CP14/22 - Review of Solvency II: Reporting phase 2

1. Overview

1.1 This Consultation Paper (CP) sets out the Prudential Regulation Authority’s (PRA) proposals to streamline significantly a number of current Solvency II reporting and disclosure requirements for insurers, and to improve the collection of data in a small number of areas where reporting is currently not tailored appropriately to the features of the UK insurance sector, or to the PRA’s supervisory needs. The PRA considers that the proposals would allow it to continue to meet its statutory objectives while reducing ongoing reporting costs for firms, thereby improving competitiveness and proportionality. To achieve these aims, the PRA proposes to revoke retained EU Technical Standards for firms’ supervisory reporting and public disclosure under Solvency II, and to make new rules to amend and replace the retained EU Technical Standards. It also proposes amendments to the PRA’s expectations set out in Supervisory Statements (SS) relating to external audit of the public disclosure requirement, life insurance product reporting codes, and the National Specific Template LOG files.

1.2. The proposals in this CP would result in:

• onshored Commission Implementing Regulation (EU) 2015/2450 and onshored Commission Implementing Regulation (EU) 2015/2452 being revoked through a PRA technical standards instrument (see Appendix 1);
• changes to the following PRA Rulebook chapters by adopting a PRA rule-making instrument (see Appendix 2):
  • Glossary of the PRA Rulebook;
  • External Audit of Relevant Elements of the Solvency and Financial Condition Report (SFCR) - External Audit Part of the PRA Rulebook;
  • Fees Part of the PRA Rulebook ;
  • Reporting Part of the PRA Rulebook;
  • Group Supervision Part of the PRA Rulebook;
• changes to the reporting and disclosure templates and LOG instruction files as set out in this CP (see Appendix 3);
• changes to SS11/16 ‘Solvency II: External audit of, and responsibilities of the governing body in relation to, the public disclosure requirement’ (see Appendix 4);
• changes to SS25/15 ‘Solvency II: Regulatory reporting, internal model outputs’ (see Appendix 5);
• the deletion of SS36/15 ‘Solvency II: life insurance product reporting codes’ (see Appendix 6); and
• changes to SS6/18 ‘Solvency II: National Specific Templates LOG files’ (see Appendix 7).

1.3 The policy proposals included in this CP are:

• removal of the requirements to report a number of Solvency II Quantitative Reporting Templates (QRTs), the directly associated disclosure templates, and the relevant PRA’s National Specific Templates (NSTs);
• reduction of the reporting frequency of certain templates from quarterly to either semi-annually or annually;
• consolidation of a number of multiple reporting templates covering the same reporting topics into new templates;
• introduction and amendments of reporting proportionality thresholds for certain reporting and disclosure templates;
• amendments to existing reporting and disclosure templates;
• introduction of three templates covering new reporting topics; and
• amendments to the expectations set out in certain PRA SSs to:
• reflect the above proposed reporting changes;
• transfer some expectations contained in a SS to the reporting instructions; and
• clarify references to EU provisions following the UK’s withdrawal from the EU.

1.4 The drafting changes to the SSs referred to in paragraph 1.3 (bullet point one and two above) are intended to assist firms and reflect the PRA’s existing approach, as set out in SS2/19 ‘PRA approach to interpreting reporting and disclosure requirements and regulatory transactions forms after the EU withdrawal’.

1.5 The onshored Solvency II supervisory reporting regime forms a core component of the PRA’s ability to supervise Solvency II insurers through the provision of standardised, comparable, and relevant information on an insurer’s risk profile, capital requirements, and own funds. Together with the PRA’s NSTs, the Solvency II reporting requirements provide a readily accessible data source used by supervisors, as well as other users. This data also enables the Bank of England (The Bank) and other government bodies, including the Financial Conduct Authority (FCA) and the Office for National Statistics (ONS) to analyse the activities of the industry as a whole, and understand the connections between insurers and the wider financial system.

1.6 However, elements of the current reporting regime were designed for broader purposes, including supporting the supervision of insurers across multiple jurisdictions throughout the EU, and the supervision of potential risks and insurance products relevant to the broad population of EU undertakings. Following the UK’s withdrawal from the EU, the PRA considers that the reporting requirements can be streamlined significantly and tailored more appropriately to reflect the features of the UK insurance sector and the PRA’s objectives. The proposals set out in this CP have been developed to maintain the PRA’s ability to meet its statutory objectives, while improving competitiveness and proportionality by making Solvency II reporting more efficient for firms to prepare, and for users to analyse. The proposed changes to disclosure templates seek to extend these benefits to the quantitative public disclosure templates.

1.7 The PRA considers that the proposals in this CP would advance its primary statutory objective to promote the safety and soundness of firms. This will be done through the provision of more relevant and insightful data on the activities, and risk profiles of UK Solvency II firms, which is expected to enhance the usefulness of reported information to better reflect firms’ risk exposures, and the information available for the PRA to monitor firms more efficiently. In the absence of any reform, the PRA considers existing Solvency II reporting may contain some information that is not used extensively by the PRA, and in some areas the existing information reported does not adequately address supervisory needs.

1.8 The CP is relevant to UK Solvency II firms, the Society of Lloyd’s and its members and managing agents, insurance and reinsurance undertakings that have a UK branch (third-country branch undertakings), firms within the PRA’s Temporary Permission Regime (TPR) for (re)insurers, and firms and UK holding companies required to publicly disclose or report group information to the PRA, for which this CP will refer to collectively as ‘insurers’ or ‘firms’ unless otherwise specified. It is not relevant to non-Solvency II Directive firms.

1.9 The PRA has conducted a cost benefit analysis (CBA) to estimate one-off implementation costs for the proposed changes set out in the CP, and the likely ongoing reporting cost savings for insurers at an industry level. Overall, the PRA believes that the benefits of the proposals to its objectives, and the annual cost savings for firms, outweigh the one-off implementation costs involved. The cost estimates have been based on historical cost information submitted by those firms who responded to the PRA’s reporting cost survey, where sufficient granular information was provided. Details on the CBA are set out in Chapter 5.

1.10 The PRA has a statutory duty to consult when introducing new rules and when changing rules (FSMAs138J), modifying, amending, or revoking technical standards (FSMA s138S). Further, the PRA has a public law duty to consult widely where it would be fair to do so. This CP proposes to both introduce new rules and amend existing rules within the PRA Rulebook, chapters are set out in paragraph 1.2.

1.11 In carrying out its policy making functions, the PRA is required to comply with several legal obligations. Appendix 8 lists the statutory obligations applicable to the PRA’s policy development process. The analysis in this CP explains how the proposals have had regard to the most significant matters, including an explanation of the ways in which having regard to these matters have affected the proposals.

1.12 The ‘have regards’ matters considered by the PRA as part of its analysis of the current proposals include the principle that a burden imposed on firms should be proportionate to the benefit resulting from the imposition, the need to use the PRA’s resources in the most efficient and economic way, and the transparent exercise of PRA functions. Many of the proposals seek to streamline reporting by reducing the volume of information that Solvency II firms are required to report. In the development of these proposals, the PRA has sought to avoid changes which may give rise to unnecessary implementation costs. Furthermore, through better alignment of the reported data to the PRA’s supervisory and the wider statistical use of the Bank, the proposals aim to further the efficient exercise of supervision through the provision of more relevant data that is readily accessible to the Bank. The proposed transfer of the onshored supervisory reporting and disclosure templates (once amended) to the PRA Rulebook would also result in the consolidation of Solvency II reporting and disclosure requirements for UK insurers or firms into a single location, which will enhance the transparency of reporting and disclosure requirements.

Background

1.13 On Tuesday 23 June 2020, HM Treasury (HMT) announced the review of Solvency II to ensure that the regime properly reflects the unique structural features of the UK insurance sector. This review was supported by a Call for Evidence published by HMT, which sought feedback on whether any changes should be made to insurance firms’ reporting requirements, and how the various layers of insurance reporting could be brought together to create a more coherent reporting framework. Against this backdrop, the PRA commenced a phased review of its insurance reporting and disclosure requirements.

1.14 On Friday 17 December 2021, the PRA published Policy Statement (PS) 29/21 ‘Review of Solvency II: Reporting (Phase 1)’ which streamlined certain onshored Solvency II reporting requirements to reduce the volume of returns reported. The PRA deleted templates that were not extensively used, and extended the quarterly reporting waiver programme to PRA designated ‘Category 3’ UK Solvency II firms, to enhance the proportionality of quarterly reporting. These ‘Phase 1’ reforms came into effect on Friday 31 December 2021 and are estimated to have reduced the volume of templates reported to the PRA by 15% on average across the population of UK Solvency II firms, and by significantly more for smaller and medium-sized firms. The PRA indicated that further reforms were being considered for subsequent phases.

1.15 The second phase of proposed reporting and disclosure reforms set out in this CP builds upon the previous Phase 1 reporting changes, and proposes more comprehensive improvements to better reflect the composition of the UK insurance market and in turn, increase the relevance of reporting to the PRA and efficiency in advancing its prudential objectives. Many of these proposals took into account feedback received in response to the Phase 1 CP, including the proposed consolidation on the reporting of activity by country, further adjustments proposed to the frequency of reporting of certain templates, and the distinctions between life and non-life sectors in designing the templates.

1.16 The scope of HMT’s review of Solvency II is much broader than reporting, and covers other areas of reform that are excluded from this CP, such as the matching adjustment and risk margin, transitional measure on technical provisions, internal models, mobilisation regime for new insurers, third party branches, and the group Solvency capital requirements (SCR). The PRA plans to consult on these other areas of reform and potential technical changes to the reporting templates and disclosure requirements on these topics at a later date. Beyond the current phase, the PRA is also looking to review the existing requirements of the Solvency and Financial Condition Report (SFCR) and regular supervisory report (RSR) with a view to consult on these in due course.

1.17 Accordingly, Appendices 9 and 10 set out the scope of application of the proposals detailed in this CP (eg solo firms, groups, and branches), and Appendix 11 sets out reporting templates that are not proposed to change in this CP where they may be related to topic areas of potential future reform. Given the potential for other reforms to group or branch requirements under HMT’s review of Solvency II, the application of some proposals in this CP has been limited to solo firms. The extension of certain proposals in this CP to the reporting and disclosure requirements of groups and branches may be the subject of future consultation.

1.18 It is also to be noted that any changes to Solvency II arising from the broader scope of the review could give rise to changes to existing reporting templates or to the proposals in this CP. Any such consequential reporting or disclosure changes arising from changes in other areas of Solvency II reform will be subject to the PRA’s normal consultation process as required by FSMA, and may result in further proposed change to the rules, technical standards, and SSs set out in paragraph 1.2.

1.19 To minimise burdens on firms of making changes to reporting systems, it is currently intended that the proposals in this CP will be implemented (subject to consultation responses and a policy statement) at the same time as other certain aspects of the proposed Solvency II reform, including further changes to group reporting, disclosure templates and instructions, and any changes to reporting by third-country branches.

1.20 The PRA has also engaged with industry through a joint PRA-industry engagement group co-chaired by the PRA and the Association of British Insurers (ABI), designed to understand firm’s experiences of the existing reporting and disclosure requirements. This engagement aims to facilitate the PRA’s own development of policy options in delivering a further streamlined framework.

1.21 The proposals in this CP are intended to be delivered using the PRA’s powers under 138P FSMA to revoke the onshored EU technical standards on reporting and disclosure (ITS 2450 and ITS 2452), and its general rule-making power under section 137G FSMA to make new PRA rules to be included in the PRA Rulebook. However, the exact legal mechanism for delivering these changes may depend on measures in the Financial Services and Markets Bill currently before Parliament.

Structure of the CP

1.22 The implementation of the reporting and disclosure proposals contained in this CP would require policy to be made across a number of areas. The proposals are structured as follows:

• Chapter 2 sets out proposals relating to the deletion, change in frequency, or change in application threshold of Solvency II QRTs and the PRA’s NSTs for all firms in scope of this CP.
• Chapter 3 sets out proposed amendments to existing Solvency II reporting, including edits to existing templates and the consolidation of multiple templates into new reporting within existing areas.
• Chapter 4 covers the areas for which the PRA proposes to collect new reporting.
• Chapter 5 details an analysis of the cost and benefits of the proposals set out in Chapters 2 to 4 in this CP.
• Chapter 6 sets out proposed changes to the PRA Rulebook and UK Technical Standards on Solvency II reporting and disclosure to effect the proposals in this CP.
• Chapter 7 sets out the PRA’s approach to updating the European Insurance and Occupational Pensions Authority (EIOPA) Taxonomy 2.6, and the Bank’s Insurance Taxonomy to implement the proposals in this CP. Chapter 6 therefore does not include specific policy proposals.

Implementation

1.23 The PRA recognises that changes to reporting requirements will require some system changes and other one-off implementation costs for firms, and that an appropriate amount of advance notice is therefore required to assist firms in their planning. As explained in paragraph 1.16, the PRA intends to consult on in 2023 any further reporting changes that are dependent on other areas of the Solvency II reform. Furthermore, the legal mechanism to implement these changes may be affected by the Financial Services and Markets Bill currently before Parliament. To ensure firms have an appropriate lead time to plan these reporting changes in an orderly manner, the PRA therefore proposes that the implementation date for the changes resulting from this CP would be for quarterly and annual reporting reference dates falling on and after Tuesday 31 December 2024.

Responses and next steps

1.24 This consultation closes on Monday 8 May 2023. The PRA invites responses on the proposals set out in this consultation. Please address any comments or enquiries to CP14_22@bankofengland.co.uk. Please indicate in your response if you believe any of the proposals in this consultation paper are likely to impact persons who share protected characteristics under the Equality Act 2010, and if so, please explain which groups and what the impact on such groups might be.

1.25 References related to the UK’s membership of the EU in SS2/19 ‘PRA approach to interpreting reporting and disclosure requirements and regulatory transactions forms after the UK’s withdrawal from the EU’ have been updated as part of these proposals to reflect the UK’s withdrawal from the EU. Unless otherwise stated, any remaining references to EU or EU-derived legislation refer to the version of that legislation which forms part of retained EU law.^{footnote [1]}

2. Changes to the scope of Solvency II and NST reporting

Deleting templates

2.1 The PRA proposes to remove the requirements for firms to report in respect of the following templates by amending the current onshored Commission Implementing Regulation (EU) 2015/2450 when transferring into the PRA Rulebook. The proposed deletions would apply to all firms in scope of this CP, for all reporting frequencies. The templates proposed for deletion are:

• S.05.01 Premiums, claims and expenses by line of business;
• S.07.01 Structured products;
• S.08.02 Derivatives transactions;
• S.21.01 Loss distribution risk profile;
• S.21.03 Non-life distribution of underwriting risks – by sum insured;
• S.30.01 Facultative covers for non-life and life business basic data;
• S.30.02 Facultative covers for non-life and life business shares data;
• S.31.02 Special Purpose Vehicles;
• S.36.03 IGT – Internal Reinsurance;
• NS.05 Revenue account life;
• NS.06 Business model analysis (life); and
• NS.12 The Society of Lloyd’s Solvency Capital Requirement.

2.2 The PRA considers that the information reported in the templates listed in paragraph 2.1 either has limited prudential value to its supervisory approach, or that it can monitor firms’ exposure in those areas using other reporting templates.

Changes in the reporting frequency of certain reporting templates

2.3 The PRA proposes to reduce the reporting frequency of certain quarterly reporting, whilst retaining the existing quarterly submission deadlines. The proposed reduction in reporting frequencies are set out below:

Table 1: Proposed changes to reporting frequency

Reporting thresholds

2.4 The PRA proposes to change existing thresholds defining the scope of application of the QRTs listed below, as well as introduce new thresholds. The PRA considers its proposals would align the requirement to report certain existing templates, and a proposed new template, to the materiality of insurers’ exposures. The proposed thresholds would apply to all firms in scope of this CP. Only insurers that exceed the proposed threshold would be required to report the templates set out below:^{footnote [2]}

Table 2: proposed changes to reporting threshold

PRA objectives analysis

2.5 By removing and reducing these reporting requirements in a manner intended to better reflect the PRA’s supervisory needs, the PRA expects these proposals to lower the reporting burden for firms, and enhance the efficiency of supervisory oversight, without affecting the PRA’s ability to monitor risks to its objectives. The PRA considers the changes outlined in Chapter 2 of this CP to be compatible with its statutory objectives to promote the safety and soundness of PRA-authorised firms, and in the context of insurance, to contribute to policyholder protection by enhancing the proportionality of information collected where the exposure is considered material.

2.6 The PRA has assessed whether these proposals facilitate effective competition. The PRA expects the proposed thresholds would enhance the overall proportionality of the reporting requirements. Firms with exposures to areas that are not considered to be material would have lower reporting requirements, which may reduce ongoing costs and lead to better utilisation of resources for firms. In turn, the PRA considers these proposals could contribute positively to the facilitation of effective competition in the insurance sector, including by lowering barriers to entry by reducing reporting costs for new entrants.

Have regards analysis

2.7 In developing these proposals, the PRA has had regard to the FSMA regulatory principles, the aspects of the Government’s economic policy set out in the HMT Recommendations letter from 2021 and the supplementary Recommendations letter sent April 2022. The following factors, to which the PRA is required to have regard, were significant in the PRA’s analysis of the proposal:

• The principle that a burden or restriction which is imposed on a person should be proportionate to the benefits which are expected to result from the imposition of that burden (FSMA regulatory principle): The proposed thresholds intend to limit the reporting of certain templates to insurers that have material exposures in the reporting areas set out. This aims to better align the data reported on certain topics with the materiality of activities undertaken by individual insurers.
• The principle that the PRA should exercise its functions transparently (FSMA regulatory principle). The proposed changes have taken into account the PRA’s supervisory approach and are intended to better reflect and demonstrate how the PRA carries out these functions based on its usage of the information reported.
• Competitiveness: The PRA has had regard to the competitiveness aspect of the Government’s economic policy when forming these proposals, which are intended to improve the overall efficiency of the market by streamlining existing reporting requirements while still ensuring sufficient supervisory oversight in line with the PRA’s objectives. The PRA considers the proposals would lead to positive contributions to financial stability and make the UK an attractive domicile for both UK and internationally active firms.

2.8 The PRA has had regard to other factors as required. Where analysis has not been provided against a ‘have regard’ for this set of proposals, it is because the PRA considers that ‘have regard’ to not be a significant factor for this set of proposals.

3. Changes to the design of Solvency II and NST reporting and disclosure templates

Reinsurance

Non-life outwards reinsurance

3.1 Solvency II insurers are currently required to report item-by-item information on their non-life outwards reinsurance contracts, and balance sheet reinsurance receivables and recoverables with all reinsuring counterparties. Reporting on these outwards reinsurance arrangements, exposures and counterparties is considered essential by the PRA for its supervision of insurers’ financial and business model dependency on outwards reinsurance protections, and assessing the scale and nature of reinsurance risks a firm is exposed to. It is also essential to supervising the aggregate risk transferred by UK insurers across the financial system.

3.2 However, the PRA considers that there is room to simplify and improve these reporting requirements, and in particular, to reduce areas of undue complexity and increase the clarity of what firms are required to report. The current reporting is also subject to some gaps in reporting of important risk data that the PRA considers necessary, such as reinsurance debts, disputes, and write-offs. The volume and nature of existing reporting makes validation and analysis, by the PRA, difficult and time consuming.

3.3 The PRA proposes to reform non-life outwards reinsurance reporting by:

• deleting templates S.30.01 and S.30.02 for non-life facultative reinsurance contract reporting, and amending the existing S.30.03 and S.30.04 templates on outgoing reinsurance overviews to report facultative reporting on a simpler basis;
• amending and enhancing elements of S.30.03 and S.30.04 for non-life reinsurance contract reporting, to remove the need to report information that is no longer considered necessary for supervision, but adding items to improve supervision;
• amending and expanding S.31.01 for reporting a reinsurer’s shares of an insurer’s life and non-life technical provisions, to improve the reporting of risk features;
• deleting S.31.02 on exposures to special purpose vehicles, and S.36.03 on intra-group reinsurance transactions;
• introducing a new template – ‘S.30.05 - Reinsurer & Collateral Provider Entity Information’ to reduce the duplication of reinsurer and reinsurance collateral provider general data; and
• improving the reporting instructions for all the retained and new templates to make the PRA’s expectations clearer, and improve the quality and consistency of reporting received.

Life reinsurance

3.4 Outwards reinsurance contracts by life insurers are currently reported in the same reinsurance templates (S.30.01 to S.30.04) used by non-life insurers. The PRA considers that the design and content of these templates primarily reflects a non-life insurance approach to reinsurance, and the data reported by life insurers are of limited use to the PRA. Many insurers reinsure a high proportion of their protection business on a proportional basis and the new templates (as set out in paragraph 3.5) enables the PRA to see the split between retained risk and reinsured risk for the main protection products. Insurers reinsure their annuities using a combination of proportional reinsurance and longevity swaps. Both types may apply to the same portfolio. The PRA is seeking to identify both the types and amount of annuity reinsurance used by firms. The PRA considers that better data is required on these issues to reflect the increasing use by UK life insurers of reinsurance.^{footnote [3]}

3.5 As a result, the PRA proposes to change the application of S.30.03 and S.30.04 to apply only to non-life outwards reinsurance. The PRA also proposes to introduce four new templates on life outwards reinsurance as follows:

• S.30.05 to report on general data related to reinsurer and reinsurance collateral provider applicable to both life and non-life reinsurance to reduce duplication;
• S.30.06 to report on the gross and reinsured benefit for each product group, identifying separately annuities reinsured via quota share and longevity swaps;
• S.30.07 the amount of cover by reinsurer for each of the main life products, reported up to the proposed threshold in paragraph 2.4; and
• S.30.08 on non-proportional treaties covering risks such as pandemic, terrorism, and mass lapse.

Society of Lloyd’s reporting of national specific templates

3.6 The Society of Lloyd’s currently reports two dedicated national specific templates to the PRA on its central SCR (NS.12) and the minimum capital requirements (MCR) (NS.13). The PRA considers the current templates have a number of deficiencies including gaps for the reporting of potential capital add-ons, and the split of eligible own funds to meet the Lloyd’s SCR between Members and Society. These gaps mean that the PRA has an incomplete view of the SCR, and the potential utilisation of Members’ funds against any Society level shortfall.

3.7 To address these deficiencies the PRA proposes to combine NS.12 and NS.13 into a single new template NS.13, the Society of Lloyd's SCR, which would be reported on the same quarterly frequency as S.23.01. This proposed template contains additional new rows to report data (where applicable) on any capital add-ons, as well as the eligible own funds breakdown between Members and Society of Lloyd’s SCR.

Solvency Capital Requirements – by solo undertakings

3.8 Monitoring the SCRs of Solvency II insurers is a core component of the PRA’s insurance supervision. The SCR result is currently reported across three summary templates on the basis of calculation (eg standard formula, partial internal model, and full internal model) across S.25.01 to S.25.03. The PRA considers that the structure of these templates could be simplified. For example, analysis of the SCR components across each calculation type requires a significant amount of data transformation to obtain a meaningful analysis.

3.9 The PRA proposes the introduction of a presentation of the SCR which can be used by all firms to show the split of SCR by sub-risk modules that correspond with the standard formula requirements. This is a typical level that firms would use to identify and manage their risks. The format is already used when internal model firms report their SCR on a standard formula basis in accordance with SS15/16 ‘Solvency II: Monitoring model drift and standard formula SCR reporting for firms with an approved internal model’.

3.10 The PRA proposes to delete the existing SCR templates S.25.01, S.25.02, S.25.03, SR.25.01, SR.25.02, and SR.25.03, and introduce new SCR reporting templates as set out below. These proposals would apply to solo entities only. Any further changes to the reporting requirements of the S.25 series applicable to groups will be consulted on in due course.

• S.25.04 and SR.25.04, to report on the SCR on all bases of calculation (eg standard formula, partial internal model, and internal model) drawing on data reported in the existing S.25.02 for partial internal model firms, S.25.03 for internal model firms, and the existing S.25.01 and S.26 series for standard formula firms;
• S.25.05 and SR.25.05 would show the SCR components for both partial internal model and internal model firms and would replace the components currently reported in S.25.02 and S.25.03;
• S.25.06 would show deferred tax data currently reported in either S.25.01, S.25.02 or S.25.03; and
• S.25.04.21 would become a disclosure template.

Solvency Capital Requirements – by risk components for solo entities

3.11 S.26 and the related SR.26 template series collect information on the calculation of the SCR by risk component. The figures reported across these templates enable supervisors to see the relative size of risks for firms. The changes proposed to the S.26 series also apply to the corresponding SR.26 series.

3.12 Templates S.26.01 to S.26.04 show the effect of management actions to reduce SCR. The PRA proposes to remove the reporting requirements of the SCR gross of management actions for market risk in S.26.01 and SR.26.01, because the amounts of SCR gross of management actions must assume that there is no change to terminal bonus rates, whereas in practice, for UK products the firm can generally respond to changes in market conditions by varying annual bonus rates. The PRA proposes to retain the columns for gross and net of management actions in templates S.26.02 to S.26.04, as this enables the PRA to identify firms that have an agreed management action to reduce bonus rates for counterparty and underwriting risks. There is a minor technical challenge in S.26.02 which currently collects SCR gross of management actions for each component, but net of management actions at a total level, which restricts supervisors’ ability to understand and make use of the information. The proposed changes would also support the presentation of the new template S.25.04.

3.13 The PRA also proposes that firms would no longer be required to complete the columns for assets and liabilities before and after stress in S.26.01, S.26.03, and S.26.04 to better align with supervisory usage and streamline the reporting requirements for firms.

Own funds

3.14 The S.23.01 template series provides critical information on solo and group entities own funds, and the calculation of solvency. The treatment of deductions for financial and credit institutions is currently inconsistent with the Solvency II requirements. The PRA is proposing minor revisions to the template which would correct these inconsistencies. The changes would be applicable to both solo and group entities. To address a discrepancy on the validation of the reporting of available and non-available own funds, the PRA is proposing to request firms to report on a separate schedule (S.33.01 template) the contribution to group SCR for each insurance entity that is included within the calculation of the consolidated group SCR.

3.15 The PRA also proposes to delete the cell collecting expected profit in future premiums (EPIFP) due to its limited supervisory value. The proposed changes would apply to both the reporting and disclosure templates of the S.23.01 series.

Non-life technical provisions

Technical Provisions (TPs)

3.16 The S.19.01 template series on non-life insurance claims is used by the PRA to assess adequacy of non-life claims reserves based on observed trends. The PRA proposes to include premium information by accident / underwriting year, and remove reinsurance recoverable information. In addition, the proposals include making amendments to the composition of paid amounts, reported but not settled (RBNS) amounts, and undiscounted claim provision to include all elements that comprise the claim itself and allocated loss adjustment expenses (ALAE). These changes to the composition of amounts is intended to bring consistency of definition between the amounts reported on the S.19.01 template. The changes proposed would apply to both the reporting template (S.19.01.01) and disclosure template (S.19.01.21) of the S.19.01 template series.

3.17 The PRA uses NS.11 non-life claim for general liability subclass to assess the adequacy of gross general liability reserves. The PRA proposes to amend NS.11 so that it remains consistent with S.19.01.

3.18 S.20.01 on the development of the distribution of claims incurred is a key template used by the PRA to assess the adequacy of non-life case reserves. The PRA proposes to amend the composition of paid amounts and RBNS amounts to include all elements that comprise the claim itself and ALAE.

3.19 The PRA collects S.16.01 on non-life annuity claims arising from direct insurance in order to understand the number of non-life annuity obligations, and the quantum of best estimate of the associated claims. S.16.01 currently lacks information on the extent to which provisions for bodily injury claims have increased when a claim is reclassified as a non-life annuity. The PRA proposes to amend S.16.01 to add columns to collect additional data on claims provisions immediately before, and after, the claim was settled with a non-life annuity, as well as data on annuity payments since the claim was settled with a non-life annuity. The PRA also proposes to delete the column on the undiscounted development result, which is seldom used. These proposed changes would further the PRA’s ability to monitor the risk of underestimation of future claim costs for claims that become settled with a non-life annuity. Non-life annuities are becoming a more material claim type for non-life insurers, for example due to rising numbers of periodical payment order (PPO) claims, and it is therefore important that the PRA is able to monitor the potential trends in insurers’ exposure to these claims.

Projection of future cash flows in the best estimate for life business

3.20 The PRA makes limited use of template S.13.01 on the projection of gross future cash flows in the life best estimate, with the exception of information on non-life annuities.

3.21 For life annuities, the data in SR.22.02 is more valuable because it compares the asset and liability flows. For annuities arising from non-life obligations, the PRA considers that the current template provides important information for supervision on understanding the pattern of projected future cash flow. Therefore, the PRA proposes to retain information relevant to this area only. The proposed changes also include removing annuities stemming from non-life accepted reinsurance business from template S.13.01.

Projection of future cash flows in the best estimate for non-life business

3.22 Template S.18.01, on the projection of future cash flows (best estimate non-life), is used by the PRA to understand the duration of the run-off of firms’ business. The template in conjunction with S.06.02 enables the PRA to understand the extent of asset-liability mismatch by duration. The PRA considers the current reporting of reinsurance recoverables information with no split in S.18.01 to be challenging for the monitoring of the differing impact projected future reinsurance recoverables cash flows might have between the premium and claims provisions. Therefore, the PRA proposes to amend template S.18.01 to report reinsurance recoverables split by the premium and claims provisions.

3.23 To maintain the consistency of templates S.18.01 with S.19.01 given the proposed changes to S.19.01 set out above, the PRA is proposing to amend S.18.01 to include the reporting of ALAE in the ‘benefits’ column instead of the ‘expenses’ column.

Projection of future cash flows (best estimate — non-life: liability claim types)

3.24 The PRA uses template NS.10 on gross claims provisions cash flows relating to specific non-life claim types to obtain an understanding of firms’ exposure to claim types, where the estimates of future claim payments is subject to undue uncertainty (eg claims arising from exposure to asbestos, pollution claims, medical malpractice). The PRA considers a key gap in the coverage of NS.10 is reporting on cyber claims, which are becoming much more material for UK non-life firms given the growth in cyber insurance.

3.25 The PRA proposes to introduce new rows into NS.10 in which firms report the claims provision for cyber claims, arising from insurance businesses split by first party loss and third party loss, and arising from accepted reinsurance business.

Reporting by insurance groups

S.32.01: Undertakings in the scope of the group

3.26 The PRA currently requires firms to complete template S.32.01 with the details of the undertakings in the scope of the insurance group. This information allows the PRA to understand which entities are in the scope of an insurance group, as well as the dependencies/risks posed by group entities. The PRA considers the current template makes it difficult to analyse the relationships within the group, in particular identifying where sub-groups exist. The PRA proposes to amend template S.32.01 to report the Legal Entity Identifier (LEI) of the immediate parent of each entity in an insurance group. The proposed change would apply to both the reporting and disclosure templates.

Risk concentration of counterparties

3.27 The PRA uses template S.37.01 to identify the concentration of risks that could potentially impact the solvency of the group and its solo insurance entities. The PRA considers the current template to be overly granular and unduly burdensome for firms to complete, and it is also difficult to analyse by supervisors. To simplify the template and reduce burdens on firms, the PRA proposes that groups use this template to report just on a total counterparty exposure basis, rather than on a transaction basis.

Internal model outputs

3.28 Internal model and partial internal model Solvency II firms are expected to report internal model output data as set out in SS25/15 ‘Solvency II: Regulatory reporting, internal model outputs’. The PRA uses this reporting to identify potential weaknesses in internal model risk calibrations and significant movements in outputs. These data further inform internal model application, and change reviews, and are a trigger for supervisory investigations. The existing reporting features certain data gaps including, in particular granular information on corporate bond credit spread widening calibrations, which makes it difficult for the PRA to ascertain the strength of a firm’s calibration. However, some of the other reported data are more granular than the PRA now requires. The PRA therefore proposes to amend the Internal Model Outputs (IMO) templates and instructions as follows:

• amend IM01, internal model risk outputs (life), to:
  • expand data collected on corporate bond spreads calibration by splitting these into financial and non-financial components where these are available;
  • add an additional term of 40 years for interest rate risk;
  • replace the two endowment product types with with-profits individual pensions and income drawdown product types for lapse risk and mass lapse risk;
  • remove the reporting requirements of some of the mortality catastrophe, mortality and morbidity risk calibration rows;
  • amend some of the existing row labels and instructions to improve clarity and consistency of submissions.
• amend IM03, internal model outputs (non-life), to enhance the clarity of the requirement to report natural catastrophe losses for pre-defined perils and other perils, as well as non-modelled risks.

Life obligations analysis

3.29 The PRA uses S.14.01 on life obligations to supervise an insurer’s business at the product level. It is a key template supporting its analysis of life business models. However, the PRA considers the current structure of the template is complex, requiring premiums and claims by product code to be amalgamated with best estimate liabilities at ‘homogenous risk group’ level. The PRA also has to transform the data for cross-firm and cross-product analysis.

3.30 The PRA proposes to simplify the structure of the S.14.01 template into a single table and remove some minor fields that are rarely used, including the reporting of the surrender value. The PRA also proposes to include a split for individual and corporate pensions products to identify business written by Master Trusts to support statistical analysis. In conjunction with the proposed template changes, the PRA proposes to delete SS36/15 and transfer the list of life product codes to the S.14.01 LOG instruction file.

Reporting on activity by country

3.31 Cross border activity reporting is currently split out over three templates that report on premiums, claims, and commissions for the UK solo firms and its branches. Existing templates also collect information on firms’ EU passporting activity (S.04.01), motor claims data for branches, passporting for each state (S.04.02), life, (S.12.02) and non-life (S.17.02) technical provisions for the largest countries by line of business.

3.32 The PRA uses this information and data to understand where overseas business is written and its financial significance, and monitor industry level exposures to specific geographies. S.04.01 contains obsolete data relating to EU passporting activity which no longer applies to UK based insurers following the UK’s exit from the EU. The split location of overseas business currently requires complex data transformations by the PRA to understand overall firm level and industry level overseas exposures.

3.33 The PRA proposes therefore to consolidate S.04.01, S.04.02, S.12.02, and S.17.02 into one new simpler template, S.05.04 – by reporting on premiums, claims, and best estimate liabilities at country level. The PRA proposes that the information reported is split on a life/non-life and insurance/reinsurance basis, while also setting out lines of business.

Reporting on premiums, claims, and expenses by line of business

3.34 The PRA intends to include ALAE with claims incurred. These expenses are important for some non-life insurers and relatively small for life business, but for consistency the same change is being made for both non-life and life business. The PRA proposes to update the log files to require that expenses include all claims management expenses (ie ALAE and claims management expenses that are not assignable to individual claims). To enable a direct comparison of expenses across years, the amount of ALAE included in claims incurred is shown as a separate line in these templates. The total expenses row now excludes ALAE.

Life

3.35 The current S.05.01 template collects important information including premium, claims, and expenses from both life and non-life firms. NS.05 which is currently reported by life firms, collects information on revenue accounts and contains duplications between the information reported in S.05.01 and the table for life businesses. The information reported in these templates is critical for the PRA in assessing the size of firms and the overall market, to calculate fees and as an indicator of performance.

3.36 To assist PRA analysis, life annuities have been separated into a new column, ‘other life’ and ‘health’. This is expected to provide supervisors with the oversight of annuities businesses at a more appropriate level of granularity. As a result, the revised template would show the revenue for the categories of business, and this is expected to increase the efficiency in the analyses of firms’ risks and exposures.

3.37 In addition to the high degree of duplication of information reported between these two templates, the current S.05.01 does not collect information for ring-fenced funds. The monitoring of the apportionment between the main (shareholder) funds and ring-fenced funds is important for UK businesses. Information showing investment data or the flow of funds would also enable the PRA’s understanding and analysis of movements in own funds which is not collected in the current S.05.01 template.

3.38 To address these deficiencies, the PRA proposes to delete both S.05.01 and NS.05, and consolidate the collection of information for life businesses into a new template S.05.03 (placeholder template code). The new template would collect the core information presently reported in S.05.01, and be supplemented with rows relating to investment income and gains, miscellaneous income and expenditure, transfers, and dividends that are currently reported in NS.05. There would be a quarterly and annual version of this template, and the quarterly version would replace the existing disclosure template (S.05.01.02).

3.39 The PRA proposes to also introduce a new template specifically for ring-fenced funds SR.05.03 (placeholder template code), which would largely mirror the new template (S.05.03 (placeholder template code)) to address the gap in the information collected. The PRA expects these changes to better enable supervisors to monitor a core part of the businesses of many UK firms, and understand the exposures at an industry level. The PRA proposes that both S.05.03 (placeholder template code), and SR.05.03 (placeholder template code) are reported by life and composite firms of all entity types (ie solo and third-country branch).

Non-life

3.40 The current non-life part of the S.05.01 template and the current NS.07 template are used to provide insurance supervision with information on non-life premium, claims, and expenses broken down by lines of businesses. The premium information reported on the S.05.01 template is used in the calculation of periodic fees and Financial Services Compensation Scheme (FSCS) levies.

3.41 Owing to the degree of duplication present between the non-life sections of the two templates, the PRA proposes to delete S.05.01, and amend NS.07 to be its replacement. There would be a quarterly and an annual version of this template, and the quarterly version would replace the existing disclosure template (S.05.01.02).

3.42 The PRA is proposing to enhance the information collected in NS.07 by including information on business subject to FSCS to enable supervisors to understand potential impact and exposures in the event of an insurer failure, to help ensure it can focus its supervision to areas of greatest potential risk. The PRA also proposes to combine non-life annuities relating to health and other than health into a ‘non-life annuities’ column and remove some distribution channel information in the business plan section of the template with the intention to simplify the template and remove information that is seldom used. The PRA expects these changes to better reflect its supervisory needs, while also reducing the duplication and complexities of the reporting requirements for firms in the current framework.

3.43 The PRA proposes that the amended NS.07 be reported by non-life and composite firms of all entity types (ie solo, group, and third-country branch). The variant of NS.07 to be reported more frequently than annually is to be less detailed than the annual variant. The variant of NS.07 to be reported by groups is to be less detailed than the variant reported by solos and branches. The PRA proposes that firms who are currently required to report S.05.01 would report NS.07.01 as its direct replacement. Firms who do not have Part 4A permission to effect contracts of insurance would be exempt from reporting certain sections of the revised NS.07.01 template. Details of the reporting instructions are set out in Appendix 2.

3.44 In recognition of the importance of consistency in the information that is collected, the PRA proposes to continue to collect information in a way that is broadly comparable across firms whether their financial statements are based on International Financial Reporting Standards (IFRS) or Generally Accepted Accounting Principles (GAAP). This is particularly relevant for the S.05.01, NS.07.01, and S.05.02 templates. For example, the PRA proposes to make use of existing definitions in the PRA Rulebook for Gross Premiums Written, and Gross Premiums Earned, where indicated. It also proposes to include requirements more directly in the relevant instruction file, replacing references to other legislation.

Reporting on premiums, claims, and expenses by country

3.45 The reporting of key values by country through S.05.02 allows the PRA to understand geographical exposure of firms’ businesses written outside of the UK. The information is important to meet the PRA’s supervisory needs, and increasingly so for the PRA to obtain the full extent of coverage from all firms to enable it to identify any material exposures. In addition to the proposed changes to the reporting threshold as set out in Chapter 2, the PRA proposes to delete the rows related to other Technical Provisions to reduce unnecessary reporting burdens on firms and better align with its supervisory needs.

PRA objectives analysis

3.46 By improving existing regulatory reporting and disclosure requirements, the PRA expects these proposals to enhance its ability to advance the primary objective of safety and soundness by ensuring that it has the necessary information to supervise how firms are meeting the PRA Rulebook requirements, and to understand the drivers and relevant exposures underlying a firm’s prudential and financial risks. The proposals are also expected to support the advancement of the PRA’s insurance objective of securing an appropriate degree of protection for policyholders by collecting information that better reflects the products and services being offered in the UK to policyholders. At the same time, the proposals aim to reduce costs and reporting burdens for firms, by removing the reporting requirements of those products and services that are less relevant.

3.47 When determining the general policy and principles by reference to which it performs particular functions, the PRA is legally required, so far as is reasonably possible, to facilitate effective competition in the markets for services provided by PRA-authorised persons in carrying out regulated activities. The PRA expects that proposals set out in this chapter aimed at streamlining existing reporting requirements, and recognising the differing practices between life and non-life market segments, and unique business operating models (eg the Society of Lloyd’s) would contribute positively to this secondary objective. The proposed amendments to the relevant log files would support firms in their compliance with the PRA’s reporting requirements, and reduce the likelihood of erroneous reporting. In turn, the PRA considers these proposals could contribute positively to the facilitation of effective competition in the insurance sector by reducing costs and unnecessary reporting burdens on firms.

Have regards analysis

3.48 In developing these proposals, the PRA has had regard to the FSMA regulatory principles, the aspects of the Government’s economic policy set out in the HMT Recommendations letter from 2021 and the supplementary Recommendations letter sent April 2022. The following factors, to which the PRA is required to have regard, were significant in the PRA’s analysis of the proposal:

• The need to use its resources in the most efficient and economic way (FSMA regulatory principle): The proposed changes to existing reporting and disclosure requirements seek to make efficient and economic use of the PRA resources by including information that is necessary for supervisory purposes, and avoid deleting data that would otherwise be difficult for the PRA to source through other means. The alignment of proposed amendments between reporting and disclosure templates was due to the considerations of this regulatory principle. Furthermore, the PRA has taken into consideration the need to make efficient use of its resources, and to avoid any impact to audit requirements associated with the disclosure requirements.
• The desirability, where appropriate, of exercising its functions in a way that recognises differences in the nature of, and objectives of, businesses carried on by different persons subject to requirements imposed by or under this Act (FSMA regulatory principle): Proposals aim to reflect the life and annuities products offered by life firms in the UK, and those tailored for unique business models such as the Society of Lloyd’s, have had regard to this principle. In recognising different business models, these proposals are intended to collect information that are more relevant for both firms and the PRA.
• Competitiveness: The PRA considers that these proposals would reduce complexities in the existing regulatory reporting requirements, and the costs and burdens of some reporting, and enhance the attractiveness of the UK market.

3.49 The PRA has had regard to other factors as required. Where analysis has not been provided against a ‘have regard’ for this set of proposals, it is because the PRA considers that ‘have regard’ to not be a significant factor for this set of proposals.

4. Reporting on new topics

Excess capital generation

4.1 Understanding why a life firm’s balance sheet has changed from one period to the next is a core aspect of the PRA’s business model analysis. The PRA currently receives limited information about how firms have generated excess capital to date, how much excess capital they expect to generate in the near future, and the approach firms plan to use to generate that capital.

4.2 The PRA proposes to introduce a new annual template NS.14 (placeholder template code) on excess capital generation (ECG) that would apply to life firms writing non-unit linked premiums exceeding £1 billion on an annual basis. The template requires the reporting of the total amount of excess capital generated in the most recent reporting year and what is expected to be generated over each of the next three years. The ECG data is split between key drivers including new business, existing business, management actions, and assumption and model changes.

4.3 The proposed new template would further the PRA’s understanding of why a firm’s solvency coverage has changed, how it is expected to change in future periods, and how the firm compares to its peers. The PRA also considers the proposed new templates would enable supervisors to better understand balance sheet volatility, identify firms at risk of model drift, assess dividend affordability, and provide greater consistency when assessing firm performance compared to peers.

Cyber underwriting risk

4.4 The PRA considers that cyber is a growing area of underwriting risk, both on an affirmative and non-affirmative basis. Cyber risk presents unique risks and challenges in comparison to traditional lines of businesses, and is not reported on a separately identifiable basis by Solvency II insurers.

4.5 The PRA proposes to introduce a new annual template, S.14.03 (placeholder template code) to report the types of cyber risk coverages provided, the potential accumulation of risks, and the risk mitigation techniques used by solo and third-country branch entities.

4.6 The information in the proposed new template would enable the PRA to monitor firms that are materially exposed to this risk space, form an industry view of the total size of exposure, and gauge firms’ own understanding and expertise in this area.

Non-life obligations analysis

4.7 The PRA proposes to introduce a new template on non-life obligations, S.14.02 (placeholder template code) to be reported on an annual basis from solo insurers and third-country branches. The proposed template would be equivalent in nature to template S.14.01 on life obligations analysis, and would collect information split by line of business and by non-life products, on the numbers of contracts, premiums, claims, number of policyholders, and number of insured properties.

4.8 The PRA considers the proposed template would give its supervisors significantly more insight into non-life product lines than the current reporting which is at the class of business level at which the non-life premium and reserve risk is calculated in the standard formula SCR.

PRA objectives analysis

4.9 The collection of new information on these three topics would provide the PRA with insights on important risk areas. The PRA expects these proposals to address known data gaps on key areas of risks faced by both firms and the industry as a whole, and thereby enhance supervisory oversight for the PRA in advancing its statutory objective of promoting safety and soundness.

4.10 The PRA considers these proposals to have a positive impact on competition, in particular, by only requiring reporting of certain templates from firms above a certain size (eg the proposed new template for ECG), the PRA expects this would limit the additional reporting burden applicable to smaller firms.

Have regards analysis

4.11 In developing these proposals, the PRA has had regard to the FSMA regulatory principles, the aspects of the Government’s economic policy set out in the HMT Recommendations letter from 2021 and the supplementary Recommendations letter sent April 2022. The following factors, to which the PRA is required to have regard, were significant in the PRA’s analysis of the proposal:

• The principle that a burden or restriction which is imposed on a person should be proportionate to the benefits which are expected to result from the imposition of that burden (FSMA regulatory principle): The PRA has focused on known data gaps that have limited the PRA’s supervisory oversight in evaluating important risks. These risk areas, such as cyber underwriting risk, have grown in size over the years, therefore, the PRA considers that these proposals to be commensurate to the associated cost.
• The need to use its resources in the most efficient and economic way (FSMA regulatory principle): The PRA in developing these proposals has considered a range of collection vehicles including a reporting template or narrative reporting (eg Own Risk and Solvency Assessment). Given the need for information from firms to be submitted in a uniform and consistent way, the PRA considers that reporting templates would be the most efficient and economic way to do this, and would avoid the likely increase on resources to need to manually clean and compile the data if submitted in a less structured way.

4.12 The PRA has considered the impact of the International Accounting Standard Board’s IFRS 17 Insurance Contracts accounting standard (IFRS 17) on regulatory reporting, but in order to ensure a proportionate approach, at this stage, the PRA does not propose to collect additional information that is specific to this standard. Once IFRS 17 is introduced, the uses and benefits of this information should become clearer, and the PRA may consider the introduction of such proposals at a future date if considered appropriate.

4.13 The PRA has had regard to other factors as required. Where analysis has not been provided against a ‘have regard’ for this set of proposals, it is because the PRA considers that ‘have regard’ to not be a significant factor for this set of proposals.

5. Cost benefit analysis

Cost benefit analysis
5.1 This chapter sets out an analysis of the costs and benefits of introducing the proposals set out in Chapters 2 to 4 in this CP. The PRA has provided quantitative estimates for those proposals that are expected to have the most material impact on firms, and for which the PRA has sufficient granular information on firms’ likely responses. The PRA’s estimates of the implementation cost and on-going maintenance cost of the proposals in this CP are based on responses submitted by firms to a reporting cost survey launched in April 2022. The estimates reflect the response rate and quality of the data shared with the PRA, and should be treated as indicative, subject to uncertainty and sensitive to the underlying assumptions. A qualitative analysis has been included where proposals are expected to bring benefits, but cannot be quantified.

5.2 Some proposals may incur higher or lower costs for different firms dependent on the scope of a firm’s own existing reporting requirements, and the relative change that the proposal may bring about. The costs would also be impacted by the nature of firms’ own internal reporting arrangements (eg degree of automation, use of outsourced services for implementation and ongoing reporting preparation etc.).

Basis for estimation

5.3 The PRA launched a Solvency II reporting cost survey in April 2022 to collect actual operational cost information from firms on their compliance with the existing framework, to assist with the analysis of the costs and benefits associated with the policy proposals set out in this CP.

5.4 Firms were asked to provide information on the one-off implementation costs incurred in effecting the recent updates to regulatory reporting and disclosure requirements, including the changes introduced under Phase 1 of the current review (PS29/21 ‘Review of Solvency II: Reporting (Phase 1), and changes to NST templates introduced in 2018 (PS16/18 ‘Changes in insurance reporting requirements’). Additionally, firms were asked to share the annual operational cost to comply with the Solvency II reporting requirements in force. Using these historical costs as a basis and projecting to the proposals set out in this CP, the PRA has estimated the implementation cost and the likely reduction to ongoing compliance costs.

5.5 In accordance with s.138I of FSMA, the estimated costs and benefits in this analysis reflect only the incremental changes that the PRA anticipate affected firms would make to prepare and transmit data to the PRA under the specific proposals set out in this CP. The estimates do not reflect the cost to report existing unchanged reporting and disclosure requirements, or the internal calculations that firms undertake to monitor compliance with existing Solvency II capital and own funds requirements, or meet other PRA requirements (eg external audit). Quantitative estimates for some proposals in this analysis have not been included where the PRA anticipates that the aggregate cost to all firms will not be material. For example, where the proposals do not result in a change to the content of the baseline regulation, such as the proposed restatement of existing ITS requirements into the PRA Rulebook, the PRA has not assessed the quantitative cost impact. The subsequent analysis only considers any changes arising where the proposals substantially alter the regulations currently facing firms.

Costs of proposals

5.6 The proposals in this CP are part of a package of measures that the PRA will consult on in due course, which are collectively aimed at improving the operation of Solvency II in the UK. As such, the costs and benefits of the proposals set out in this CP should be considered in the context of all proposals that will be published under the Solvency II review. The PRA expects that the reporting and disclosure proposals in this CP would give rise to some operational costs to implement, but that the ongoing cost to comply with PRA reporting and disclosure requirements is likely to reduce overall due to the proposed net reduction in the volume of reporting that firms would submit to the PRA.^{footnote [4]}

5.7 The PRA has estimated the implementation and ongoing compliance costs for a median firm in three separate categories using the PRA’s potential impact scores as a proxy for firm size. Category 1 and 2 firms have been classified as large insurers, and Category 3 to 5 firms have been classified as small insurers. The estimated costs for a median firm in each category was derived by calculating the template level cost of change, by proposal type, derived from the cost of similar changes implemented in the past based on survey estimates. These template level costs have been applied to the proposals in the CP to calculate the median firm impact, and then projected to the population of affected firms to estimate the total cost to all firms. Where the underlying data permits, a range of the costs has been provided to better account for and reflect the variation of insurance and reinsurance firms both in terms of size and business models, and account for the variation in survey responses.

Table 3: Estimated costs of reporting and disclosure

5.8 Table 3 above sets out the expected one-off implementation cost of the reporting and disclosure proposals contained in this CP. The cost for a median firm, based on the survey responses, is estimated to be approximately £10,000 and £1.1 million for small and large firms respectively. On an industry level, the PRA estimates that the aggregate one-off costs to implement the proposals in this CP could range from £59 million to £109 million. The PRA estimates that once implemented, the proposals in this CP may result in a median reduction to ongoing Solvency II reporting and disclosure compliance costs across the industry of around 13% per annum. The estimated industry-wide cost reduction could translate to a median saving of around £23 million per annum, and potential savings of £46 million per annum at the top end of the estimated range. This projected reduction reflects the net overall reduction in the volume of reporting proposed in this CP, as well as the quantity and quality of cost survey data submitted to the PRA. The likely costs and savings associated with the proposals in this CP are expected to vary between firms.

5.9. There is considerable uncertainty around these estimates, which reflect the limited responses submitted to the PRA to estimate the costs, the difficulty in separating the reported incremental costs of the changes from the cost of compliance with other regulatory requirements, and some anomalous data indicating positive costs associated with template deletions.

5.10 The PRA does not expect there to be material aggregate costs for firms from the consolidation of the existing reporting and disclosure requirements (Chapter 6) as these changes are intended to enhance the accessibility of requirements for firms. Consequently, the PRA does not expect these proposals to influence the overall scope of costs and benefits of all proposals set out in this CP.

Benefits of proposals

5.11 Across the industry, the PRA estimates that the proposals would result in between £23 million up to £46 million reduction per annum in ongoing reporting cost. The reduction can be attributed to many of the proposed changes set out in the paper, including the reduction of the reporting frequency of certain quarterly templates, deletion of entire templates, and the removal of data points that are duplicative or lack relevance to UK insurers. These changes are expected to reduce the overall volume of information being reported by firms. Other changes such as enhancements to the reporting thresholds are intended to improve the proportionality of reporting requirements by recognising different operating models within the wider market.

5.12 The PRA also considers that the proposals would help enhance data driven supervision to allow the PRA to make optimal use of the data that firms submit. The proposals would also increase quality of reporting through clarification and better alignment with commercial practice. In addition, the proposals would enable more effective oversight over new reporting areas.

Proposed new requirements
5.13 The proposed new cyber underwriting template would enable the PRA to collect information on firms’ exposure and assessment of this risk, to help supervise and monitor this recent and growing area of risk. Cyber underwriting risk is not separately reported in Solvency II reporting and the PRA has had to rely on ad hoc data collection in the past. The proposed reporting seeks to reduce the need for ad hoc data requests from firms.

5.14 The proposed new template NS.14 on excess capital generation is critical in providing supervisors with visibility of current and future balance sheet volatility by key drivers. By having the information in a standardised format from the largest life firms, the PRA expects the information to enhance its efficiency in the identification of firms’ reliance on future management actions and model changes, assessment of the affordability of planned dividends, and detection of firms at risk of model drift.

5.15 The complexity and duplications present in the existing reinsurance reporting templates mean that the reporting may be inconsistent between firms. This in turn, hinders the PRA’s ability to utilise this information efficiently. The volume of information collected also makes validation and analysis difficult. The PRA considers that the proposed reforms to the existing reinsurance reporting aims to directly address and improve on these known issues, and expects them to better align with market practice between life and non-life market segments and streamline the processes required for the production of this information.

Reporting on premiums, claims, and expenses by line of business

5.16 The proposed reforms to the existing reporting requirements seek to rationalise similar information reported from multiple templates including S.05.01, NS.05, and NS.07, and are intended to reduce the burden for firms. In addition, annuity business is an important part of the market in the UK, and a separate column for life annuities would give the PRA a direct way of identifying the revenue for life annuities. Transfers of business between firms or funds can cause significant changes to the balance sheet. Including additional data items for these transactions would support our processes to interpret balance sheet changes.

Impact on mutuals

5.17 The PRA considers that the impact of the proposals on mutuals is expected to be no different from the impact on other firms. The reporting requirements apply equally to all Solvency II firms regardless of legal structure.

Equality and diversity

5.18 The PRA considers that the proposals do not give rise to equality and diversity implications because Solvency II reporting applies equally to all insurers.

6. Rulebook implementation

6.1 The reporting and public disclosure requirements for Solvency II firms currently reside within the Reporting Part of the PRA rulebook, onshored Commission Delegated Regulation (EU) 2015/35, onshored Commission Implementing Regulation (EU) 2015/2450 (ITS 2450), and the onshored Commission Implementing Regulation (EU) 2015/2452 (ITS 2452).

6.2 The majority of the changes proposed in this CP relate to content currently within onshored ITS 2450 and ITS 2452. While the PRA could use its powers under section 138P FSMA to simply update these two onshored ITSs’ to reflect the proposals in this CP, it considers that the consolidation of Solvency II requirements within a single source (the PRA Rulebook) would enhance the accessibility of reporting and quantitative disclosure requirements.

6.3 To give effect to the proposals in this CP, the PRA proposes to exercise its delegated powers under section 138P FSMA to revoke the onshored EU Technical Standards contained in onshored ITS 2450 and ITS 2452. In parallel, the PRA proposes to use the PRA’s general rule-making power under section 137G FSMA to restate the contents of ITS 2450 and ITS 2452 in the PRA Rulebook, amended in accordance with the proposals contained in this CP, as new PRA rules. The exact legal mechanism to effect the changes in this CP may depend on measures within the Financial Services and Markets Bill currently before Parliament.

PRA objectives analysis

6.4 By consolidating Solvency II reporting and disclosure requirements within a single source, the PRA expects to enhance the ability of firms to understand how the PRA regulates and supervises firms, and in turn improve the efficiency of supervisory oversight for the PRA in advancing its statutory objective of promoting safety and soundness.

6.5 The PRA has assessed whether the proposals facilitate effective competition. The PRA considers its proposals would help foster a better understanding of its reporting and disclosure requirements and expectations in relation to the supervision of insurance firms consistent with Solvency II requirements. The increased transparency and accessibility of the UK’s regulatory requirements is expected to promote effective competition.

Have regards analysis

6.6 In developing these proposals, the PRA has had regard to the FSMA regulatory principles, the aspects of the Government’s economic policy set out in the HMT Recommendations letter from 2021 and the supplementary Recommendations letter sent April 2022. The following factors, to which the PRA is required to have regard, were significant in the PRA’s analysis of the proposal:

• The principle that the PRA should exercise its functions transparently (FSMA regulatory principle). The proposed consolidation of Solvency II reporting and quantitative disclosure requirements within the PRA Rulebook aim to enhance the transparency of Solvency II reporting rules through location within a single source, thereby increasing the accessibility of Solvency II reporting and quantitative disclosure requirements.
• Competitiveness: The PRA considers that the consolidation of these requirements into a single location (ie the PRA Rulebook) would enhance clarity and transparency to firms on the PRA’s reporting and disclosure requirements. This is expected to aid existing firms’ understanding on their continued compliance with the PRA rules, and those that are considering establishing an entity within the UK.
• Growth: The PRA considers that the UK financial services sector can be an important contributor to sustainable economic growth. The proposal set out in this chapter is expected to make it easier for all firms to understand the requirements and increase efficiency in their compliance. In turn, the PRA expects that to aid potential growth in the sector.

6.7 The PRA has had regard to all other factors as required. Where analysis has not been provided against a ‘have regard’ for this set of proposals, it is because the PRA considers that ‘have regard’ to not be a significant factor for this set of proposals.

7. Taxonomy implementation

7.1 Solvency II insurers report to the PRA using two different taxonomies. QRT-based reporting is submitted using the EIOPA authored Solvency II taxonomy (currently on Taxonomy version 2.6). The Bank’s Insurance Taxonomy (currently on version 1.3.1) is used for the reporting of the NSTs, IMO, market risk sensitivities, and the Standard Formula SCR templates (for firms with an approved internal model).

7.2 The proposals in this CP would be implemented within one or more taxonomies authored by the Bank, and UK Solvency II insurers would cease reporting to the PRA using an EIOPA authored taxonomy from the implementation date set out in paragraph 1.23.

7.3 The PRA is considering how best to implement the reforms given the current dual reporting taxonomies. A public working draft (PWD) taxonomy package will set out the combined structure of the previous EIOPA and national specific reporting taxonomies. The PRA intends to publish the PWD taxonomy package following this CP for comments on the data modelling and overall technical implementation.

7.4 The PRA is also considering how to maintain traceability around which templates would change as a result of the proposals and, which remain unchanged via template naming conventions. The prefixes to Solvency II reporting templates may therefore be subject to future change (ie S, S-, NS).

7.5 The PRA is not proposing changes to the data collection system for Solvency II reporting, which is currently collected using the Bank of England Electronic Data Submission (BEEDS) portal, or the format of reporting, which is currently submitted using eXtensible Business Reporting Language (XBRL) templates.