Actuarial, Reward & Analytics practice. He has been with Deloitte since 2001 during which time he has worked on a wide variety of client assignments ranging from IFRS17, Solvency II, Finance Transformation, M&A, Skilled Person and Audit, both in the UK and internationally.