PS15/25 – Closing liquidity reporting gaps and streamlining Standard Formula reporting

1: Overview

1.1 This Prudential Regulation Authority (PRA) policy statement (PS) provides feedback to responses received to consultation paper (CP) 19/24 – Closing liquidity reporting gaps and streamlining Standard Formula reporting.

1.2 The PRA proposed to introduce new liquidity reporting requirements in CP19/24, to close liquidity reporting gaps for major insurance firms with significant exposure to derivatives or securities involved in lending or repurchase agreements. The need for enhanced data and oversight has been underscored by market stress events, including the March 2020 ‘dash for cash’ at the onset of the Covid-19 pandemic, and the September 2022 liability-driven investment (LDI) crisis. During the stresses, firms could not provide accurate data in a timely manner, which hindered their ability to analyse their liquidity risks and limited the PRA’s ability to assess firms’ liquidity positions, both individually and relative to peers.

1.3 The proposals in CP19/24 were designed to ensure the PRA would have access – during and in advance of potential market stresses – to more timely, consistent, and accurate information on the liquidity positions of large UK insurers with significant exposures to liquidity risk. The PRA considers this reporting essential for strengthening its ability to manage liquidity-related risks to its primary objectives of safety and soundness and policyholder protection, as well as for enhancing financial stability in the UK.

1.4 In CP19/24, the PRA also proposed to remove the expectation that Internal Model (IM) life insurance firms should submit Standard Formula (SF) Solvency Capital Requirement (SCR) data via the annual SF.01 template, as the SF SCR may be less effective in detecting model drift in IM for life insurance firms.

1.5 In addition to providing feedback on responses to the CP19/24 proposals, this PS sets out the PRA’s final policy, which includes:

• amendments to the Reporting Part of the PRA Rulebook (Appendix 1);
• the introduction of four new reporting templates and instruction files (Appendix 2); and
• amendments to supervisory statement (SS) 15/16 – Solvency II: Monitoring model drift and standard formula SCR reporting for firms with an approved internal model (Appendix 3).

1.6 In finalising its policy, the PRA has made changes to its liquidity reporting requirements to reduce the overall cost of compliance for firms compared with the draft proposals. The PRA has also reduced burdens with respect to standard formula reporting by increasing the number of firms that no longer need to report the SF.01 template, in whole or in part.

1.7 This PS is relevant to UK Solvency II firms (‘firms’). The liquidity risk reporting requirements will only apply to a subset of larger UK Solvency II firms. It will not apply to the Society of Lloyd’s and its managing agents, third-country branches, or non-Solvency II firms. The changes to solvency reporting for template SF.01 will apply to life insurance and reinsurance firms with IM permissions, and composite insurance and reinsurance IM firms with immaterial non-life business, including those with partial internal models (PIMs). These changes will not apply to non-life IM firms and composite IM firms with material IM non-life business.

Background

1.8 UK insurers are increasingly using derivatives and other financial instruments to manage their businesses. These instruments can be a significant source of liquidity risk because they can require firms to increase margin or collateral payments when market conditions change, resulting in rapid and substantial outflows.

1.9 The PRA currently collects a very limited amount of standardised information from insurance firms that is relevant for monitoring liquidity risk. Where firms do submit information to the PRA that is relevant to liquidity risk, they report this information infrequently and with significant delay.

1.10 In CP19/24, the PRA proposed targeted measures – considering the nature of the UK market – to close key liquidity reporting gaps by introducing the following four templates:

• ‘Cash flow mismatch’ template – required monthly, capturing information on cash flows, liquid assets, and the impact of changes in credit or market conditions;
• ‘Cash flow mismatch (short form)’ template – required monthly, capturing a subset of the information included in the cash flow mismatch template with a shorter remittance period. This template could also be required every business day in the event of firm-specific liquidity stress or market liquidity stress;
• ‘Committed facilities’ template – required annually, detailing information on available credit facilities; and
• ‘Liquidity market risk sensitivities’ template – required quarterly, showing how changes in market variables affect the liquidity position.

1.11 The PRA aimed to balance the prudential benefit of its proposals against the likely costs to firms. For instance, the PRA targeted the proposals at firms with the largest exposure to liquidity risk, limited the data collection to key supervisory information, and introduced a streamlined reporting framework to be accelerated during times of stress. In finalising its policy, the PRA has carefully considered the CP responses and has sought to strike an even more proportionate balance between costs and benefits relative to the draft proposals.

1.12 In CP19/24, the PRA also proposed the following changes to SS15/16 – Solvency II: Monitoring model drift and standard formula SCR reporting for firms with an approved internal model:

• removal of the expectation on life insurance firms with a full or partial IM to submit annually the SF.01 template containing SCR information calculated using the Standard Formula (SF);
• changes to the assessment of model drift for full IM or PIM life insurance firms because of the removal of SF.01 template; and
• amendments to references to IM ‘approvals’ to be ‘permissions’ for alignment with Financial Services and Markets Act (FSMA) s138BA.

1.13 In determining its policy, the PRA considers representations received in response to consultation, publishing an account of them and the PRA’s response (‘feedback’). Details of any significant changes are also published. In this PS, the ‘Summary of responses’ contains a general account of the representations made in response to the CP. The ‘Liquidity reporting: feedback to responses’ and ‘Standard Formula reporting: feedback to responses’ chapters contain the PRA’s feedback.

1.14 In carrying out its policy making functions, the PRA is required to have regard to various matters. In CP19/24, the PRA explained how it had regard to the most relevant of these matters in relation to the proposed policy. The ‘Changes to draft policy’ section of this chapter refers to that explanation, taking into account consultation responses where relevant.

Summary of responses

1.15 The PRA received thirteen sets of responses to the CP. The names of respondents to the CP who consented to publication are provided in Appendix 5.

1.16 Respondents generally welcomed the PRA’s proposals to introduce standardised liquidity risk reporting for major life insurers. Most of the respondents agreed that recent market events and the increasing use of derivatives highlighted the need for consistent and comparable liquidity reporting. The respondents made various observations on the specific proposals, with particular emphasis on the need for clarifications in certain areas. Respondents also asked the PRA to streamline the reporting templates further as a way of reducing the compliance burden on firms. A detailed account of responses and the PRA’s feedback is provided in Chapter 2.

1.17 All respondents generally welcomed the PRA’s proposals to streamline Standard Formula reporting for life internal model firms. Some respondents asked the PRA to extend the scope of the proposals to other insurers. Additionally, some respondents made wider observations and requests for clarification; a detailed account of responses and the PRA’s feedback is provided in Chapter 3.

1.18 Several respondents to CP19/24 expressed strong support for the PRA’s establishment of an industry Liquidity Reporting Subject Expert Group (LSEG). They recognised the value of the forum in having fostered dialogue and enhanced supervisory insight. Respondents encouraged the PRA to continue this collaborative approach to policymaking and one respondent offered further suggestions to improve industry engagement.

Changes to draft policy

1.19 The PRA has considered the responses to CP19/24. Its final policy reflects changes and clarifications to the draft policy. Key changes include:

• Delay of implementation timeline. The PRA has deferred the implementation date for the liquidity risk reporting rules from 31 December 2025 to 30 September 2026.
• Changes to the scope of application of the reporting requirements by:
  • introducing a new fund level threshold for the cashflow mismatch template and its short form version, with the aim of excluding ring-fenced funds with lower derivatives exposure from the reporting on grounds of proportionality.
  • requiring the liquidity market risk sensitivities (L-MRS) template at fund level rather than solo level, subject to the same threshold described above.
• Refinements to the cashflow mismatch template, including a reduction in the amount of:
  • prior month actual data (termed backward-looking data in CP19/24), including the removal of insurance-related and derivative-related data items;
  • daily timesteps for some forward-looking data items; and
  • data items required, including the removal of items relating to gross notional derivative exposure and non-interest-bearing claims.
• Simplification of reporting on margin requirements in the L-MRS template and the cashflow mismatch template, in particular by stating that firms should not model changes in their initial margin requirements under stress.
• Clarifications and improved definitions, achieved by changes to reporting rules, templates or instructions.
• Extension of the scope of firms excluded from SF.01 reporting. The PRA has amended the draft policy such that composite IM insurance and reinsurance firms with immaterial non-life holdings will not be expected to report SF.01. Composite IM insurance and reinsurance firms with material non-life holdings will be expected to report SF.01 for their non-life business only. The expectation set out in paragraph 3.6 of SS15/16 (Appendix 3) has been amended accordingly.

Implementation

1.20 The implementation date for the liquidity risk reporting requirements is 30 September 2026. The final rules and policy will be made immediately, but they will not take effect until 30 September 2026. The PRA will continue to engage with firms and relevant industry bodies to support firms’ preparations before that date.

1.21 A taxonomy reflecting the final policy will be made available after publication of the PS.

1.22 The PRA confirms that the changes relating to SF.01 reporting will be effective on publication of this PS on 30 September 2025. This means that firms in scope of the proposals will not be expected to submit an SF.01 report to the PRA from 31 December 2025 inclusive. Additionally, due to the extension of the deadline for year-end 2024 SF.01 reports, as set out in paragraph 5.10 in CP19/24, firms will not be expected to submit a year-end 2024 SF.01 report to the PRA.

2: Liquidity reporting: feedback to responses

2.1 This chapter provides the PRA’s feedback to responses received in respect of the liquidity reporting chapter of CP19/24.

2.2 The sections below have been structured broadly along the same lines as the sections of the CP, with some additions and amendments to better respond to related issues raised by respondents. The responses have been grouped as follows:

• Implementation period
• Scope of reporting
• Cashflow mismatch template
• Cashflow mismatch (short form) template
• Committed facilities template
• Liquidity market risk sensitivities (L-MRS) template
• General responses

Implementation period

2.3 In CP19/24, the PRA proposed to implement the liquidity reporting rules on 31 December 2025. The CP closed on 31 March 2025.

2.4 Eleven respondents raised concerns that the implementation period was insufficient. They noted challenges in building and testing new systems and processes ahead of year-end 2025 and warned they may need to rely on costly interim solutions. Two respondents also observed the proposed implementation timeline was shorter than the implementation period granted to banks when the PRA first introduced bank liquidity reporting. Respondents proposed several alternatives to the PRA’s original timeline:

• Phased implementation. Six respondents suggested a phased approach with a focus on ‘key issues’. Specific suggestions included deferring the requirement to report projected cash flows information, allowing simplifications in early reporting cycles, postponing selected data items and delaying implementation of the L-MRS template. One respondent specifically proposed postponing the requirement to submit projected cashflows information until 2026.
• Short-form template deferral. Five respondents suggested delaying implementation of the cashflow mismatch (short-form) template with a one-business day remittance period. Another suggested extending the remittance period by one week in the first remittance period.
• Exemption for specific funds. Two respondents recommended delaying implementation for funds with high liquidity levels. Another suggested delaying reporting requirements for immaterial funds.
• Alternative timing. Two respondents proposed shifting the implementation date to a quieter reporting period in 2026, and one respondent suggested a backstop of 31 December 2026.

2.5 Taking these concerns into account, the PRA has decided to extend the implementation date for all the liquidity reporting requirements to 30 September 2026. This provides firms with approximately one year from the publication of the PS to prepare for the reporting requirements. The PRA considers this extension strikes a proportionate balance, allowing sufficient time for firms to implement long-term reporting solutions without the need for interim fixes, while still enabling the new reporting to begin in a relatively timely manner. Given the overall delay, it has decided that it will not take forward suggestions for a phased implementation of specific aspects of the reporting, or staggered implementation of reporting by various types of firms.

2.6 Three respondents requested the PRA permit firms to begin reporting ahead of the implementation date, if they are ready to do so. To support preparations, the PRA will establish a question-and-answer (Q&A) process to respond to firms’ queries. The PRA will provide more information on the potential for early reporting submissions as part of the Q&A process, as well as via regular supervisory engagement with firms. Additionally, the PRA will organise user acceptance testing (UAT) windows to allow firms to test their liquidity reporting submissions via the Bank of England Electronic Data Submission (BEEDS) portal.

Scope of reporting

Firm-level reporting

2.7 In CP19/24, the PRA proposed that the liquidity reporting requirements would apply to solo UK Solvency II insurers with assets exceeding £20 billion on average over the previous three quarterly reporting periods. As well as meeting the £20 billion asset threshold, firms would only be in scope of the reporting requirements if they also have either:

• a gross notional value of derivatives contracts exceeding £10 billion; or
• a total value of on and off-balance sheet securities involved in lending or repurchase agreements exceeding £1 billion.^{footnote [1]}

2.8 Three respondents supported the reporting thresholds, noting that the PRA had taken a proportionate approach by targeting firms with the largest exposures.

2.9 Two respondents sought confirmation that general insurers were out of scope. The PRA confirms that, based on the size of current exposures, it expects that its liquidity reporting requirements will only apply to life insurers. However, the thresholds are based on a firm’s size and exposures, not business type, to allow for future changes in risk profiles.

2.10 One respondent asked whether third country branches were included in the scope of reporting. As stated in paragraph 1.8 of CP19/24, the PRA confirms that its final policy does not apply to the Society of Lloyd’s and its managing agents, third-country branches, and non-Solvency II firms.

2.11 One respondent expressed concern that small firms with large amounts of derivatives might be captured by the reporting requirements, which would be disproportionate to their size. The PRA notes that its threshold criteria begin from the starting point that firms must have assets exceeding a £20 billion threshold. The PRA considers this size threshold to be appropriate for the reasons set out in paragraph 3.37 of CP19/24.

2.12 One respondent suggested the PRA should periodically review the thresholds to account for inflation. The PRA will continue to monitor the reporting thresholds to ensure the scope of application of the liquidity reporting requirements remains appropriate, in line with its overall approach to assessing and updating policy thresholds.

Fund-level reporting: Cashflow mismatch

2.13 To answer a query from a respondent, the PRA confirms that it requires firms to submit the cashflow mismatch templates at the solo entity level – as well as for each ring-fenced fund (RFF), matching adjustment portfolio (MAP), and remaining parts.

2.14 In CP19/24, the PRA further stated that it may consider removing immaterial funds from the scope of application of the liquidity risk reporting, in view of proportionality.

2.15 Five respondents proposed changes to the scope of reporting for the cashflow mismatch template:

• Immaterial funds. Three respondents supported excluding immaterial funds from the scope of reporting, with two requesting a defined materiality threshold.
• Highly liquid funds. Two respondents suggested exemptions or reduced reporting for RFFs with high levels of liquidity. One respondent noted specifically that with-profit funds are generally self-sufficient when it comes to liquidity management and suggested they should be excluded. The respondent also noted that it would be more burdensome for with-profits funds to implement the proposals, as the structure and breakdown of the templates does not correspond to how these funds are managed.
• Relative derivative exposure. One respondent proposed a threshold allowing firms to exclude funds based on net notional derivatives relative to the size of the fund.

2.16 After reviewing the responses, the PRA has decided to amend its draft policy to enable firms to exclude RFFs from the reporting requirements if they:

• have a gross notional value of derivatives contracts below £500 million, as defined by template IR.08.01 (C0130) and excluding those held in index or unit-linked contracts of insurance (C0080);
• do not require liquidity support from other parts of the firm, or provide liquidity support to other parts of the firm; and
• do not contain a nested MAP.

2.17 This change is intended to improve proportionality while maintaining oversight of key liquidity risks. The PRA expects that a threshold of £500 million of gross notional derivatives exposure will generally be an appropriate indicator for a RFF that poses lower levels of liquidity risk, given the firms in scope of the liquidity reporting requirements would generally be expected to have much larger volumes of derivatives exposure overall – mostly divided between MAPs, the remaining part and, where relevant, several RFFs. The threshold criteria include backstops relating to intra-firm support, including by requiring reporting relevant to the MAPs and remaining parts, to ensure the PRA can still monitor information most relevant to the financial health of the solo entity. The PRA has decided against amending its draft policy to exclude ‘highly liquid’ funds or certain, specific types of funds. This is because the PRA does not disregard the possibility of significant risks arising from RFFs that firms may currently perceive as liquid, including with-profits funds, and notes that liquidity risks can materialise very quickly.

2.18 One respondent highlighted that the MAP does not necessarily operate independently from shareholder funds with respect to liquidity, meaning the PRA should acknowledge when reviewing fund submissions that assets outside of the MAP can be made available to meet collateral calls with respect to transactions in the MAP. The PRA reminds firms of their requirements to ensure that MAPs are organised and managed separately from the other activities of the undertaking.^{footnote [2]} Further, the PRA notes that it expects to use all the information made available through the reporting when analysing and monitoring a firm’s liquidity demands and available resources.

Fund-level reporting: L-MRS

2.19 In CP19/24, the PRA proposed that firms submit liquidity market risk sensitivities (L-MRS) reports at the solo entity level only.

2.20 Two respondents said the PRA should require firms to submit L-MRS reports for individual funds, noting that the draft policy of solo level reporting would not deliver any insight into cross-directional market risk sensitivities within firms. One respondent said fund level reporting would ensure the PRA has information that more closely reflects how firms manage their liquidity positions in practice.

2.21 Having reviewed the feedback, the PRA has decided to change its draft policy to require L-MRS reporting for each of firms’ RFFs, MAPs, and remaining parts – rather than for the solo entity. The PRA will also permit firms to exclude RFFs, provided they meet the threshold criteria set out in paragraph 2.16 above. In line with the CP responses, the PRA expects that L-MRS reporting will have greater prudential value when submitted for funds. This is because it will enable the PRA to monitor liquidity risk sensitivities more meaningfully, at a level that is more aligned with where the risks materialise within firms. In many cases, it may also be simpler for firms to report on sensitivities at the fund level, as they will not be required to calculate a consolidated view of their overall firm level exposure to market sensitivities.

2.22 Following the changes described in the ‘scope of reporting’ section of this PS, the PRA has made several consequential changes to the header template (LQ.00) to ensure firms can correctly specify basic information about their firm or group and specify the contents of their submissions.

Cashflow mismatch template

2.23 The PRA proposed in CP19/24 to introduce a new requirement for firms to report on expected and contractual cash inflows and outflows, unencumbered assets, and certain contingent liquidity demands in a ‘cash flow mismatch’ template.

2.24 Many of the CP responses on the design of the cashflow mismatch template shared a common theme: respondents asked the PRA to reduce the reporting burden by limiting the volume and granularity of data required. In considering its final policy, the PRA has sought to strike a proportionate balance between minimising new burdens on firms and ensuring it receives timely, accurate and comparable data to monitor liquidity risks effectively.

2.25 Where the PRA has made changes to data fields in the cashflow mismatch templates compared with the draft policy, the PRA has also amended items in the cashflow mismatch (short form) template where applicable for consistency purposes.

2.26 To support firms in navigating the changes, the PRA has provided a mapping table (see Appendix 4) demonstrating how its categorisation of cash and securities flows, and asset classes, is consistent across different liquidity reporting templates.

Data required by the template

Forward-looking flows

2.27 Six respondents raised concerns about the number of time steps required for forward-looking data in the cashflow mismatch template. Two noted specific challenges in generating daily time step projections for certain data lines, citing either the need for costly system upgrades or reliance on estimates from monthly projections, which could compromise data accuracy. Several respondents proposed targeted amendments to the time step granularity required for cashflow projections within the mismatch template, including:

• Aligning requirements with short form template: Four respondents proposed that daily time steps should only be required for data lines appearing in both the full and short form version of the cashflow mismatch template, with two of the respondents noting that these items are more likely to move significantly in a stress scenario.
• Contingency items: Four respondents recommended three specific contingency items (‘mortgages that have been agreed but not yet drawn down’, ‘other undrawn loans and advances’, ‘planned outflows related to renewal or extension of new loans’) should be reported with monthly time steps instead of in daily time steps. Another respondent further suggested that all contingency items (including ‘outflows from off-balance sheet and contingent funding obligations’) should be reported monthly. One respondent noted delays between drawdown requests and uncertainty around actual drawdown rates and suggested a conservative estimate of the expected drawdown to be incorporated in the liquidity projections.
• Predictable cashflow items: Five respondents argued that the PRA could reduce the number of forward-looking time steps required for certain items in the cashflow mismatch template – such as operating expenses, tax, and dividends – given they are more predictable and less likely to move quickly in a stress scenario.

2.28 The PRA welcomes the detailed responses regarding the forward-looking time steps required for cashflow mismatch data items. After reviewing these responses, the PRA has made the following changes to its draft policy to balance supervisory needs with proportionality:

• Contingency items: The PRA acknowledges the behavioural uncertainty associated with forward-looking cashflows for three specific data lines (‘mortgages that have been agreed but not yet drawn down’, ‘other undrawn loans and advances’, ‘planned outflows related to renewal or extension of new loans’). Respondents noted that these items are difficult to forecast accurately due to timing variability and drawdown uncertainty. In response, the PRA has amended its policy: firms should now report these items as totals in the open column of the template, rather than projecting them across time steps. However, the PRA has retained its original requirement for ‘outflows from off-balance sheet and contingent funding obligations’, considering these a potentially material source of short-term liquidity pressure.
• Predictable cashflow items: The PRA agrees that certain items such as operating expenses, tax, and dividends are less sensitive to stress conditions. These cashflows typically occur at predictable intervals. To reduce reporting burdens on firms, the PRA has revised its policy to require forward-looking data for these items in weekly and monthly time steps, rather than daily.

2.29 The PRA considers that liquidity risk reporting should enable the identification of potential cash flow mismatches over short intervals, including within a matter of days – when a firm's options for raising liquidity may be more constrained than over longer horizons. As noted in CP19/24, the PRA recognises that some insurers hold significant amounts of derivatives and other financial liabilities that may require rapid settlement. Liquidity stress episodes, such as the ‘dash for cash’ at the onset of the Covid-19 pandemic in March 2020, and the liability-driven investment (LDI) crisis in September 2022, demonstrated how such pressures can crystallise within days rather than weeks or months. Accordingly, the PRA has decided to maintain its draft policy regarding time step granularity for the majority of forward-looking cashflows required under the cashflow mismatch template.

2.30 With respect to specific CP feedback on aligning requirements with short form template, the PRA notes that the cash flow mismatch template and its short form version have different, but complementary purposes. The full template provides the PRA with a more comprehensive view of a firm’s financial position supporting its regular supervisory monitoring of liquidity risk. This includes the need for forward-looking daily time steps across a broader set of data lines. In contrast, the short form template is designed for use in stress scenarios, enabling the PRA to collect a more targeted and focused set of data. By leveraging insight from the full template, the PRA can streamline reporting requirements during periods of heightened liquidity risk. Broadly, the PRA has decided to maintain its draft policy with respect to the rows requiring forward-looking data in the full version of the cashflow mismatch template.

Prior month actual data

2.31 Seven respondents suggested reducing the amount of prior month actual data on realised cashflows (termed backward-looking data in CP19/24) in the cashflow mismatch template. Of these, six respondents recommended removing them entirely, arguing that such data offers limited value for monitoring liquidity risks. Specific concerns included:

• Early warning indicators: Six respondents questioned the value of prior month actual data as ‘early warning indicators’.
• Memorandum items: Two respondents highlighted the cost to establish systems to report items such as ‘premiums due but unpaid’, or ‘surrenders requested (partial or full): number of contracts’, suggesting these should be excluded.
• Derivatives and other financial contracts: Two respondents proposed limiting prior-month actual reporting for derivatives, secured lending, and securities issued or unsecured loans to monthly totals rather than daily or weekly time steps.
• Insurance cashflows: One respondent cautioned that reporting on ‘surrenders, partial surrenders or maturities’ could be misleading without further information about seasonal variations in insurance cashflows.

2.32 The PRA welcomes the detailed responses provided to the CP with respect to prior month actual data. As noted above, the PRA has sought to ensure its final policy is as proportionate as possible. After reviewing CP responses, the PRA has therefore made the following changes to its draft policy:

• Memorandum items: While the PRA considers that information on ‘premiums due but unpaid’ and ‘surrenders requested (partial or full) could deliver additional insights into policyholder behaviour, it has decided to amend its draft policy to remove these data items in view of proportionality.
• Derivatives and other financial contracts: The PRA has retained prior month actual reporting for secured lending, and securities issued or unsecured loans, because it considers that these data are essential for monitoring a firm’s actual cashflow experience related to sources of short-term financing. However, it has removed prior month actual data relating to derivatives (‘derivatives amounts paid / payable’, ‘derivative amount received / receivable’, and ‘securities flows from specific transactions’) from the cashflow mismatch template, due to the reporting burden on firms. The PRA considers that it can remove these items without losing essential information because it can monitor risks to a firm stemming from derivatives – and substitutions under credit support annexes (CSAs) – by examining the derivatives margin given and received by collateral type.

2.33 Despite these changes, the PRA maintains that prior month actual data remain valuable for supervisory oversight. Specifically, the PRA notes that:

• Early warning indicators: The PRA acknowledges that prior month actual data may have limited value as ‘early warning indicators’, having reviewed the CP responses. However, the PRA notes that prior month actual data serve a broader purpose by enabling supervisors to monitor firm’s actual cashflows activity over time with greater accuracy. The PRA may also refer to prior month actual data when considering whether firms may have experienced cashflow demands that exceeded their expectations.
• Insurance cashflows: Seasonal variability is acknowledged, however the PRA considers that this information remains valuable for tracking how insurance business activity relates to liquidity risk over time. It also enables the PRA to compare monthly projections for surrenders, partial surrenders, or maturities with a firm’s actual experience.

2.34 Further to the above, and in response to broader comments on removing prior month actual data, the PRA notes the importance of retaining the ability to monitor actual movements in repos and short-term unsecured borrowing. While the forward-looking data in the templates captures only the contractual maturities of outstanding short-term borrowing and repo usage, the prior month actual datal provides additional insight into actual intra-month short-term borrowing and repo activity. This enables the PRA to assess firms’ real time liquidity management practices more effectively.

Counterbalancing capacity

2.35 One respondent asked why the PRA requires projected asset values in daily time steps as part of the ‘counterbalancing capacity’ section of the cashflow mismatch template. The PRA clarifies that the counterbalancing capacity section is designed to capture securities flows, not changes in the value of securities over time. This approach enables the PRA to account for transactions involving cash on one side and securities on the other. Without frequent time steps, a maturing repurchase agreement might appear solely as a cash outflow, without reflecting the simultaneous receipt of securities – potentially undervaluing the firm’s counterbalancing capacity.

2.36 Four respondents expressed concerns about the number of asset categories in the ‘counterbalancing capacity’ section of the cashflow mismatch template, particularly the breakdowns by maturity and asset classes.

2.37 After reviewing the response, the PRA has mostly retained the proposed asset breakdowns in the ‘counterbalancing capacity’ section of the cashflow mismatch template. The PRA requires a detailed breakdown of counterbalancing capacity by asset class to be able to understand all the sources of liquidity that may be available to firms, and reduce the need for ad-hoc data requests. The PRA further notes the importance of requiring separate breakdowns of bonds by remaining years to maturity, recognising that a bond’s tenor materially affects its liquidity characteristics – for instance, longer dated bonds may be subject to larger repo haircuts. However, the PRA has removed the separate category for non-interest-bearing claims to reduce complexity, in line with its commitment to proportionality.

2.38 One respondent said it was not always possible to categorise collateral movements to the level of granularity requirements by the cashflow mismatch template. The PRA recognises that firms can more easily report, for instance, the maturity breakdown of bonds held as part of the ‘initial stock’ of assets at the time of reporting. While future flows may be subject to greater uncertainty, particularly due to changes in collateral, the PRA expects firms to use prudent judgement when estimating the worst-case asset type and tenor possible to deliver under these projections.

2.39 Two respondents requested a change to ‘counterbalancing capacity’ section to split out ‘UK government bonds’ from ‘highest quality central governments’ to be consistent with the L-MRS template. Three respondents highlighted the overlap in the ‘counterbalancing capacity’ section of the cashflow mismatch template between the rows for ‘highest quality regional governments and local authorities’ and ‘of which UK’.

2.40 Having reviewed the responses, the PRA has amended the draft policy to split out ‘UK government bonds’ from ‘highest quality central governments’ and remove the overlap between ‘highest quality regional governments and local authorities’ and ‘of which UK’ by splitting these rows into separate asset categories for UK and non-UK. Following this feedback, the PRA has also enhanced the clarity of the counterbalancing capacity section by converting the ‘of which’ rows into distinct categories for:

• ‘UK government bonds: not index-linked’ and ‘UK government bonds: index-linked’;
• ‘high quality UK regional governments, local authorities or public sector entities’ and ‘high quality non-UK regional governments, local authorities or public sector entities’;
• ‘high quality corporate bonds issued by non-financial institutions’ and ‘high quality corporate bonds issued by financial institutions’;
• ‘investment grade corporate bonds (CQS 2&3) issued by non-financial institutions’ and ‘investment grade corporate bonds (CQS 2&3) issued by financial institutions’; and
• ‘common equity shares issued by non-financial institutions’ and ‘common equity shares issued by financial institutions’.

Other responses on required data

2.41 Three respondents recommended removing the requirement to report a firm’s initial stock of ‘derivatives gross notional value’ from the cashflow mismatch template. They argued that producing this data monthly would be burdensome and noted that the PRA already collects more granular data on the gross notional value of derivatives from other parts of its reporting framework.

2.42 The PRA acknowledges that firms may incur material costs to provide data more frequently on the total amount of their derivatives by gross notional value. The PRA considers that the costs would outweigh the benefits to the PRA from collecting the information. The PRA has therefore decided to remove these data items from the cashflow mismatch template.

2.43 With respect to the section in the cashflow mismatch template requiring information on the ‘impact of adverse market scenario’:

• Two respondents queried why the section does not include data on the value of liquid assets.
• Three respondents suggested relocating this section to the L-MRS template, which would reduce the reporting frequency from monthly to quarterly. They also raised concerns about the feasibility of submitting the data with a 10-business day remittance period.
• Three respondents suggested the PRA align the stress parameters in this section with those used in the L-MRS template to reduce the reporting burden. Additionally, one respondent asked further clarification about the calibration of the adverse stress scenario, noting the stresses are not consistent with the univariate stresses used in the L-MRS template.

2.44 The PRA selected derivatives as the key exposures for the adverse market scenario in the cashflow mismatch template to assess firm’s liquidity risks in relation to potential margin calls under stressed market conditions. Given the rapid and material changes that can occur in derivatives exposures, the PRA considers it essential to maintain a monthly view of a firm’s sensitivity to market stresses. This enables timely supervisory assessment of emerging liquidity risks. The PRA has not required further data as part of the scenario, including on assets, in view of proportionality. The market variables included in the adverse scenario are intended to represent a severe but plausible multivariate stress, informed by historical market experience and previous stress testing exercises. The PRA does not consider it appropriate to align the market variables included in this scenario with those used in the L-MRS template. The adverse scenario represents a particular multivariate stress while the L-MRS variables encompass a range of univariate stresses – some of which reflect market movements in opposing directions.

2.45 Two respondents noted that the draft cashflow mismatch template did not allow firms to report situations where securities are exchanged for cash, such as when a termination event on a derivatives contract results in a gross cash outflow and a corresponding inflow of gilts previously posted as a collateral. The templates and instructions required reporting on gross cash outflows due to rating downgrades but did not accommodate the corresponding inflows of gilts. This point of feedback is also relevant for the other ‘contingencies’ rows related to collateral (‘callable excess collateral’, ‘collateral due but not yet called’, ‘received collateral with substitution rights’, and ‘posted collateral with upgrade rights’). Additionally, a third respondent highlighted that the template does not distinguish between different collateral types. This limitation would prevent firms operating under corporate bond CSAs from reflecting outflows of corporate bonds.

2.46 In response, the PRA agrees that the ‘contingencies’ section is not sufficiently flexible to enable reporting of cash flows and securities flows. It has therefore amended the cashflow mismatch template by removing the rows for ‘contingencies’ relating to collateral (excess, due, substitutable, and upgradable), and the rows for one to three notch ratings downgrades. The PRA has replaced these rows with a scenario requiring reporting by collateral type for the collateral contingencies and a three-notch rating downgrade. This ensures firms can show cash flows and securities flows in the ‘contingencies’ section of the cashflow mismatch template. The PRA considered changing the instructions for the counterbalancing capacity section to enable firms to report on contingent collateral movements but decided against this to maintain consistency with the short form version of the template. In the interests of proportionality, the separate ‘contingency’ rows for ratings downgrades above three notches will be reported as net flows across all collateral types in line with the draft policy.

2.47 An additional respondent queried whether the collateral ‘contingencies’ rows (excess, due, substitutable, and upgradable) should be considered part of – or separate to – the contingencies rows showing the ‘impact of an adverse market scenario on derivatives’. The PRA confirms that these four rows are separate from the adverse market scenario. The PRA considers that the template changes described in the paragraph above should clarify the distinction.

2.48 One respondent asked about treatment of illiquid loan cash flows and whether these could be reported as future expected income to meet expected liability outflows. The respondent also asked whether loan inflows should be reported in the row for ‘other inflows’. 

2.49 The PRA notes that the draft cashflow mismatch template included only one row for loans (‘monies due from unsecured loans and advanced granted’), which did not allow for differentiation between illiquid and more predictable loan cash flows. As part of its final policy, the PRA has therefore added a new row for “deposits other than cash equivalents” to enable separate reporting of more liquid cash placements with banks and it has also widened the scope of the existing loans row to encompass all other types of loans. Loan inflows should be reported in these designated rows and not under ‘other inflows’.

2.50 One respondent proposed that firms should be allowed to use simplifications when populating the cashflow mismatch template, given the granularity of the data required. The PRA notes that the prudential value of the reporting rests on having accurate, consistent and comparable data. The PRA has therefore not amended its draft policy to permit simplifications, given it would risk undermining the value and comparability of the data.

2.51 Two respondents proposed that ‘outflows due to downgrade triggers’ should be reported using monthly time steps. However, the PRA considers that this data item is important for monitoring risks related to credit support annexes (CSAs), given that a ratings downgrade can have an impact on the collateral required under a CSA. In these cases, there may be a defined period between the ratings downgrade and the requirement for collateral to be exchanged. The PRA considers that the daily time steps are essential for monitoring these risks.

2.52 One respondent noted difficulty in calculating ‘outflows due to downgrade triggers’. The PRA expects firms to be able to quantify any resulting contingent liquidity risks caused by deterioration in credit rating.

Definitions and clarifications

2.53 The PRA has made a number of amendments to definitions and clarified aspects of the reporting materials after reviewing the templates and instructions alongside the CP responses, including those detailed below:

Template changes

2.54 Two respondents noted that the placement of the ‘other tradeable assets’ row in the cashflow mismatch template was unclear, as it appeared to only include assets held in collective investment undertakings or packaged as funds. In response, the PRA has amended the template by repositioning the ‘other tradeable assets’ row, introducing a new sub-row specifically for other tradeable assets held in collective investment undertakings or packaged as funds, and making additional corrections to improve clarity.

2.55 Three respondents questioned the meaning of the ‘initial stock’ column in the ‘contingencies’ section of the cashflow mismatch template. The PRA has addressed this by expanding the definition of the ‘open’ column in the instructions and amending the template so that certain contingencies can be reported as ‘open’ rather than ‘initial stock’ if there is no fixed or defined payment date.

2.56 Following further review of the CP responses, and internal consideration of the draft policy, the PRA has implemented further changes to the cashflow mismatch template, including by:

• clarifying that ‘multilateral development banks or international organisations’ are classified as ‘highest quality’;
• renaming the ‘outflows & inflows’ section to ‘cash outflows & inflows’ to better reflect the reporting requirements;
• aligning the definition of ‘cash’ with other PRA reporting by renaming relevant rows across templates to refer to ‘cash and cash equivalents’;
• removing the column named ‘in the last 7 days of the reporting period’, which was crossed out in the CP template;
• enabling firms to report ‘total inflows’ of ‘up to one month’, consistent the ‘total outflows’ of ‘up to 1 month’;
• renaming the ‘overnight’ column to ‘1 day after the reporting date’ to avoid confusion when the first day after the reporting date is not a business day;
• renaming the ‘greater than overnight up to 2 days’ column as ‘greater than 1 day up to 2 days’ following the change described above;
• amending certain ‘contingencies’ section data fields to ensure the information is reported in the ‘initial stock’ or ‘open’ columns, rather than under ‘1 day after the reporting date’ column, due to the undefined nature of payment dates;
• slightly expanded the asset breakdown for ‘assets held in collective investment undertakings or packaged as fund’, and renamed the collateral types for the ‘impact of an adverse market scenario on derivatives’, ‘derivatives margin given’, and ‘derivatives margin received’ parts to maintain consistency following the changes made to the counterbalancing capacity section; and
• renamed the collateral types for the ‘impact of an adverse market scenario on derivatives’ to start with the word ‘inflows’ or ‘outflows’ to ensure the template is clearer and easier to follow.

Instruction changes

2.57 Five respondents requested clarifications of the terms RFFs, MAPs, and remaining parts. The PRA notes that these terms are used widely in other parts of the PRA’s reporting requirements. RFF and MAP are defined terms on the Glossary of the PRA Rulebook.^{footnote [3]} For clarity, the remaining part refers to the part of the solo entity that remains after excluding RFFs and MAPs. Where an RFF contains a nested MAP, the PRA expects reporting on the remaining part of that RFF – ie, the portion of the RFF excluding the nested MAP.

2.58 Six respondents queried the potential for double counting between the 'up to one month' column and the intra-month time steps in preceding columns. The PRA has amended the instructions to remove the potential for double counting.

2.59 One respondent queried whether securitised notes, such as Equity Release Mortgage (ERM) structured notes, fall within the scope of the cash flow mismatch template. The PRA refers firms to the item ‘Outflows from off balance sheet and contingent funding obligations’, which includes the instruction: ‘This amount must include the maximum amount that could be drawn to support special purpose vehicles’. The PRA has expanded this instruction to provide further guidance on assessing the likelihood, timing and potential volume of these liquidity outflows. Where firms believe they have off balance sheet or contingent funding obligations at group, holding company, or solo level that do not meet the criteria set out in the instructions, they are expected to discuss inclusion with their supervisor – reflecting the expectation in SS5/19 – Liquidity risk management for insurers that firms should carefully consider the impact of group transactions on their liquidity position.

2.60 A respondent asked whether the ‘liabilities resulting from securities issued’ row includes parent-issued subordinated debt. The PRA has amended the instruction to refer to the revised row ‘outflows from off balance sheet and contingent funding obligations’, which now states: ‘In addition to contractual obligations of the reporting entity, the entity should consider the likelihood, timing and potential volume of liquidity outflows from obligations which counterparties would consider associated with that entity’.

2.61 The PRA also received a query regarding the treatment of rehypothecated collateral with undefined maturity in the ‘Monies due from secured lending and capital market driven transactions’ row. The PRA has removed the reference from the instructions and added further clarification as part of the general commentary framing the instructions.

2.62 Following further review of the feedback, and internal consideration of the draft policy, the PRA has implemented further changes to the instructions, including to:

• remove references to EU regulations and aligned the definitions with the relevant PRA Rulebook references;
• add a reference to Additional Termination Events (ATE) to the reporting instructions, as an example of credit rating downgrade triggers;
• change 30-day references to ‘calendar month’;
• amend the instructions to move unsettled margin calls from the ‘derivatives payable’ and ‘derivatives receivable’ rows to the ‘collateral due’ row;
• add further information to clarify the meaning of the ‘derivatives payable’ and ‘derivatives receivable’ rows;
• provide further guidance in the reporting instructions around how to report on the treatment of collateral received in a segregated account;
• add a reference to cashflows at reset dates, where relevant;
• amend the instructions to clarify treatment of accrued interest in valuations;
• explain how GBP government bond yields should be applied in the adverse market scenario;
• note that firms should include information on exchanges of collateral when reporting on ‘received collateral with substitution rights’;
• clarify that, with respect to the field for ‘derivatives initial margin given’, firms should not report on excess margin given above their initial margin requirements;
• give further instruction about how firms should report on the impact of maturing assets and their resulting cashflows;
• clarify when firms should use positive or negative signage in their reporting; and
• make other changes as necessary to reflect the changes made to the templates set out above.

Other clarifications

2.63 With respect to reporting required for common equity shares, three respondents requested a more prescriptive definition in the instructions than the current reference to shares forming part of ‘a major stock index of a third-country’. In line with SS5/19 , firms are expected to assess whether assets have a proven track record as reliable source of liquidity. The PRA expects firms to rely on their existing risk management processes to ensure compliance with the instructions.

2.64 Two respondents noted the cashflow mismatch template contains a mixture of daily, weekly and monthly timesteps. The PRA confirmed that this variation reflects the need for different levels of granularity depending on the nature of the risks. Furthermore, the PRA has sought to reduce data requirements, including limiting the number of daily time steps where possible.

2.65 One respondent asked for clarification on how to report contractual flexibility in cash flows. The PRA notes that firms should consider the duration of the relevant process that would create the cash flow and then report in the appropriate time step band using prudent judgment. Furthermore, the PRA highlights its instruction that ‘contingent cash and/or securities flows must be assumed to occur in line with best estimate assumptions’.

2.66 A respondent asked the PRA to clarify whether prospective business should be included in the cash flow mismatch template. The PRA notes that if ‘prospective’ business is not contractual, then it should not be included.

2.67 One respondent asked the PRA to clarify which types of assets should be reported under ‘other tradeable assets’. The PRA has given examples of the characteristics of assets that could be categorised as ‘other tradeable assets’ but acknowledges that there may be other relevant assets for this field. Firms should be able to demonstrate, upon request, that such assets are traded in large, deep and active cash or repo markets. Irrespective of whether an asset is recognised in the counterbalancing capacity section, all contractually agreed cash flows arising from any assets should be reported in the appropriate row in the ‘Cash inflows and outflows’ section.

2.68 A respondent asked for clarification on the treatment of assets with variable cash flows. Where these assets meet the definition of rows in the counterbalancing capacity, the PRA expects that the market value of the assets should be recognised in the appropriate row while future contractually expected cash flows arising from the asset should be recognised in the appropriate row in the ‘cash inflows and outflows’ section of the template. The cash flow figures should be calculated using the applicable calculation method. If any reference inputs are not available as at the reporting date, firms should use their judgment to calculate an appropriate cash flow figure.

2.69 A respondent asked whether the term ‘month’ in the cashflow mismatch and templates refers to calendar month or a number of business days, and similarly whether days refers to business or calendar days. The definitions of time periods are set out in the general comments to the instructions, namely that: ‘contractual flows must be allocated across the time buckets according to their occurrence and residual maturity, with days referring to calendar days and months referring to calendar months’.

2.70 One respondent asked the PRA to clarify what should be included in the row ‘non-derivatives initial margin given (CCPs and Exchanges)’. As noted by the example in the reporting instructions, the PRA would primarily expect this to include initial margin for cleared repo. Firms should consider other transactions conducted through a central counterparty clearing house (CCP) or an exchange, where they have been asked to provide initial margin.

2.71 In response to one respondent, which interpreted the line ‘tax’ as referring solely to corporation tax, the PRA notes that tax should include any items that would be included as ‘taxes’ in the statement of cash flows in annual reporting. The instructions have been amended accordingly.

2.72 One respondent queried what exchange rate should be used to convert past and future flows into the reporting currency. The PRA notes that firms should refer to Article 3: Currency in the Reporting Part of the PRA Rulebook for further information on exchange rates and reporting currencies.

2.73 In response to a query about whether the PRA intended firms to report the full value of their mortgage pipeline, the PRA confirms that this was the intended approach.

Cashflow mismatch (short form) template

2.74 In CP19/24, the PRA proposed introducing a requirement for firms to submit a short form version of the cash flow mismatch template, alongside the full version. The short form template would capture a subset of data focused on the fastest-moving drivers of liquidity strain within insurers. While this template is to be reported monthly with a one-business day remittance period (T+1), the PRA may also require daily submissions at T+1 during periods of stress.

2.75 Five respondents welcomed the proposal to introduce reporting of the cashflow mismatch (short form) template during times of stress. Respondents recognised the benefits of having a minimum set of harmonised liquidity reporting in stress, including the potential for the template to reduce the need to provide additional ad-hoc information during market stresses.

2.76 One respondent argued that requiring insurers to submit liquidity information on a daily basis would be disproportionate, given the greater complexity of their structures and arrangements compared to banks.

2.77 The PRA considers that its approach – monthly reporting under normal market conditions, with targeted daily reporting during periods of stress – strikes an appropriate balance between the PRA’s need for timely information on liquidity risk, and the costs and complexities borne by insurance firms in supplying the information.

2.78 One respondent suggested the PRA should take a selective approach when triggering daily reporting in stress scenarios, arguing that not all funds should be required to report daily by default. They noted that some funds within scope may remain highly liquid even under stress conditions.

2.79 In the event of a firm specific liquidity stress or a general market liquidity stress event, the PRA would expect separate daily submissions of the cashflow mismatch (short form) template from individual firms and in-scope funds. As outlined in the CP, the PRA considers the information in the short form template to be a proportionate subset of the full version, focusing on data most relevant in a stress scenario. The PRA has decided not to amend these reporting rules in response to this feedback.

2.80 Two respondents proposed adding a new row to the cashflow mismatch (short form) template to mirror the ‘other tradeable assets’ row in the full version of the cashflow mismatch template. This would allow firms to demonstrate how additional assets could be used to raise liquidity during stress. The PRA agrees with this suggestion and has decided to introduce a row for ‘other tradeable assets’ to the cash flow mismatch (short-form) template.

2.81 As noted above, where the PRA has amended rows and columns in the cashflow mismatch templates, the PRA has also amended items in the cashflow mismatch (short form) template where applicable for consistency purposes. Furthermore, the PRA has combined the instructions for the cashflow mismatch template and its short form version into one set of instructions to aid comparability.

Remittance period

2.82 One respondent questioned the need for monthly submissions of the cashflow mismatch (short form) template. They suggested that firms instead submit the full version of the cashflow mismatch template monthly with a 10-business day remittance period, and include a reconciliation for the short form version as if the short-term version had been submitted at T+1.

2.83 After considering the response, the PRA has decided not to change its final policy. As stated in CP19/24, the PRA considers the submission of the cash flow mismatch (short form) necessary to ensure that firms are prepared for potential accelerated daily reporting at T+1 during a stress scenario.

2.84 Six respondents raised concerns that submitting the short-form template at T+1 could result in inaccuracies due to short-term pricing fluctuations, differences in data sources, and the limited time available for data validation.

2.85 The PRA acknowledges that data submitted at T+1 may contain approximations, and be less accurate, than data submitted at T+10. However, it maintains that preparedness for accelerated daily reporting at T+1 during a crisis is essential – when timely liquidity risk information is critical. Accordingly, the PRA has decided to retain the remittance period for the short form reporting.

Committed facilities template

2.86 In CP19/24, the PRA proposed introducing a requirement for solo firms and groups to report annually on committed credit and liquidity facilities.

2.87 Two respondents asked the PRA for confirmation that the confidentiality of the participants on any panel of lenders would be protected, given the potentially serious consequences of any breaches. The PRA confirms that all information collected through the liquidity reporting templates will be treated confidentially in line with all other regulatory reporting.

2.88 One respondent suggested that firms should be required to notify the PRA about any material changes in available credit and liquidity facilities between annual reporting dates. The PRA has not amended its draft policy after reviewing the feedback. The PRA reminds firms of their obligations under Fundamental Rules 2.7 of the PRA Rulebook, which says that firms “must deal with its regulators in an open and cooperative way and must disclose to the PRA appropriately anything relating to the firm of which the PRA would reasonably expect notice”.

2.89 Within the committed facilities template, one respondent recommended combining the separate fields requiring information on lenders by ‘counterparty code’ and ‘type of counterparty code’ to align with the approach used for counterparty groups in the same template. The PRA agrees with this observation and has consolidated these fields into a single data item.

2.90 To align with other PRA reporting, and provide further clarity, the PRA has also removed the reference to ‘no external credit assessment institution (ECAI) has been nominated’ from the instructions for the ‘nominated ECAI’ field.

Liquidity market risk sensitivities (L-MRS) template

2.91 In CP19/24, the PRA proposed introducing a requirement for solo firms to report quarterly on the sensitivity of their assets and collateral demands to changes in market conditions via a liquidity market risk sensitivities (L-MRS) template. As noted in the ‘Scope of Reporting’ section above, the PRA has amended its draft policy to require L-MRS reporting from individual RFFs, MAPs, and remaining parts, subject to threshold criteria excluding RFFs with lower derivatives exposure.

2.92 Two respondents suggested that the L-MRS template should be submitted semi-annually rather than quarterly, to align with the existing reporting on market risk sensitivities (MRS) used to monitor potential vulnerabilities in firms’ solvency positions.

2.93 As noted in CP19/24, the PRA considers it important to require liquidity MRS on a more frequent basis than the solvency MRS, because it expects that firms’ liquidity sensitivities will change more rapidly than their solvency sensitivities. The PRA therefore requires updates to the information on a regular basis to ensure it can continue to monitor liquidity risk in a timely manner over the course of a year and respond effectively as and when required.

2.94 Three respondents requested greater flexibility to use simplifications when reporting L-MRS data. One respondent noted that this would be particularly useful for with-profits funds with respect to their cashflow modelling, while another suggested that simplifications would support firms in meeting the proposed implementation timeline. A further respondent recommended that any material simplifications should be disclosed to the PRA.

2.95 The PRA considered introducing more flexibility for individual firm simplifications, but it notes that the prudential value of the liquidity reporting rests on consistency and comparability across firms. Given the decision to delay the implementation of the liquidity reporting requirements, the PRA considers that firms will have sufficient time to establish the necessary systems and processes required.

2.96 One respondent proposed adding data fields into the L-MRS template for ‘common equity shares’ and ‘non-interest-bearing claims’ to facilitate reconciliation with equivalent rows in the cashflow mismatch template. The PRA has not included these data fields in the L-MRS template in the interests of proportionality.

2.97 The draft L-MRS template – and the draft cashflow mismatch templates – required firms to report margin for derivatives transactions, distinguishing between initial margin and variation margin. For the L-MRS reporting specifically, the PRA proposed that firms should also report other collateral needs and how the margin could be called (for instance as cash, UK government bonds, investment-grade corporate bonds, or other asset types).

2.98 Respondents noted that firms do not typically distinguish between initial margin and variation margin in their internal monitoring of derivative transactions, and that building the capability to provide a stressed valuation of their initial margin requirements for liquidity reporting would be very costly. One respondent stated that margin calls are not tracked separately by type within their systems.

2.99 Having reviewed these responses, the PRA considers there would not be sufficient additional [supervisory/prudential] value from requiring reporting on an estimated revaluation of initial margin requirements under stress, relative to the likely costs imposed on firms to provide this reporting. The PRA has therefore decided to amend its draft policy so the L-MRS template and cashflow mismatch templates will instead: (i) require a single figure for overall margin by collateral type, and (ii) make it clear that the margin figure should not include an estimate for the revaluation of initial margin requirements under stress (though firms should still re-value the collateral required for initial margin in line with the L-MRS stresses). The PRA expects it will be simpler and less costly for firms to report on their margin requirements in this way, because firms will not have to develop reporting processes for estimating initial margin requirements under stress. To maintain oversight of overall initial margin requirements, the PRA will still require firms to report on their actual initial margin, given and received, in the cashflow mismatch template.

Market stress calibrations

2.100 As noted in CP19/24, the PRA specifies the changes in market conditions that firms should use as sensitivities for the L-MRS template.

2.101 One respondent suggested the market stresses envisaged by the L-MRS template were calibrated over different periods, which could result in misleading results.

2.102 The PRA has drawn on a range of resources in determining the stresses to be included in the template and considers that the resulting information will be valuable as part of a holistic assessment of the liquidity risks faced by firms. While the PRA recognises that the changes of market variables are relatively simple and do not account for correlated stresses, it believes they are useful for isolating potential risk drivers and will complement the existing solvency market risk sensitivities (MRS) template.

2.103 One respondent noted that the L-MRS stresses were broadly consistent with the stresses used in the solvency MRS template and asked the PRA to confirm whether this alignment would be maintained. The PRA notes that while stresses used for liquidity and solvency reporting serve complementary purposes, it cannot guarantee they will always be aligned.

Definitions and clarifications

2.104 One respondent requested specific clarifications regarding references in the L-MRS template instructions to ‘credit enhancements in structured transactions’ and the expected exclusion of ‘assets held exclusively for index-linked and unit-linked contracts’.

2.105 After reviewing the response, the PRA has amended the instructions around ‘credit enhancements in structured transactions’ to clarify that assets used to over-collateralise a securitisation to improve its credit rating, for example, should be treated as encumbered and excluded from the counterbalancing capacity section of the L-MRS template. Regarding ‘assets held exclusively for index-linked and unit-linked contracts’, the PRA notes that this terminology is used elsewhere in PRA reporting, including in IR.02.01 on balance sheet information. To further clarify, the PRA has added a reference to assets held for the contracts classified in line of business 31, as defined in Technical Provisions – Further Requirements Annex 1 in the PRA Rulebook.

2.106 One respondent asked the PRA to clarify the time scale envisaged for ‘other collateral needs’ in the LMRS template, noting that reinsurance collateral can be updated or posted with longer delays than derivatives. The PRA has updated the instructions to clarify that firms should consider ‘other collateral needs’ expected within a period that is less than or equal to three months.

2.107 Another respondent requested further guidance on how the L-MRS data will be interpreted, and how firms should use the results to inform liquidity risk management practices.

2.108 The PRA will use the L-MRS information provided to compare firms' liquidity risk management, assess firms' relative sensitivity to different market events, and conduct its own analysis of potential liquidity stresses. The PRA reiterates that firm's own liquidity risk assessments and liquidity risk management remain paramount, in accordance with the expectations set out in SS5/19.

2.109 In addition, the PRA has transposed the columns covering margin requirements and other collateral needs in rows to simplify the structure of the L-MRS template and improve its readability. The instructions have also been expanded to clarify the purpose of the template and include examples illustrating how different trades may be affected by market risk sensitivities and how they should be reported.

2.110 Following further review of the feedback, and internal consideration of the draft policy, the PRA has implemented further changes to the L-MRS template and instructions, including to:

• remove money market funds from the template to be consistent with the asset and collateral types listed in the scenarios required by the cashflow mismatch template;
• replace the terms ‘held’ and ‘posted’ in respect of collateral and margin, with the terms ‘received’ and ‘given’ to be consistent with the rest of the liquidity reporting requirements;
• amend the definition of ‘other highest quality tradeable assets’ to clarify that it should include central bank exposures;
• clarify that the ‘credit spread widen’ variable is intended primarily to capture corporate bond exposures; and
• state how firms should interpret the impact of the ‘GBP exchange rates fall’ scenario on their non-GBP assets.

General responses

2.111 This section addressed feedback received in response to CP19/24 that does not relate to specific proposals set out in the individual chapters of the CP. It also covers broader comments on the PRA’s overall proposals.

Minimum liquidity requirement

2.112 In CP19/24, the PRA stated that the liquidity reporting collection would enable it to consider the prudential case for a minimum liquidity requirement in the future.

2.113 Five respondents expressed opposition to the development of such a requirement. They argued that firms already maintain robust liquidity management frameworks, supported by a wide range of management actions. In their view, introducing a regulatory standard could undermine these frameworks by failing to provide the right incentives for firms to manage liquidity risks appropriately.

2.114 The PRA welcomes the feedback from firms. CP19/24 focused solely on the new proposals for liquidity risk reporting. The reference to a potential future metric was included solely for transparency, as analysis to explore such a metric represents one of the intended uses of the data. It should not be interpreted as an indication of future policy development beyond what is explicitly stated. The PRA has not published any proposals regarding a minimum liquidity requirement for insurers. Should it decide to explore such a measure in the future, any proposals would be subject to separate consultation, in accordance with the PRA’s legal obligations and established approach to policymaking.

Liquidity risk management

2.115 Two respondents expressed support for the PRA's intention to maintain SS5/19, as an important way of clarifying its supervisory expectations for liquidity risk management at insurers. One of the respondents urged the PRA to ensure that the purpose of the templates is clear and is aligned with SS5/19 to the extent possible.

2.116 The PRA welcomes the feedback and reiterates that SS5/19 remains an important part of its policy on insurer liquidity, given it describes PRA expectations with respect to liquidity risk management. The PRA does not consider that these expectations are incompatible in any way with the reporting obligations set out in this PS.

2.117 One respondent noted the PRA intended to supplement SS5/19 with the proposed reporting requirements. The respondent said the use of standardised reporting could lead firms to focus their liquidity risk management practices on the PRA's template design, rather than on firm specific risks in line with SS5/19 expectations.

2.118 As highlighted in CP19/24, liquidity reporting gaps pose risks to the PRA's statutory objectives. The PRA therefore expects its new reporting requirements will support safety and soundness by enhancing the quality and consistency of liquidity data. These requirements are intended to complement rather than conflict with the expectations set out in SS5/19. However, the PRA acknowledges that, in focusing on key liquidity risks to ensure consistent and proportionate reporting the templates may not cover every source of liquidity risk with equal precision. Firms are reminded that they remain responsible for identifying and assessing all liquidity risks to which they are exposed and, ensuring that these are appropriately reflected in their Own Risk and Solvency Assessments (ORSAs), regardless of whether they are included in regulatory reporting.

2.119 One respondent suggested that the PRA should give further guidance to firms about how to incorporate the sensitivities and stresses required by the reporting templates into their liquidity risk management policies, including in respect of sensitivity limits and tolerances. The respondent said that firms would need sufficient time to be able to do this.

2.120 As noted above, the PRA describes its expectations with respect to liquidity risk management in SS5/19. This includes expectations around risk tolerances and limits. The PRA reminds firms that they should establish limits and reporting processes as necessary to comply with the Conditions Governing Business part of the PRA Rulebook, and that these should be consistent with firms' own risk appetites. Firms are not required to use the PRA’s new regulatory reporting as part of these determinations. Nevertheless, the PRA expects that a longer implementation period, as mentioned above, will give firms more time to consider whether aspects of the PRA’s new regulatory reporting could complement their existing approaches to liquidity risk management policies and internal management information.

Other responses

2.121 Two respondents noted that the International Monetary Fund (IMF) had determined the UK as being highly compliant with the International Association of Insurance Supervisors’ (IAIS) Insurance Core Principles (ICPs). They argued that increasing reporting requirements is unlikely to further enhance the UK’s reputation for strong regulatory standards. Additionally, they expressed concerns that, even if other jurisdictions have granular liquidity reporting frameworks, introducing similar requirements in the UK could increase costs for firms and potentially undermine competitiveness.

2.122 As noted in CP19/24, the IMF has recommended that the UK enhance its supervisory reporting on liquidity – including flow data – as a way of improving its adherence to ICP 9 of the IAIS’s global supervisory framework. This recommendation reflects the specific nature and risks of the UK insurance sector, which is marked by high levels of derivative exposure and increasing sophistication in asset and liability management. These factors underscore the need for a more effective monitoring of key liquidity risks.

2.123 Three respondents noted that the reporting proposals would impose significant burdens on firms, both in terms of one-off implementation and ongoing operational costs. One respondent suggested that the level of detail proposed in the CP exceeded what they considered to be proportionate and pragmatic for monitoring liquidity exposures and risks within insurers.

2.124 The PRA has sought to minimise the additional burden of regular liquidity reporting requirements on firms wherever possible, including through the changes to the draft policy set out in this PS. While the PRA recognises that firms may still incur material costs to set up and run new systems and processes for reporting, it considers these costs to be proportionate in light of the expected contribution of the proposals towards its statutory objectives. In particular, the PRA view the new reporting framework as essential to enable firms and supervisors to monitor assets, cash flows and margin calls on a timely and consistent basis across the insurance sector.

2.125 Three respondents stated that they already had liquidity risk management frameworks in place, and that these frameworks would not necessarily be enhanced by the reporting requirements proposed in the CP. One of the respondents noted an only partial overlap with firms’ internal liquidity metrics.

2.126 The PRA recognises that firms operate with different liquidity risk management frameworks, tailored to the specific needs of their businesses. The PRA reiterates that its aim in introducing harmonised reporting requirements is to enable timely, consistent and comparable monitoring of the liquidity positions of large UK insurers. Collecting this information will facilitate meaningful analysis and peer comparison, both in normal conditions and during periods of stress.

2.127 In relation to the LQ.00 template, which captures general information about firms and their reporting submissions, three respondents asked for separate header sheets for the cashflow mismatch template and the cashflow mismatch (short form) template, as well as a single consolidated header sheet for contingencies. In response, the PRA has made changes to rationalise the LQ.00 template. As noted above, and following the changes described in the ‘scope of reporting’ section of this PS, the PRA has also made several consequential changes to the LQ.00 template to ensure firms can accurately specify basic information about their firm or group and clearly identify the contents of their submissions.

2.128 One respondent queried the distinction between the ‘LQ’ and ‘LQR’ templates. The PRA notes that ‘LQ’ templates are intended for reporting at the firm level, while ‘LQR’ templates are used for reporting on RFFs, MAPs, remaining parts, and at the level of the firm minus any excluded funds.

2.129 Two respondents suggested that the PRA should include cross-checks to ensure consistency across the liquidity risk reporting templates, particularly with regard to asset information collected via the cashflow mismatch template and the cashflow mismatch (short form) template.

2.130 As noted above, the PRA has provided a mapping table to demonstrate how its categorisation of cash and securities flows, and asset classes, is consistent between the different liquidity reporting templates (see Appendix 4).

3: Standard formula reporting: feedback to responses

3.1 This chapter provides the PRA’s feedback to responses received in respect of the ‘Removal of the PRA’s expectation that internal model (IM) life insurance firms should annually submit SF.01 report’ chapter of CP19/24.

3.2 The sections below have been structured according to the themes addressed in feedback received to the CP, with some areas rearranged to better respond to related issues. The responses have been grouped as follows:

• Overall responses
• Firms in scope of the proposals
• Maintaining Standard Formula capability
• Production of ad-hoc requests
• Other uses of the Standard Formula SCR
• Year-end 2024 reporting

Overall responses

3.3 All respondents were generally supportive of the proposals and considered the proposals to be a step in the right direction. Three respondents expressed agreement with the PRA’s conclusions that the SF SCR may be less effective in detecting ‘model drift’ for life IM firms.

3.4 One respondent agreed that the PRA has alternative, and in their view, more appropriate, supervisory tools for monitoring model drift such as IM risk output (IM.01), Quarterly Model Change (QMC.01) and Analysis of Change (AoC.01) templates,^{footnote [4]} and that SF SCR treatment of non-vanilla assets can lead to volatility while IMs are more stable. In addition, some respondents made several comments and suggestions as set out below.

Firms in scope of proposals

3.5 The proposed changes outlined in CP19/24 were to apply to IM life insurance firms, including those with a PIM. IM non-life and composite insurance firms were expected to continue to submit SF.01 to the PRA annually.

Extension of scope of proposals to include composite firms

3.6 Three respondents noted that retaining the expectation for composite IM firms to continue reporting SF.01 would provide little benefit for firms with both life and non-life holdings, as they are expected to continue to report SF.01 for their non-life holdings, despite no longer needing to for their life holdings. The respondents requested that the PRA extend the scope of the proposals to include composite insurance firms; two of these respondents suggested inclusion of composite reinsurance firms too. Suggestions made to facilitate this extension included:

• allowing composite (re)insurers to report SF.01 for only their non-life business;
• implementing a materiality threshold for reporting to apply to composite insurers; or
• providing composite (re)insurers waivers if they can demonstrate SF.01 would not be an effective tool for monitoring model drift.

3.7 Another respondent requested that, given composite insurers remained within the scope of SF.01 reporting, the PRA ensures that all firms impacted by the proposed liquidity reporting requirements would derive some benefit from SF.01 proposals as stated in paragraph 1.8 of CP19/24.

3.8 After considering the responses, the PRA has amended the expectation set out in paragraph 3.6 of SS15/16 (Appendix 3). Composite IM insurance and reinsurance firms with immaterial non-life holdings will not be expected to report SF.01. Meanwhile, composite IM insurance and reinsurance firms with material non-life holdings will be expected to report SF.01 for their non-life business only. The PRA acknowledges that the insights gained from annual reporting for immaterial non-life holdings may be disproportionate for the resources required.

3.9 The materiality of non-life holdings of such composite firms will be determined by the PRA’s supervisory judgement on a case-by-case basis. For example, where a composite firm’s non-life business is in run-off, or where non-life exposures do not materially impact the firm's risk overall exposure, and particularly where such exposures are unlikely to be captured by the IM, the PRA may consider the non-life holdings immaterial and therefore exclude them from SF.01 reporting. Finally, the PRA notes that waivers may only be applied to rules rather than expectations and therefore cannot be applied to the expectation for SF.01 reporting.

Extension of scope of proposals to include non-life internal model firms

3.10 One respondent requested an extension of the proposals to include non-life IM insurance firms and reinsurance firms. The respondent considered that for non-life firms with IM permissions, the IM SCR more adequately reflects the risks to which they are exposed, and therefore the IM SCR is a better indicator of capital adequacy than the SF SCR.

3.11 After considering the responses, the PRA has decided not to change the draft policy. Non-life IM firms will continue to be expected to provide SF.01 submissions to the PRA on an annual basis, for the reasons set out in paragraph 5.8 of CP19/24. The PRA recognises that comparisons between a firm’s SF SCR and IM SCR may have some limitations, but these limitations are considered less material for non-life firms than for life firms. Non-life firms typically hold more ‘vanilla’ assets than life firms and tend to have shorter-term heterogenous liabilities. In addition, the modelling granularity of non-life firms can vary significantly. Therefore, the PRA considers that the SF SCR remains a useful standardised measure for assessing changes in non-life firms’ risk profiles and IM calibrations over time.

Extension of scope of proposals to include smaller firms

3.12 One respondent considered that the proposals should be extended to smaller IM firms, particularly given the anticipated infrequency of ad-hoc requests, and requested a modification to Rule 3.4 of the SCR – IM Part of the PRA Rulebook to facilitate this.

3.13 After considering the responses, the PRA has decided not to change the draft policy. The PRA did not consult on changes to Rule 3.4 of the SCR – IM Part of the PRA Rulebook in CP19/24 and it is therefore out of the scope of this final PS. The PRA notes the responses received and will keep this issue under review in future policy work.

Maintaining Standard Formula capability

3.14 The PRA proposed firms must continue to maintain SF capabilities to be able to fulfil a PRA request for an estimate of the SF SCR, in line with Rule 3.4 of the Solvency Capital Requirement – Internal Models Part of the PRA Rulebook.

Overheads and operational costs

3.15 Six respondents noted that firms would continue to incur ongoing overheads and operational costs in maintaining SF capability, for reasons including ongoing monitoring of SF calibrations and maintenance and testing of the SF model, which would negate the potential benefit of the proposals, including the savings set out in paragraph 5.13 of CP19/24.

3.16 Two of these respondents commented on the large potential development work if the PRA made an ad-hoc request and the firm had not kept its SF model up-to-date. One of the two respondents further raised that the maintenance of code required to produce SF SCR figures would work against their internal efficiency and sustainability goals. The respondent additionally requested that the PRA review whether the benefits of firms maintaining this capability justify the ongoing resource commitments, particularly given the anticipated infrequency of ad-hoc requests.

3.17 After considering the responses, the PRA has decided not to change the draft policy. The PRA considers that, as outlined in paragraphs 5.13 to 5.15 of CP19/24, IM life insurance firms will benefit from a tangible reduction in the costs required to prepare and submit SF.01 templates annually, particularly during busy year-end reporting periods. This was determined as part of the Cost Benefit Analysis (CBA) exercise undertaken in preparation of CP19/24. As explained further in paragraph 4.11, the benefit estimates provided in the CBA in the CP included only the potential reduction in costs associated with preparing and submitting SF.01, assuming that firms maintain SF production capabilities, and therefore the estimates remain unchanged as a result of the changes proposed as part of this PS.

3.18 The PRA did not consult on changes to Rule 3.4 of the SCR – IM Part of the PRA Rulebook in CP19/24 and it is therefore out of the scope of this final PS. The PRA notes the responses received and will keep this issue under review in future policy work.

Proportionate approach

3.19 Two respondents suggested that the PRA should allow firms to take a simplified, proportionate approach to completing ad-hoc requests for SF SCR estimates, for example through the allowance for pragmatic/proportionate approximations or the use of proxy data/models, and to maintaining their SF capability to fulfil such requests. Separately, two respondents suggested that the PRA considers how firms’ existing SF processes could be scaled back to realise cost savings.

3.20 After considering the responses, the PRA has decided not to change the draft policy. The PRA acknowledges that further cost savings could arise for some firms by taking a proportionate approach to SF SCR calculations. Where appropriate, the PRA will aim to engage with firms on a case-by-case basis to ensure a suitable approach is taken. For example, according to the circumstances of the firm’s IM, the PRA may request the SF SCR for a single risk module rather than the total SF SCR. Moreover, Rule 3.4 of the Internal Models Part of the PRA Rulebook requires firms to be able to produce an ‘estimate’ of the SF SCR; requests for an estimate would allow for reasonable simplifications & proportionate approaches to be taken in calculations.

Impact of the Solvency II internal model reforms

3.21 Two respondents viewed that maintaining SF capability in the event that IM permissions are revoked is less necessary given the changes to the IM regime, including the introduction of Residual Model Limitation (RML) Capital Add-ons (CAOs) and requirement safeguards, in the recent Solvency II IM reforms set out in the statement of policy (SoP) 3/24 – Solvency II internal models: Permissions and ongoing monitoring.

3.22 The PRA did not consult on changes to Rule 3.4 of the SCR – IM Part of the PRA Rulebook in CP19/24 and it is therefore out of the scope of this final PS. The PRA notes the responses received and will keep this issue under review in future policy work.

Future Standard Formula reforms

3.23 One respondent viewed the current methodology and calibration of the SF as inappropriate for its business. The respondent commented that even if the SF was reformed in future, it would rely on IM firms’ engagement in the PRA’s CP process, which would incur costs for IM firms with relatively little perceived benefit, unless changes significant enough for IM firms to move away from IMs to the new SF were to be proposed.

3.24 After considering the response, the PRA has decided not to change the draft policy. The PRA’s proposals to remove the expectation for annual SF.01 reporting for life IM firms is independent of any future SF reform. Any additional costs or burdens to IM firms arising from reforms or policy changes will be considered in the CBA performed for any such SF reform proposals. Regardless of future SF reforms, as explained in paragraph 5.15 of CP19/24, the PRA understands that the proposed removal of the expectation for use in annual reporting to the PRA and to support the PRA’s model drift analysis represents cost savings in reporting processes and internal governance processes for firms. Firms in scope of these proposals may continue running and producing SF reports annually if they wish to but will not be expected to submit these results to the PRA.

Production of ad-hoc requests

Frequency of requests

3.25 Four respondents requested further clarity on the frequency and circumstances under which ad-hoc requests for SF calculations would be made. Of the four respondents, one noted the anticipated infrequency of such ad-hoc requests and explained that further clarity would help firms to determine how much resource to commit to SF calculation maintenance, e.g. the frequency with which they should test their capabilities to run the SF calculations. Another of the four respondents also requested that ad-hoc requests only be made when ‘absolutely necessary’.

3.26 After considering the responses, the PRA has decided not to change the draft policy. However, the PRA confirms that it does not expect to make any such requests for SF SCR figures frequently. As set out in paragraph 3.20, where appropriate to the firm and circumstances, the PRA will aim to implement a proportionate approach to such requests on a case-by-case basis.

3.27 Additionally, the PRA considers these ad-hoc SF SCR requests may be useful in different circumstances, for example, for firms’ internal validation of modelling, the derivation and validation of CAOs, and the calculation of the SCR in the extreme event that IM components are no longer deemed appropriate for use.

Resourcing and planning

3.28 Five respondents stated that any ad-hoc requests for the SF SCR would take time to produce and suggested the PRA provides advance notice prior to such requests. One of these respondents also noted that the notice should reflect that firms may need to reacquaint themselves with the SF model, particularly where a request has not been made for a significant period. Two of these respondents provided the following estimates of the time required to produce SF SCR results:

• the first respondent estimated that it would take three to six months, depending on the amount of time elapsed since the last validated SF result; and
• the second respondent indicated a minimum production timescale of six months to allow for process/system recommissioning.

3.29 After considering the responses, the PRA has decided not to change the draft policy. However, the PRA acknowledges that the calculation of the SF SCR and production of analysis requires both time and resource allocation from firms. The PRA will aim to engage with firms on a case-by-case basis to ensure that timeframes for any requests are suitable, consistent with the existing approach that the PRA takes for any ad-hoc data requests from firms.

Other uses of the Standard Formula SCR

3.30 One respondent viewed that the benefit of removing SF.01 could also be lost if firms had to calculate SF SCR calculations for other uses. Another respondent requested removal of SF SCR calculations for other uses, including:

1. comparison of SF SCR and IM SCR as part of a firm’s major model change (MMC) applications; and
2. Rule 3.3(5)(c) of the Reporting Part of the PRA Rulebook, which requires firms to provide an explanation of differences in approach between the IM and the SF in the Solvency and Financial Condition Report (SFCR).

3.31 After considering the responses, the PRA has decided not to change the draft policy as it did not consult on changes outside of those set out in CP19/24. In response to the examples set out in paragraph 3.30 above:

1. The PRA does not require or expect firms to submit SF calculations as part of an MMC application. The PRA may make ad-hoc requests of firms for SF SCR for individual risks where it considers this appropriate, including during MMC applications, as the SF may be a useful validation tool for certain risks or asset classes.
2. The PRA did not consult on changes to Rule 3.3(5)(c) of the Reporting Part of the PRA Rulebook in CP19/24 and it is therefore out of the scope of this final PS. The PRA notes the responses received and will keep this issue under review in future policy work.

Production of regular model drift analysis and reports

3.32 Firms are currently requested to provide their own model drift analyses and narratives to the PRA on a regular basis. Firms’ submissions often include analysis of SF SCR metrics. Two respondents requested clarity on whether firms’ own model drift analyses, including analysis of SF metrics, would continue to be requested by the PRA following implementation of the proposals.

3.33 The PRA confirms that production of model drift analyses and narratives will no longer be regularly requested. The PRA may request ad-hoc information on firms’ own model drift analysis but anticipates that requests will revolve around firms’ future Analysis of Change (AoC) and Quarterly Model Change (QMC) submissions, which are expected to provide the insight necessary for assessing model drift for firms in scope of these proposals. These ad-hoc model drift requests are not anticipated to reference SF metrics, in line with the PRA’s view that the SF SCR is less effective in detecting model drift in IMs for life firms and composite firms with immaterial non-life holdings.

Year-end 2024 reporting

3.34 Five respondents requested clarification of whether the proposals to remove SF.01 reporting would apply to year-end (YE) 2024 reporting, ahead of the PS publication, to prevent unnecessary work or costs being incurred. Of these respondents, three were supportive of the expectation being dropped for YE2024 reporting.

3.35 The PRA confirms that the proposals relating to SF.01 reporting will be effective from YE2024 inclusive. This means that firms in scope of the proposals will not be expected to submit a YE2024 SF.01 report to the PRA. The PRA considers the publication date of the PS provides sufficient notice for firms to aid resource planning.

4: The PRA’s statutory obligations

4.1 When making rules, the PRA is required to comply with several legal obligations. This chapter contains an updated assessment of the PRA’s compliance with those statutory obligations.

4.2 In CP19/24, the PRA published its explanation of why the rules proposed by the CP were compatible with its objectives and with its duty to have regard to the regulatory principles.^{footnote [5]}

4.3 The PRA considers that the changes to its draft policy on liquidity reporting do not significantly alter its consideration of its objectives or the matters to which it must have regard. When making changes to the draft policy, the following ‘have regard’ was particularly important for liquidity reporting:

• Proportionality, and recognition of differences between businesses (FSMA regulatory principles). The PRA has made various changes to its draft policy to reduce the burden on firms – such as extending the implementation timeline, reducing the data granularity, and refining the scope of application – while maintaining the supervisory value of the liquidity risk reporting framework.

4.4 The PRA considers that its changes to the draft policy on standard formula reporting do not significantly change the primary and secondary objectives analysis of the proposals consulted upon, because the additional information from composite IM firms with immaterial non-life business would not provide significant prudential benefit in detecting model drift, similar to life insurance IM firms. Therefore, the objectives analysis in CP19/24 remains broadly valid for the final policy set out in this PS.

4.5 The PRA considers its explanation of the matter which it must have regard is largely unchanged from CP19/24 with respect to standard formula reporting. But the PRA has considered the impact of the policy change set out in this PS to the most relevant ‘have regards’:

• Efficient and economic use of resources (FSMA regulatory principles): Including additional firms, namely composite firms that the PRA considers have immaterial non-life holdings, in scope of the removal of the SF.01 reporting expectation will free up more of the PRA’s resources to focus on other more impactful work.
• Burden or restriction should be proportionate to the benefits (FSMA regulatory principles): The PRA considers that removing the SF.01 reporting expectation for composite firms that the PRA considers have immaterial non-life holdings would lead to the application of a less burdensome regime for such firms, without affecting their safety and soundness, or the protection of policyholders.
• Exercising functions in a way that recognises differences in the nature of, and objectives, of business carried on by different persons (FSMA regulatory principles): The PRA recognises the different nature of the risks to which non-life insurance firms and composite firms with material non-life holdings, and composite firms with immaterial non-life holdings, are exposed. It is therefore proposing to remove SF.01 annual reporting expectations only for IM composite firms that the PRA considers have immaterial non-life holdings, in addition to IM life insurance firms.

Cost benefit analysis (CBA)

4.6 Where the final rules differ from the draft in the CP in a way which is, in the opinion of the PRA, significant, the Financial Services and Markets Act 2000 (FSMA)^{footnote [6]} requires the PRA to publish:

• details of the differences together with an updated cost benefit analysis (CBA).
• a statement setting out in the PRA’s opinion whether or not the impact of the final rules on mutuals is significantly different from the impact that the draft rule would have had on mutuals; or the impact that the final rule will have on other PRA-authorised firms.

Liquidity reporting

4.7 After reviewing the responses to CP19/24, the PRA has made various changes to its draft rules on liquidity reporting. Those changes ensure the prudential value of the information collected by the new templates is appropriate, while making the costs of implementing and reporting on these templates more proportionate.

4.8 The PRA considers that its final rules do not differ from the draft rules in a way that is significant enough to require an updated CBA per FSMA requirements and a reassessment of the impact of the policy on mutuals. However, it notes that the final changes to draft policy may reduce the cost estimates provided in the original CBA for CP19/24, as the PRA has specifically targeted its changes toward aspects of the reporting that:

• were identified by respondents as particularly costly or burdensome;
• could be amended or removed to ensure costs remain proportionate without undermining the value of the reporting; or
• could be refined to improve the prudential usefulness of the information, including by ensuring it is collected for the right scope.

4.9 While the PRA considers that the final rules do not require an amended CBA per FSMA, it describes additional CBA considerations below in the interests of transparency:

• Later implementation date: The new implementation date of 30 September 2026, nine months later than initially proposed, gives firms more time to establish the systems and processes required for the liquidity reporting, reducing the need for costly interim solutions. Therefore, in most cases, the PRA expects that its final policy will be less costly to firms than its draft policy. One respondent noted that its cost estimates would have been higher had they assumed a year-end 2025 implementation date.
• L-MRS reporting scope: Instead of a single return at the solo level, in response to feedback to the CP, firms will now submit L-MRS returns for each ring-fenced fund, matching adjustment portfolio, and the remaining part (i.e. at the fund level). This change helps to ensure that the information collected through the reporting further improves the PRA’s ability to monitor a firm’s liquidity position, ultimately increasing benefits with respect to its primary objectives. While this is expected to increase reporting costs for some firms, the PRA expects the additional burden for most firms will be limited because in most cases firms would have already needed to calculate market risk sensitivities at fund level – or a more granular level – to produce a consolidated solo position per the draft policy. The PRA has also introduced the fund level threshold described below to reduce costs for firms with low-exposure, ring-fenced funds.
• Fund level threshold: A new threshold allows firms to exclude ring-fenced funds (RFF) with gross notional derivatives exposures below £500 million from the scope of reporting. The PRA has made this change after reviewing responses to the CP. It is expected to reduce costs for firms with multiple low-exposure funds, without a significant reduction in the value of the prudential and supervisory information collected from firms.
• Reduction of data items for the cashflow mismatch and L-MRS templates, including changes to initial margin reporting: Having reviewed responses to the CP, the PRA has removed certain higher-cost data items where it considers the data is likely to have more limited supervisory value. As a result, the number of cells in the monthly cashflow mismatch template has been reduced by approximately 8%, while the number of L-MRS cells has been reduced by 27%.

4.10 Overall, following its changes to draft liquidity reporting policy, the PRA considers that firms may incur lower one-off and ongoing costs to implement the new reporting requirements – albeit still material. The PRA expects that these costs will be even more proportionate to the benefits of the reporting collection, which will ensure the PRA has sufficient information to supervise large firms and monitor liquidity risk more effectively in the insurance sector, both in normal times and in stress.

Standard formula reporting

4.11 This CBA considers the impact of the policy proposals set out in this PS compared to the proposals in CP19/24. The PRA notes that these estimates included consideration of the costs associated with the maintenance of SF production capabilities and the expectation for SF.01 reporting applying only to composite firms with material non-life business. Considering the change set out in paragraph 3.8 above, the same benefits and costs set out in section 5 of CP19/24 will also apply to composite firms that the PRA considers have immaterial non-life holdings. The PRA considers that this policy change does not significantly alter the costs and benefits of the proposals consulted upon, but that there will be benefits for some additional firms now in scope of the policy change. No additional costs are expected for the firms now in scope. The PRA therefore considers that the cost benefit analysis in CP19/24 remains broadly valid for the final policy.

4.12 As the consultation does not propose any changes to non-life firms, there would be no change in benefits or costs for firms in this category.