A Grand Design: The PRA considers UK Solvency II architecture with a Quantitative Impact Study

In a very interesting speech, Anna Sweeney (Executive Director, Insurance, PRA), highlights the thoughts behind the 'Grand Design' Solvency II Review architecture. This is part of HM Treasury's promised Solvency II Reform.

Anna notes that they are 'not starting with an empty field on this project. Rather the project is more like a modernisation of a listed building. The regime's structure has good bones and is well embedded. Some areas may only need thoughtful tweaks.'

A key foundation of the review is policyholder protection (as well as innovation and market competitiveness). Anna explains that 'policyholder protection is ultimately the business we are all in. Insurers protect policyholders by reducing risk and uncertainty from their lives and businesses. Doing so provides certainty and security, allowing companies to innovate and grow, and individuals to plan for the future....The London Market is competitive, in part, precisely because policyholders are confident their claims will be met.'

The PRA believe that a Quantitative Impact Study (QIS) will provide the necessary renders needed for the Solvency II Review project plans. 'We intend to gather the data that will allow us to project the impact of a number of different possible designs; this will give confidence before the proposals are finalised that the ultimate designs will really work.'

With that being said the PRA are upfront about the significant resource that the QIS will require from firms. They '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'. The PRA suggest they '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'. As a result, they suggest that '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 be coming this Summer 2021 and the bricks and mortar of it include:

• Risk Margin
• Matching Adjustment
• Timescales
• LIBOR
• Stress Testing

What are your thoughts on the upcoming QIS? Are you ready for it? Did you share your views in the Call for Evidence?