'PRA' Sends NTI Scurrying to Update Our Compendium

Posted on Jul 26, 2023. by NTI

Truth is that NTI were sitting pretty comfortably, on the verge of smugness, this morning, thinking our on-app Compendium of every word, phrase, term and acronym used in our glorious profession had it all covered ...

... then Billy read about the 'Prudential Regulation Authority', aka 'PRA', aka ... aaarrrgggghhhhh! We have now (a bit sheepishly) added both to the glossary. It turns out the PRA is a UK financial services regulatory body, formed as one of the successors to the Financial Services Authority. The authority is responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms. Ah.

Whilst we are admitting stuff, we also had to look up (and add) 'Solvency II' as well. This is an EU legislative programme implemented in all 28 Member States, including the UK, by 1 January 2016. It introduces a harmonised EU-wide insurance regulatory regime. Oh.

The above is relevant, because there is news today (Wednesday 26 July) that the PRA is due to publish a consultation in September this year on how new capital adequacy rules for insurers (known as Solvency UK) will operate in practice. The Government wants to overhaul the Solvency II Directive to allow insurers to invest up to £100 billion in infrastructure and development projects in the UK. Specifically they want to revamp two elements of Solvency II; one of which is known as the 'matching adjustment', which allows insurers to discount the value of their long-term liabilities on their balance sheets if the assets they invest in meet criteria.

It wants to do this to allow insurers to invest in assets that offer 'highly-predictable' cash flows. That would allow the sector to invest in new assets such as infrastructure projects at the construction stage, which offer variable, rather than fixed, returns. Good.

However, insurers are waiting for the PRA's September 2023 consultation, which should outline how this might actually work. We will be back to you with news of this within a couple of months.


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