The Prudential Regulation Authority (PRA) has published its final rules on how it will implement the Solvency II directive in the UK.
The policy statement, published by the PRA, set out how the regulator will implement the "long-term guarantees package", which helps insurers calculate the risk on the some long-term products, such as annuities.
"The long-term guarantees package allows a firm to reduce its capital and reserving requirements, where the firm is closely matched and invested for the long term," said the PRA .
In addition, the PRA published a consultation paper on the application process for "volatility adjustment". According to the regulator, volatility adjustment was designed to mitigate the effect of short-term volatility in financial markets on the valuation of insurers' long-term liabilities under Solvency II.
The regulator said: "The greater the impact of the volatility adjustment on the firm's financial position and risk profile, the greater the expected level of detail and justification that firms will need to provide in the application."
PRA said any firm wishing to use the volatility adjustment could submit a formal application after 1 April. PRA said it would look at applications on a case-by-case basis and aim to make decisions within six weeks.
Andrew Bailey, deputy governor at the PRA, said: "Solvency II represents a fundamental change in the way that insurers are regulated. These publications will allow firms to finalise their preparations for Solvency II in order to be ready for the start of the regime on 1 January 2016."
The consultation runs until 20 April 2015.
