Solvency UK: PRA/ABI Insurer Engagement

Overview and Purpose

The purpose of the engagement is to enable the PRA to work with industry via subject expert groups (SEGs) to gather a broad range of information on and options for the development of the new supervisory measures announced by HM Treasury in their Solvency II Review consultation response, as part of the Autumn Statement in November 2022.

As of March 2023, three SEGs have been established on the following areas of reform relating to the matching adjustment (MA) and the new supervisory measures:

• attestation;
• matching adjustment (MA) investment flexibility;
• notching; and
• stress testing

The Terms of Reference for the engagement is linked below. Other relevant aspects of reform which may require industry engagement will be initiated as appropriate in due course, and the Terms of Reference will be updated as necessary.  

It is important to note that final regulatory reforms will be determined by the PRA in accordance with its statutory objectives and ‘have regards’. The PRA will seek the views of the wider industry and other interested parties through normal public consultation processes.

Terms of Reference

PRA/ABI insurer plenary sessions

Regular plenary sessions will be held by the ABI/PRA where the chair of each subject expert group will provide updates and summaries of their discussions to interested parties outside of the subject expert groups’ membership on the topic areas discussed. 

Subject expert group – attestation

The attestation subject expert group (ASEG) is one of the expert groups being jointly run by the PRA and the insurance sector – specifically those impacted by proposed reforms to the MA. The expert group’s focus is on how to effectively deliver one element of the package of reforms announced by the UK Government in November 2022 – the requirement for a senior manager to attest to the PRA on the appropriateness of the level of the fundamental spread (FS), including any add on, and the resulting MA. 

Subject expert group – MA investment flexibility

The investment flexibility subject expert group (IFSEG) is one of the expert groups being jointly run by the PRA and the insurance sector, specifically firms in the annuity market. The task of the expert group is to develop options on how to effectively and safely deliver on the UK Government’s intention to legislate to broaden asset eligibility for the MA.  

Subject expert group – notching

The notching subject expert group (NSEG) is one of the expert groups being jointly run by the PRA and the insurance sector, specifically those impacted by proposed reforms to the MA. The expert group’s focus is on how to effectively deliver the UK Government’s intention to legislate to allow the use of notched ratings in the FS methodology and calibration. Summaries of the meetings held are linked below.

Subject expert group – stress testing 

The stress testing subject expert group (STSEG) is one of the expert groups being jointly run by the PRA and the insurance sector, specifically those impacted by proposed reforms to the PRA’s stress testing exercises. The expert group’s focus is on how to effectively deliver one element of the package of reforms announced by the UK Government in November 2022 – to require insurers to participate in regular stress testing exercises prescribed by the PRA and to allow the PRA to publish individual firm results.

PRA/ABI – Liquidity Subject Expert Group (L–SEG) 

Market-wide stresses in March 2020 and September 2022 led to liquidity strains for some insurers as well as highlighting gaps in insurers’ liquidity risk frameworks. During these events, the PRA sought to receive timely and accurate data on firms’ positions and exposures and is looking to collect this information on a more consistent and systematic basis in advance of potential future market stresses. 

During 2024, the PRA worked with relevant stakeholders to develop liquidity reporting requirements. Through this work, the PRA aims to have timely, consistent, and accurate information on insurers' liquidity positions, to allow the PRA to form a view on firms' resilience, both in peacetime and in stress.

Contact

If you have any queries regarding the engagement, please contact Solvency2Review@bankofengland.co.uk.