Technical information for Solvency II firms

The PRA publishes technical information for UK insurance firms subject to Solvency II to calculate technical provisions. The information includes risk-free rate term structures, fundamental spreads for the calculation of the matching adjustment and, for each relevant national insurance market, the volatility adjustments. We also publish the symmetric adjustment to the equity capital charge (SAECC) that informs insurance firms’ capital calculations.

Risk-free rates (RFR)

From 11pm on 31 December 2020 onward, UK insurance firms are required to use technical information published by the PRA to calculate the technical provisions required by Solvency II. The European Insurance and Occupational Pensions Authority (EIOPA) publishes similar information for use by EU insurance firms Opens in a new window, including EU subsidiaries of UK insurance groups.   

Our technical information consists of schedules of risk-free interest rates in nine currencies.  Firms use these rates to calculate the present value of the expected future costs of honouring their obligations to policyholders.  

We publish technical information monthly (on or before the eighth working day of the month) and include the following information for each currency:

  • Basic risk-free rate curves;
  • Fundamental spreads (FS), used by insurers to calculate the risk-free curve for liabilities within a matching adjustment portfolio; 
  • Risk-free rate curves for liabilities where the insurers are permitted to use a volatility adjustment (VA).

For the publication of technical information, we rely on data obtained from established third-party providers. However, it may be necessary for us to amend, from time to time, technical information after it has been published if data errors are subsequently identified. 

Volatility adjustment (VA) reference portfolios

The VA is an adjustment to the basic risk-free rate that reflects a proportion of the additional return that an insurer may expect to earn from investing in government and corporate bonds, rather than risk-free equivalents. We determine the VA by calculating the additional return on reference portfolios that are typical of UK insurance firms’ asset holdings in different currencies. We update the reference portfolios in our calculations on 31 March each year.  

The reference portfolios for the year from and including 31 March 2021 are now available. Prior to 31 March 2021, we will use the reference portfolios published by EIOPA.

Symmetric adjustment to the equity capital charge (SAECC)

Insurance firms calculate a solvency capital requirement (SCR) which is the amount of money it should hold in addition to their liabilities to provide a cushion against unexpected events. The Standard Formula SCR calculation includes a test of the impact on firms’ assets and liabilities of a fall in equity prices. We publish one key input to this calculation – the SAECC – every month. The SAECC is based on movements in four major equity indices over the preceding 36 months.

As a temporary measure, UK insurers should use the EIOPA SAECC for valuations from 31 December 2020 to 30 March 2021. The SAECC for 31 December 2020 was -0.48%.

This page was last updated 13 January 2021

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