Review of Solvency II: 2022 Data Collection Exercise (DCE)

Latest DCE updates 

27 June 2022 update: Following the technical DCE industry roundtable on Tuesday 21 June, we have updated the DCE instructions document to respond to questions raised during the session. No changes have been made to the information we are requesting but  sections 3.14, 3.15, 3.24 and 3.35 include additional wording to provide further clarification. Given the nature of the questions raised during the session, we consider these amendments to cover all relevant matters and no separate ‘Frequently Asked Questions’ document will be produced.

Overview

On Thursday 28 April 2022 HM Treasury (HMT) published its consultation ‘Solvency II Review: consultation’. On the same day we (the PRA) published a statement and Discussion Paper (DP) 2/22 ‘Potential Reforms to Risk Margin and Matching Adjustment within Solvency II’, to coincide with HMT’s consultation. The PRA’s communication package covered our current view on two key areas of the reform package, the matching adjustment (MA) and Risk Margin. DP2/22 includes an annex setting out the evidence which has informed our current view that reform to the fundamental spread (FS) is required, and provides the details of the PRA's initial thinking on a possible new design for the FS.

During the first quarter of 2021 we carried out a Quantitative Impact study (QIS) and issued a qualitative questionnaire. The information received through these interactions has achieved its purpose of allowing us to model the impact of possible changes to the Risk Margin and FS, under a range of different economic scenarios. That information continues to inform our view when developing potential Solvency II reforms. Please see the QIS webpage for further details.

On Thursday 1 July 2021 HMT published its Response to the Call for Evidence setting out the responses received and the next steps on the reform of Solvency II. On Tuesday 23 June 2020, the Government announced it would review certain features of the Solvency II regulatory regime for insurance firms. In October 2020, HMT invited all interested stakeholders to share views on the issues set out in the Call for Evidence which closed on Friday 19 February 2021.

What is the Data Collection Exercise (DCE)?

The DCE will assist our analysis of, amongst other things, potential reform options relating to MA-FS methodology. The DCE seeks to explore, with firms, the potential impact and feasibility of the potential formulation for the Credit Risk Premium (CRP), and MA-FS, as set out in the Technical Annex to DP2/22.

The DCE is an information gathering exercise whereby the information collected will allow us to explore different aspects and implications of the CRP design. Specifically, the DCE will cover three main areas:

(i) A qualitative view of firms’ current asset valuation methods (Part I).
(ii) Valuation methods for each individual asset in the MA asset and liability data template (Part II).  
(iii) Quantitative impacts of the proposed base FS methodology design (Part III A), Solvency Capital Requirement (SCR) impacts (quantitative and qualitative) under various specifications (Part III B), as well as qualitative questions covering phasing-in considerations (Part III C). 

As per DP2/22, and separate to this DCE, we contacted a subset of firms in May 2022, requesting information on reinsurance pricing. Should your firm wish to provide data or insights in this area, but you have not been contacted, please contact Insurancedata@bankofengland.co.uk, alongside your usual supervisory contact.   

DCE launch: What do I need to do?

The DCE was launched on Friday 10 June 2022. Please see links to the materials and template under the DCE Links section below. Selected firms have been asked to respond to phase (1) by Thursday 21 July 2022, phase (2) by Monday 1 August 2022, and phase (3) by Monday 12 September 2022. We recognise firms’ Boards and other senior committees may not convene in August and firms may therefore need to undertake special governance arrangements to meet this final submission date. 

To ensure we have an appropriate level of coverage, we have contacted a number of firms inviting them to complete the DCE template and submit returns via the BEEDs portal. We welcome responses from other UK-regulated firms should they wish to participate. If your firm has not been contacted yet and you would like to submit a response, please contact Insurancedata@bankofengland.co.uk alongside your usual supervisory contact.  

Participation in the DCE is on a voluntary basis. However, given the importance of the Solvency II review to the UK insurance industry, we strongly encourage the selected UK insurance firms to participate. 

The DCE will primarily gather data to support the MA-FS calibration for the review of Solvency II. It should not be taken as an indication of the Government’s or our preferred courses of action. 

It is important for us to receive high quality data from the DCE, and so we ask that firms undertake an appropriate level of validation before it is submitted. We have given careful consideration to only ask firms for data that in our view is necessary and useful. The phased delivery dates are to reduce the burden placed on firms participating in the DCE.  

DCE roundtable

We will be holding a roundtable event for invited industry participants and their advisors on Tuesday 21 June at 1pm. This event is aimed at discussing technical matters and queries relating to completing the DCE template. Up to four representatives per firm will be able to attend. We will focus discussions around the following agenda:

1. Overview of the 2022 Data Collection Exercise (DCE);
2. Timing for completion of the three main sections of the DCE; and
3. Introduction and Q&A from participants:

(i) Qualitative view of firms’ current asset valuation methods (Parts I and II). 
(ii) Quantitative impacts of the proposed base FS methodology design (Part III A). 
(iii) Solvency Capital Requirement (SCR) impacts (quantitative and qualitative) (Part III B).
(iv) Implementation considerations (Part III C).

4. Next steps

If you are interested in attending the Roundtable, please contact your relevant supervisor, alongside InsuranceData@bankofengland.co.uk.

DCE links

• DCE template (XLSX)
• DCE instruction document (pdf)

SONIA spreadsheets

• Risk-free curves as of 31 December 2020 (XLSX)
• Smith-Wilson Extrapolation parameters as of 31 December 2020 (XLSX)
• Risk-free Volatility Adjustment portfolios as of 31 December 2020 (XLSX)
• Risk free Fundamental Spreads, Probability of Default, and cost of Downgrade output as of 31 December 2020 (XLSX)  

Contact

If you have any queries regarding the DCE, please contact InsuranceData@bankofengland.co.uk.