PRA’s QIS ‘will require significant resource from firms’ - Sweeney

Written by Adam Cadle

16/06/2021

The Prudential Regulation Authority (PRA) is planning a Quantitative Impact Study (QIS) for the Solvency II review, and has warned insurers of the high-quality data they will soon be expected to share in a tight window.

In a recent speech given in London, Bank of England (BoE) executive director for insurance, Anna Sweeney, said “we know the QIS will require significant resource from firms”.

“We will be asking for high-quality data from a wide range of firms covering different parts of the framework, and in a relatively short period of time – three months or so. We are only asking this because of how important the exercise will be in determining the eventual policy proposals, and because of the understandable enthusiasm of firms to get on with the reform – enthusiasm which we share. But I’ll say now, if there are aspects of the timetable which firms are going to struggle to meet, we would like to understand that at an early stage – so we would welcome feedback on any barriers to providing high-quality data as soon as possible.”

The QIS will focus on areas of potential policy change which are the easiest to quantify and have a more obvious immediate balance sheet impact, Sweeney stated.

“Through the QIS we will be gathering data around how the MA could be calculated, so that we can be sure that the reformed MA provides adequate protection given the wide range of assets annuity writers hold. Changes on eligibility and process don’t so easily lend themselves to a QIS, but they can be designed to ensure that the MA meets the government’s other objectives for the review.

“In preparation for the QIS, we will shortly be releasing an information request to firms which use the MA. We are asking for granular asset data, and asset and liability cashflow data, relating to the relevant firms’ Matching Adjustment Portfolios under the existing regime. I’d strongly encourage firms that use the MA to engage with this at an early stage.

Concerning the risk margin, Sweeney said there is “consensus in the UK that the risk margin as currently designed is not doing its job correctly”.

“Whilst it is clear that reform is needed, there remains a choice of method to implement this reform. Internationally, market-consistent regimes have used a variety of different approaches to risk margin calculation. The data we gather in the QIS will help form proposals on the best way to implement reform which meets the objectives of the review.

"At the outset, it’s important to be clear that nothing in the QIS is a proposal itself, and we would discourage commentators from trying to discern a ‘central view’ from the way the QIS will be formulated. The truth is that there is not yet a settled ‘central view’ on the areas we are testing, and this is why it’s so important to gather good quality data – to help to form robust and evidence-based policy proposals that can be consulted on in due course. We would not want the exercise to be taken as a signal for future decision making."

The QIS is expected to be released over the summer and will be relevant for a broader set of firms – including both life and non-life.

“Whilst at the moment we are not expecting to test changes to the Standard Formula, we still encourage Standard Formula firms to participate as they may be impacted by the other changes,” Sweeney underlined.

“Participation is voluntary, but we will be writing to a variety of firms in each sector strongly encouraging them to participate. In addition we will publish the QIS templates on our website so that any firm is able and indeed welcome to participate. We would like a wide range of participation so that we and the government can understand the impact of reforms not just on the industry as a whole, but importantly on sub-sectors. The PRA will set out plans shortly on overall timelines, and how we intend to engage with firms during the QIS.

"To build as accurate a picture as possible of the impact of reforms, we need high-quality data. In particular we are asking firms to validate internally the data they submit to us.”

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