We replied at the last minute to the CP 13/18, our letter is here. For those who don’t have time to read it, the main points are:
- A jolly good set of proposals, but why did the PRA take nearly 4 years to decide on the pricing of a simple European put option? I shall be commenting upon this enigma at the discussion at the LSE this (Monday) afternoon.
- The CP does not consider the capital treatment of ERMs, yet an autocorrelated market such as residential property poses considerable problems for Var -type capital treatment.
- The Matching adjustment regime is completely impenetrable. “We believe the PRA should make it a priority to work on possible reforms to Solvency II or on a UK successor to Solvency II to bring it into line with accounting standards such as IFRS”.
- IFRS 17 is not consistent with the regulatory accounting treatment of Solvency II
I look forward to seeing our readers at the LSE tomorrow. There will be drinks.
[Update: The Institute of Actuaries has just published its response to CP 13/18. We will be commenting on this tomorrow, but note they also bring up the autocorrelation point, although, like many others, they confuse a valuation question with a risk management one.]