Solvency II newsflash
PRA consultation on equity release mortgages – Part 2
16 Apr 2019
On the 3rd April 2019, the Prudential Regulation Authority (“PRA”) released its latest consultation paper on equity release mortgages (“ERMs”), CP 7/19: “Solvency II: Equity release mortgages – Part 2”. This follows-up on the areas identified by the PRA as requiring further consultation within PS31/18:
- When and how the PRA publishes updated values for the deferment rate and the volatility parameter that form part of the Effective Value Test (the “EVT”);
- The treatment of other assets in the same Special Purpose Vehicle as the ERMs;
- The frequency that firms are required to assess the EVT; and
- Principles for how the PRA would assess the approaches firms could use to model the risks associated with ERMs in their Internal Models, including the application of EVT and varying the deferment rate assumption under stress.
In addition to these areas, the PRA is also consulting on the approach for ERMs with an uncertain principal amount and accrued interest at exit.
The consultation closes on 3 July 2019 and the PRA currently expects its proposals to become effective from 31 December 2019.
In this newsflash we look at:
- The PRA's proposals at a glance
- Allowing for uncertain loan principal and accrued interest
- The 'EVT in stress'
- Where next?