Insurance regulatory news, 7 June 2021

Contents

• Download the full regulatory news bulletin
• GBP transition to SONIA under Solvency II regime: PRA PS12/21
• General insurance pricing practices: FCA PS21/5

Following a short break, the next update will be published on 21 June 2021.

GBP transition to SONIA under Solvency II regime: PRA PS12/21

The UK Prudential Regulation Authority (PRA) has published a policy statement, PS12/21, on deep, liquid and transparent (DLT) assessments and GBP transition to the Sterling Overnight Index Average (SONIA), under the Solvency II regime.

PS12/21 gives feedback to the PRA's consultation paper, CP1/21, and contains the PRA's final policy set out in an updated Statement of Policy (SoP): The PRA's approach to the publication of Solvency II technical information, which appears in Appendix 1 to PS12/21.

Appendix 2 to PS12/21 contains the results of the first DLT assessment of the SONIA Overnight Index Swap (OIS) market. The assessment concluded that the Last Liquid Point (LLP)) for SONIA OIS should be at 50 years.

As a result of feedback received, the PRA has made some minor changes to its proposed policy. It states the changes aim to make the final policy clearer and do not result in any additional burden on firms compared to the original proposals.

The new policy takes effect on 3 June 2021. Transition to the new GBP risk-free rate (RFR) will take effect on publication of technical information (TI) with reference dates from and including 31 July 2021. The PRA explains that this means that the GBP RFRs that the PRA will use when calculating daily spread figures (for example, for the Long Term Average Spread (LTAS)  calculation) will be based on LIBOR swap rates for dates up to and including 30 June 2021, and will switch to being based on SONIA OIS rates for dates from and including 1 July 2021.

General insurance pricing practices: FCA PS21/5

Following its consultation in CP20/19, the UK Financial Conduct Authority (FCA) has published a policy statement, PS21/5, giving feedback to its consultation and final policy to improve competition and protect home and motor insurance customers from loyalty penalties.

The final rules consist of a package of measures including:

• a pricing remedy requiring that when a firm offers a renewal price to a customer, this should be no greater than the equivalent new business price (ENBP) for a new customer;
• changes to the FCA's existing product governance rules to ensure firms have in place processes to provide products that offer fair value to customers;
• rules requiring firms to offer a range of accessible and easy options for consumers who want to cancel auto-renewal on their contracts; and
• reporting requirements to help ongoing supervision of the home and motor insurance markets and to help the FCA monitor firms.

The rules on systems and controls (SYSC), product governance (PROD), premium finance provisions (ICOBS 6A.5) and related glossary changes will come into effect on 1 October 2021. The FCA's finalised guidance, FG19/: Guidance for insurance product manufacturers and distributors will be withdrawn when these come into effect.

The rules on pricing, auto‑renewal and reporting will come into effect on 1 January 2022, with a transitional provision until 17 January 2022 for the pricing and auto‑renewal disclosure rules.

The FCA has also published a research paper, which contains the results of an experiment it conducted looking at consumer perceptions of and response to discounts and incentives.

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Authored by Yvonne Clapham