PRA issues second part of equity release solvency paper

The prudential regulation authority has released the second part of its Solvency II: Equity release mortgages consultation paper.

It aims to give further details on how the PRA expects firms to perform an effective value test, which is used to assess the risk of holding an equity release mortgage portfolio.

Specifically, the latest consultation asks for views on when and in what form the PRA would review and publish the values and parameters used to conduct EVTs, how other assets can be incorporated into the test, the frequency that the tests should be carried out, and how the PRA would assess the ways in which firms model risks as part of the EVT.

These proposals are all responses to questions asked of the PRA upon the publication of an earlier part of the consultation in December 2018, which detailed feedback to responses given to a paper release in early July of that year.

A further consultation in the current paper is sought regarding how the loan value plus accrued interest factor can be calculated when the amount due at exit is not known.

The consultation finishes on Wednesday 3 July.

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