Solvency II UK: PRA falls short of total reporting costs, say MPs
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The UK prudential regulator does not have an overall figure of how much Solvency II reporting requirements are costing insurers, according to MPs.
The comment came from the Sub-Committee on Financial Services Regulations, a sub-committee of the Treasury Committee which scrutinises regulatory proposals for financial services.
In November, the Prudential Regulation Authority launched a consultation on phase two of Solvency II reporting reforms for insurers.
In a letter to the PRA, dated 20 December, the sub-committee pressed the regulator for more details about the consultation, such as what measurable benefits are expected from the new requirements, how the PRA keeps track of the cumulative costs to firms and what processes the authority has in place to make sure all existing data being collected is still being used as intended.
Phase two of the review, which runs until 8 May, follows from Policy Statement 29/21, which streamlined certain reporting requirements to reduce the volume of returns reported.
In response to the sub-committee on 9 January, Sam Woods, deputy governor and prudential regulation chief executive of the PRA, said the first phase of the review, implemented in 2021, “delivered an average 15% reduction in Solvency II reporting compared with the reporting we inherited from the EU, with greater reductions for smaller firms”.
Pending the outcome of the consultation process, he added that the second phase is expected to bring a further 15% net reduction in the returns submitted across the insurance industry.
Woods said: “Together, these two phases of reform are expected to result in an insurance reporting package that delivers more insightful and relevant information, in a more efficient manner than the current onshored Solvency II reporting.”
He added however, alongside these further reductions, some limited new reporting is proposed in “a few areas of growing importance and relevance” to the supervision of the UK insurance industry – cyber underwriting risk, excess capital generation and non-life insurance products – “where we have judged that some new reporting is needed to advance the PRA’s safety and soundness and policyholder protection objectives”.
Woods argued up until now, the PRA had had to rely on manual ad-hoc data collection, which “imposes costs on firms and often generates data which is of a lower quality, limiting its usefulness”.
The PRA’s letter did not mention reporting costs but said: “We welcome feedback from firms as part of the consultation on our assessment of the likely costs involved in implementing our proposals, and we consider any feedback carefully when finalising our proposals after consultation.”
MPs said of the PRA’s response letter: “The PRA sets out how it carries out cost benefit analyses when introducing new reporting requirements for firms, and gives examples where reporting requirements were no longer needed and have ended. However, the PRA does not give an overall figure of how much their reporting requirements are costing firms in total.”
Apart from the PRA’s reporting requirements, last year the government conducted a major review into Solvency II UK as a result of Brexit and announced its decision in November. Chancellor of the exchequer Jeremy Hunt said last week the changes would be implemented "in the coming months".
Do you think phase two of the PRA’s review will drive down reporting costs?