On 8 July 2021, the PRA published a consultation paper (CP) on proposed changes to the Solvency II reporting requirements for UK insurers and the expectations of the PRA in respect of this. The proposals set out in this CP (CP11/21 – Review of Solvency II: Reporting [Phase 1]) were created in conjunction with the wider HM Treasury (HMT) review of Solvency II.1
The proposals focussed on changes to the Quantitative Reporting Templates (QRTs) and generally looked to reduce the reporting burden for firms.
On 17 December 2021, the PRA published its policy statement (PS) detailing its final decisions regarding the proposals. The policy set out in the PS (PS29/21 – Review of Solvency II: Reporting [Phase 1]) is broadly in line with the CP but also reflects feedback from industry participants.
The changes set out in PS29/21 include:
- Removal of the requirement to report certain QRTs
- A reduction to the reporting frequency of the Minimum Capital Requirements (MCR) templates S.28.01 and S.28.02
- An amendment to the proportionality threshold for S.16.01 on annuities stemming from non-life insurance obligations for pure reinsurers
- Extension of the quarterly reporting waivers
The PRA’s PS was in force from the statement’s publication on 17 December 2021 with the changes to the QRTs taking effect from reporting date 31 December 2021. The PRA has made amendments to the necessary supervisory statements (SS) to reflect the changes.
The following sections summarise the changes being made by the PRA in more detail.
Removal of certain QRTs from the required reporting
The PS states that a number of currently reported QRTs will no longer be required where the information has been deemed not relevant or could be derived from other information gathered by the PRA to fulfil its role. The QRTs proposed for removal are:
- S.01.02 templates which show basic information on the firm
- S.06.01: Summary of assets
- S.15.01 and S.15.02 covering the guarantees of variable annuities
- S.29.01, S.29.02, S.29.03 and S.29.04 covering the variation of excess of assets over liabilities over the reporting year
- All templates submitted under the financial stability reporting requirements (which were only required for larger firms)
Removal of the above templates will reduce the reporting burden for firms. Some QRTs such as the S.29 templates can be complex and consequently quite onerous for firms to complete and so we expect the removal of these templates to be welcomed.
Respondents to the consultation highlighted other QRTs or data items for potential deletion, but the PRA has decided not to remove any other QRTs at this stage. Some respondents suggested the deletion of the passporting cells within QRT S.04.01. However, the PRA reiterated that firms are no longer required to complete these cells within S.04.01 as previously set out in supervisory statement SS2/19.
Minimum capital requirements reporting frequency
In the CP, the PRA proposed reducing the frequency with which firms are required to report the detailed calculation of the MCR.
Currently firms report either S.28.01 or S.28.02 in respect of their MCRs each quarter depending on their type of business. The PRA proposed to reduce the frequency to only require firms to complete these templates at the fourth quarter (Q4) and half-year (Q2) valuation dates.
Respondents noted that firms are likely to still require an MCR calculation each quarter to complete other QRTs but also highlighted the limited variability of the MCR due to the restriction of falling within 25% to 45% of the Solvency Capital Requirement (SCR).
Following this feedback the PRA has taken the decision to further reduce the reporting requirements for S.28.01 and S.28.02 to be annual only. This will reduce the quarterly reporting requirements for all firms each year.
The PRA has updated its rules on the MCR to reflect this reduced reporting frequency and provide further clarity on the MCR calculation.
Proportionality for S.16.01
The PRA intends to exempt pure reinsurers from reporting QRT S.16.01—“Information on annuities stemming from non-life insurance obligation.” This exemption would not apply to any reinsurers who write direct business, i.e., firms which are not pure reinsurers.
Feedback on this change suggested that the scope should be extended to include firms, other than pure reinsurers, that have small amounts of annuities stemming from non-life insurance obligations. The PRA recognises the complexity of this type of business and will further consider an update to this exemption in the future. However, at this time the exemption will only apply to pure reinsurers.
Extension to the quarterly reporting waivers
In the CP, the PRA set out plans to expand the scope of firms eligible for quarterly reporting waivers to include Category 3 firms. Currently Category 4 and 5 firms only are eligible for quarterly reporting waivers; however, other categories of firms have been able to apply for waivers which have been considered by the PRA on a case-by-case basis.
It is expected that this change will lead to an increase in the number of firms making use of the quarterly reporting waivers, in particular for Category 3 firms that may previously have not been able to access these waivers.
Responses were generally supportive of the proposal, with some respondents noting that their firms fall outside of the scope or would be unaffected by the change. The PRA has stated it will consider further opportunities to improve the proportionality of reporting requirements further in the future.
Firms which have a quarterly reporting waiver that reduces their quarterly submission requirements will see an additional benefit from the removal of the S.01.02, and reduced reporting frequency of S.28.01 and S.28.02, resulting in no quarterly submission at Q1, Q3 and Q4 for firms with such a waiver.
Implementation
The PRA’s initial proposal was for the reporting change to take effect from 31 March 2022, but feedback from respondents noted that:
- There would be an additional benefit to firms not having to prepare the templates proposed for removal from 31 December 2021
- Firms would require minimal preparation time to make the change as it would require noncompletion of certain QRTs and would not require additional setup time.
Following this feedback the PRA has moved forward the implementation date for the policy to 31 December 2021 and firms will no longer have to complete the QRTs, which are to be removed from this date. This applies to both quarterly and annual reporting from the 31 December 2021 inclusive.
The PRA does not plan to deviate from the European Insurance and Occupational Pensions Authority (EIOPA) taxonomy at this date and instead firms can select "not reported" in the submission template for any QRTs they are no longer required to complete. This means that the changes set out in the PS should not require any systems redevelopment to accommodate them.
Other responses
Other respondents provided comments on areas outside of the scope of CP11/21, including on the broader scope of the reform of regulatory reporting requirements. The PRA will consider these areas and seek further engagement from industry participants as part of the next phase of its review of reporting requirements.
Conclusion
Overall, the changes outlined in PS29/21 are likely to reduce the reporting burden for all UK insurers, and in particular benefit small to medium-sized firms.
Pure reinsurances branches have already had their quarterly reporting requirements eliminated by the PRA and now, for those firms with a quarterly reporting waiver, there will be no quarterly QRTs required for submission at Q1, Q3 and Q4.
How Milliman can help
Milliman has a wide range of experience of working within the UK insurance industry across all types of insurance business. Our consultants and principals hold a number of Chief Actuary and With-Profits Actuary roles. In particular, we have supported firms in the following areas:
- The determination of the Pillar 1 Solvency II balance sheet, including regulatory interpretations
- The production of forward-looking projections
- Development of stress and scenario testing, and risk appetite and limits frameworks
- The completion of the Solvency II Quantitative Reporting Templates (QRTs)
- Drafting and review of the Solvency and Financial Condition Report (SFCR) and Regular Supervisory Report (RSR)
- Independent assessments of clients’ compliance against various aspects of UK regulations
If you have any questions or comments on this paper, or on any other issues affecting the UK life insurance industry, please find our contact details below or reach out to your usual Milliman consultant.
1 See the Milliman summary of the HMT Review of Solvency II at https://uk.milliman.com/en-GB/insight/the-uk-review-of-solvency-ii-considerations-for-the-future-regulatory-landscape-in-the-uk.