16th June 2021

PRA publishes Review of Solvency II: Quantitative Impact Study (QIS)

The Prudential Regulatory Authority(PRA) has set out information regarding the PRA’s Quantitative Impact Study (QIS), which will support the review of Solvency II. On 23rd June 2020, the UK Government announced it would review certain features of the Solvency II regulatory regime for insurance firms. In October 2020, HM Treasury(HMT) invited all interested stakeholders to share views on the issues set out in the Call for Evidence. The Call for Evidence period closed on 19th February 2021.
The QIS is a data collection exercise that will assist the PRA's analysis of potential reform options. It will mainly focus on those areas that are quantifiable on an insurer’s balance sheet. It is important to note that the scenarios tested in the QIS do not in themselves represent reform proposals.
The QIS will cover three main areas: (i)the calculation of the Matching Adjustment; (ii)Risk Margin; and (iii)Transitional Measure on Technical Provisions(TMTPs). The QIS will also contain qualitative questions to gather information to support the development of some areas of Solvency II reform that are less straightforward to assess quantitatively.
In the summer of 2021, the PRA will launch the QIS. The exact launch date will be confirmed and firms will be asked to respond within three months. The QIS is relevant to all PRA-regulated insurance firms. Participation in the QIS is on a voluntary basis. However, given the importance of the Solvency II review on the UK insurance industry, the PRA strongly encourage UK insurance firms from all sectors to participate. This will allow us to understand the potential impact of reforms on different insurance sectors, as well as the industry as a whole.
It is important for the PRA to receive high quality data from the QIS, and so it is asking that firms undertake an appropriate level of validation before it is submitted. The QIS is expected to be a significant technical undertaking for participating firms, especially Life Insurers. However, the PRA have given careful consideration to only ask firms for data that in our view is necessary and useful, while having regards to the burden placed on firms participating in the QIS.

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