Unleashing
the power
of pensions.
Pension Insurance Corporation Group Limited
Solvency and Financial Condition Report 2023
About PIC
PIC is a specialist insurer
which has become a
leader in the UK pension
risk transfer market by
focusing on our purpose:
to pay the pensions of
our current and future
policyholders.
For over a decade, PIC has been a
significant investor in areas like social
housing, renewable energy and the
UK’s universities. These investments,
which are typically sourced privately,
provide the cash flows we need to
match our liabilities at maturities
when publicly available debt is
simplynot available.
01 Directors’ Responsibility Statement
02 Report of the Independent ExternalAuditor
07 Summary
10 A. Business and performance
10 A.1 Business
11 A.2 Performance of underwriting activity
13 A.3 Performance of investment activity
13 A.4 Performance of other activities
13 A.5 Any other information
14 B. System of governance
15 B.1 Governance function
20 B.2 Fit and proper requirements
21 B.3 Risk management system including
theOwnRisk and Solvency Assessment
24 B.4 Internal control system
24 B.5 Internal Audit function
25 B.6 Actuarial function
26 B.7 Outsourcing
26 B.8 Any other information
27 C. Risk profile
28 C.1 Market risk
29 C.2 Underwriting risk
30 C.3 Operational risk
31 C.4 Expense risk
31 C.5 Credit risk
31 C.6 Liquidity risk
32 C.7 Any other information
33 D. Valuation for solvency purposes
35 D.1 Assets
38 D.2 Technical provisions
46 D.3 Other liabilities
48 D.4 Alternative methods for valuation
48 D.5 Any other information
49 E. Capital management
49 E.1 Own Funds
53 E.2 SCR and MCR
54 E.3 Use of the duration- based equity risk
submodule in the calculation of the SCR
54 E.4 Difference between the standard
formulaand any Internal Model used
56 E.5 Non-compliance with the MCR and
significant non-compliance with the SCR
56 E.6 Any other information
57 Appendix A – Glossary of terms
59 Appendix B – QRTs
Pension Insurance Corporation Group Limited is
theultimate parent Company of Pension Insurance
Corporation plc. Pension Insurance Corporation plc
isregistered in England and Wales under company
number 05706720. It is authorised by the Prudential
Regulation Authority and regulated by the Financial
Conduct Authority and Prudential Regulation Authority
(FRN 454345). Itsregistered office is at 14 Cornhill,
London EC3V 3ND.
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 2023
Directors’ Responsibility Statement
We acknowledge our responsibility for preparing the Pension
Insurance Corporation plc (the “Company” or the “Insurer”)
and Pension Insurance Corporation Group Limited (the
“Group”) Solvency and Financial Condition Report (“SFCR”)
inall material respects in accordance with the Prudential
Regulation Authority (“PRA”) Rules andthe Solvency II
Regulations.
We are satisfied that:
a) throughout the financial year in question, the insurer
andGroup have complied in all material respects with
therequirements of the PRA Rules and the Solvency II
Regulations as applicable at the level of the insurer
andGroup; and
b) it is reasonable to believe that the insurer and Group have
continued so to comply subsequently and will continue
soto comply in future.
Signed on behalf of the Board of Directors
3 April 2024
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202301
Report of the Independent External Auditor
Opinion
Except as stated below, we have audited the following
documents prepared by Pension Insurance Corporation
Group Limited and Pension Insurance Corporation,
(together‘the Entities’), as at 31 December 2023:
•
The ‘valuation for solvency purposes’ and ‘Capital
Management’ sections of the Solvency and Financial
Condition Report of the Entities as at 31 December 2023,
(‘the Narrative Disclosures subject to audit’); and
•
Group templates S.02.01, S.22.01, S.23.01, S.32.01 for the
Group, and Company templates S.02.01, S.12.01, S.22.01,
S.23.01, S.28.01 for the Company (‘the templates
subjecttoaudit’).
The Narrative Disclosures subject to audit and the templates
subject to audit are collectively referred to as the ‘Relevant
Elements of the Solvency and Financial Condition Report’.
We are not required to audit, nor have we audited, and as
aconsequence do not express an opinion on the Other
Information which comprises:
•
information contained within the Relevant Elements of the
Solvency and Financial Condition Report set out about
above which derive from the Solvency Capital
Requirement, as identified in the Appendix to this report;
•
the ‘Business and performance’, ‘System of governance’
and ‘Risk profile’ sections of the Solvency and Financial
Condition Report;
•
Group templates S.05.01 and S.25.03 for the Group;
•
Company templates S.05.01 and S.25.03 for the Company;
•
information calculated in accordance with the previous
regime used in the calculation of the transitional measure
on technical provisions, and as a consequence all
information relating to the transitional measures on
technical provisions as set out in the Appendix to this
report; and
•
elements of the Narrative Disclosures subject to audit
identified as ‘unaudited’; the written acknowledgement
bythe Directors of the Entities of their responsibilities,
including for the preparation of their relevant content
ofthe Solvency and Financial Condition Report
(‘theResponsibility Statement’).
To the extent the information subject to audit in the Relevant
Elements of the Solvency and Financial Condition Report
includes amounts that are totals, sub-totals or calculations
derived from the Other Information, we have relied without
verification on the Other Information.
In our opinion, the information subject to audit in the
Relevant Elements of the Solvency and Financial Condition
Report of the Entities as at 31 December 2023 is prepared,
inall material respects, in accordance with the financial
reporting provisions of the PRA Rules and Solvency II
Regulations on which it is based, as modified by relevant
supervisory modifications, and as supplemented by
supervisory approvals and determinations in effect as at
thedate of approval of the Solvency and Financial
ConditionReport.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) including ISA (UK) 800
and ISA (UK) 805, and applicable law. Our responsibilities
under those standards are further described in the Auditor’s
Responsibilities for the Audit of the Relevant Elements of the
Solvency and Financial Condition Report section of our
report. We are independent of each of the Entities in
accordance with the ethical requirements that are relevant
to our audit of the Solvency and Financial Condition Report
in the UK, including the FRC Ethical Standard as applied to
public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We
believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Emphasis of matter – special purpose basis
ofaccounting
We draw attention to the ‘valuation for solvency purposes’
and ‘Capital Management’ sections of the Solvency and
Financial Condition Report, which describe the basis of
accounting of the information subject to audit in the
Relevant Elements of the Solvency and Financial Condition
Report. The Solvency and Financial Condition Report is
prepared in accordance with the financial reporting
provisions of the PRA Rules and Solvency II regulations, and
therefore in accordance with a special purpose financial
reporting framework. The Solvency and Financial Condition
Report is required to be published, and intended users
include but are not limited to the Prudential Regulation
Authority. As a result, the Solvency and Financial Condition
Report may not be suitable for another purpose. Our opinion
is not modified in respect of this matter.
Report of the external independent auditor to the Directors of Pensions Insurance
Corporation Group Limited (‘the parent Company’), and Pension Insurance Corporation
pursuant to Rule 4.1 (2) of the External Audit Part of the PRA Rulebook applicable to
Solvency II firms.
REPORT ON THE AUDIT OF THE RELEVANT ELEMENTS OF THE SOLVENCY AND
FINANCIAL CONDITION REPORT
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202302
Report of the Independent External Auditor continued
Going concern
The Directors of Pension Insurance Corporation Group
Limited have prepared the information subject to audit in
the Relevant Elements of the Solvency and Financial
Condition Report for the Group on the going concern basis
as they do not intend to liquidate the Group or the parent
Company or to cease their operations, and as they have
concluded that the Group and the parent Company’s
financial positions mean that this is realistic. They have also
concluded that there are no material uncertainties that
could have cast significant doubt over their ability to
continue as a going concern for at least a year from the date
of approval of the Solvency and Financial Condition Report
(“the going concern period”). The Directors of Pension
Insurance Corporation have prepared the information
subject to audit in the Relevant Elements of the Solvency
and Financial Condition Report for their respective entity on
the going concern basis as they do not intend to liquidate
their respective entity or to cease its operations, and as they
have concluded that their respective entity’s financial
position means that this is realistic. They have also
concluded that there are no material uncertainties that
could have cast significant doubt over the ability of their
respective entity to continue as a going concern for the
goingconcern period.
We used our knowledge of the Group and Company, its
industry, and the general economic environment to identify
the inherent risks to its business model and analysed how
those risks might affect the Group and Company’s financial
resources or ability to continue operations over the going
concern period. The risks that we considered most likely to
adversely affect the Group and Company’s available
financial resources over this period were:
•
a significant deterioration in longevity experience,
potentially caused by market wide event(s);
•
a deterioration in the valuation of the Group’s investments
arising from fluctuations or negative trends in the
economic environment; and
•
the impact on regulatory capital solvency margins and
liquidity of changes in inflation and movements in foreign
exchange or interest rates.
We also considered less predictable but realistic second
order impacts such as failure of counterparties who have
transactions with the Group (such as reinsurers) to meet
commitments and a sudden and significant increase in
policyholders seeking to transfer their policies to other
providers that could give rise to a negative impact on the
Group’s financial position and increased illiquidity.
We considered whether these risks could plausibly affect
theliquidity or Solvency in the going concern period by
assessing the Directors’ sensitivities over the level of
available financial resources indicated by the Group and
Company’s financial forecasts taking account of severe, but
plausible adverse effects that could arise from these risks
individually and collectively.
Our conclusions based on this work:
•
we consider that the Directors’ of the Entities use of the
going concern basis of accounting in the preparation of
the information subject to audit in the Relevant Elements
of the Solvency and Financial Condition Report for their
respective entity and the Group is appropriate; and
•
we have not identified, and concur with the Directors’ of
the Entities assessment that there is not a material
uncertainty related to events or conditions that,
individually or collectively, may cast significant doubt on
the Entities’ or the Group’s ability to continue as a going
concern for the going concern period.
However, as we cannot predict all future events or conditions
and as subsequent events may result in outcomes that
areinconsistent with judgements that were reasonable
atthe time they were made, the above conclusions are not
aguarantee that the Entities or the Group will continue
inoperation.
Fraud and breaches of laws and regulations –
ability to detect
To identify risks of material misstatement due to fraud
(“fraud risks”) we assessed events or conditions that could
indicate an incentive or pressure to commit fraud or provide
an opportunity to commit fraud. Our risk assessment
procedures included:
•
enquiring of Directors, the audit Committee, internal audit
and inspection of policy documentation as to the Group’s
high-level policies and procedures to prevent and detect
fraud, including the Group’s channel for “whistleblowing”,
as well as whether they have knowledge of any actual,
suspected or alleged fraud;
•
reading Board, and Audit Committee minutes, Risk
Committee and Credit Rating Committee minutes; and
•
considering remuneration incentive schemes and
performance targets for management/directors.
We communicated identified fraud risks throughout the
audit team and remained alert to any indications of fraud
throughout the audit.
As required by auditing standards and taking into account
possible pressures to meet profit targets, we perform
procedures to address the risk of management override of
controls, in particular the risk that management may be in a
position to make inappropriate accounting entries and the
risk of bias in accounting estimates and judgements.
Accordingly, we identified a fraud risk related to accounting
estimates and judgements related to Best Estimate Liabilities
‘BEL’ in the valuation of technical provisions in response to
the potential for management bias.
To address the fraud risks related to management override,
we also performed procedures including identifying
journalentries and other adjustments to test based on
riskcriteria and comparing the identified entries to
supporting documentation. These included those including
specific words based on our risk criteria, those posted to
seldom used accounts and those entries containing
significant estimates posted at the end of the period
(period-end adjustments).
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202303
Report of the Independent External Auditor continued
Identifying and responding to risks of material
misstatement due to non-compliance with laws
and regulations:
We identified areas of laws and regulations that could
reasonably be expected to have a material effect on the
financial statements from our general commercial and
sector experience, and through discussion with the directors
and other management (as required by auditing standards),
and from inspection of the Group’s regulatory and legal
correspondence and discussed with the directors and other
management the policies and procedures regarding
compliance with laws and regulations.
We communicated identified laws and regulations
throughout our team and remained alert to any indications
of non-compliance throughout the audit.
The potential effect of these laws and regulations on the
financial statements varies considerably.
Firstly, the Group is subject to laws and regulations that
directly affect the financial statements including financial
reporting legislation (including related companies legislation),
distributable profits legislation, and taxation legislation and
we assessed the extent of compliance with these laws and
regulations as part of our procedures on the related financial
statement items.
Secondly, the Group is subject to many other laws and
regulations where the consequences of non-compliance
could have a material effect on amounts or disclosures in
the financial statements, for instance through the imposition
of fines or litigation. the following areas as those most likely
to have such as effect: regulatory capital and liquidity
requirements, GDPR compliance, Health and Safety
legislation, Employment and Social Security legislation,
Fraud, corruption and bribery legislation, Misrepresentation
Act, Environmental protection legislation, including emissions
trading and Climate Change Act 2008 and certain aspects of
company legislation recognising the financial and regulated
nature of the Group’s activities and its legal form. Auditing
standards limit the required audit procedures to identify
non-compliance with these laws and regulations to enquiry
of the directors and other management and inspection of
regulatory and legal correspondence, if any. Therefore, if a
breach of operation regulations is not disclosed to us or
evident from relevant correspondence, an audit will not
detect a breach.
Context of the ability of the audit to detect
fraudor breaches of law or regulation:
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some
material misstatements in the financial statements, even
though we have properly planned and performed our audit
in accordance with auditing standards. For example, the
further removed non-compliance with laws and regulations
is from the events and transactions reflected in the financial
statements, the less likely the inherently limited procedures
required by auditing standards would identify it.
In addition, as with any audit, there remained a higher risk of
non-detection of fraud, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the
override of internal controls. Our audit procedures are
designed to detect material misstatement. We are not
responsible for preventing non-compliance or fraud and
cannot be expected to detect non-compliance with all laws
and regulations.
Other Information
The Directors of the Entities are responsible for their relevant
content of the Other Information.
Our opinion on the information subject to audit in the
Relevant Elements of the Solvency and Financial Condition
Report does not cover the Other Information and,
accordingly, we do not express an audit opinion or any form
of assurance conclusion thereon.
In connection with our audit of the information subject to
audit in the Relevant Elements of the Solvency and Financial
Condition Report, our responsibility is to read the Other
Information and, in doing so, consider whether the Other
Information is materially inconsistent with the information
subject to audit in the Relevant Elements of the Solvency
and Financial Condition Report, or our knowledge obtained
in the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent
material misstatements, we are required to determine
whether there is a material misstatement in the information
subject to audit in the Relevant Elements of the Solvency
and Financial Condition Report or a material misstatement
of the Other Information. If, based on the work we have
performed, we conclude that there is a material
misstatement of this Other Information, we are required to
report that fact.
We have nothing to report in this regard.
Responsibilities of Directors of the Entities for
theSolvency and Financial Condition Report
The Directors of the Entities are responsible for the
preparation of their relevant content of the Solvency and
Financial Condition Report in accordance with the financial
reporting provisions of the PRA rules and Solvency II
regulations which have been modified by the modifications,
and supplemented by the approvals and determinations
made by the PRA under section 138A of FSMA, the PRA Rules
and Solvency II regulations on which they are based.
The Directors of the Entities are also responsible for such
internal control as they determine is necessary to enable the
preparation of their relevant content of the Solvency and
Financial Condition Report that is free from material
misstatement, whether due to fraud or error. The Directors
are responsible for assessing their respective entity’s ability
to continue as going concerns, disclosing, as applicable,
matters related to going concern; and using the going
concern basis of accounting unless they either intend to
liquidate their respective entity or to cease operations, or
have no realistic alternative but to do so.
The Directors of the parent Company are responsible for
assessing the Group’s and parent Company’s ability to
continue as going concerns, disclosing, as applicable,
matters related to going concern; and using the going
concern basis of accounting unless they either intend to
liquidate the Group or the parent Company or to cease their
operations, or have no realistic alternative but to do so.
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202304
Auditor’s Responsibilities for the audit of
theRelevant Elements of the Solvency
andFinancial Condition Report
It is our responsibility to form an independent opinion as to
whether the information subject to audit in the Relevant
Elements of the Solvency and Financial Condition Report is
prepared, in all material respects, with financial reporting
provisions of the PRA Rules and Solvency II regulations on
which it is based, as modified by relevant supervisory
modifications, and
as supplemented by supervisory
approvals and determinations.
Our objectives are to obtain reasonable assurance about
whether the information subject to audit in the Relevant
Elements of the Solvency and Financial Condition Report is
free from material misstatement, whether due to fraud or
error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance,
but it is not a guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually
orinthe aggregate, they could reasonably be expected to
influence the decision making or the judgement of the
userstaken on the basis of the information subject to audit
inthe Relevant Elements of the Solvency and Financial
Condition Report.
A fuller description of our responsibilities is located on the
Financial Reporting Council’s website at: www.frc.org.uk/
auditorsresponsibilities.
Other Matter- Internal Model
The Company has authority to calculate the Group Solvency
Capital Requirement, and the Entities have authority to
calculate their respective entity’s Solo Solvency Capital
Requirement, using an Internal Model (the “Model”) approved
by the Prudential Regulation Authority in accordance with
the Solvency II Regulations. In forming our opinion (and in
accordance with PRA Rules), we are not required to audit the
inputs to, design of, operating effectiveness of, or outputs
from the Model, or whether the Model is being applied in
accordance with the Entities’ application or approval order.
REPORT ON OTHER LEGAL AND REGULATORY
REQUIREMENTS
Sectoral information
In our opinion, in accordance with Rule 4.2 of the External
Audit Part of the PRA Rulebook for Solvency II firms, the
sectoral information has been properly compiled in
accordance with the PRA rules and EU instruments relating
to that undertaking from information provided by members
of the Group and the relevant insurance group undertaking.
Other Information
In accordance with Rule 4.1 (3) of the External Audit Part of
the PRA Rulebook for Solvency II firms we are also required to
consider whether the Other Information is materially
inconsistent with our knowledge obtained in the audit of
each of the Entities’ statutory financial statements for the
year ended 31 December 2023. If, based on the work we
have performed, we conclude that there is a material
misstatement of this other information, we are required to
report that fact.
We have nothing to report in this regard.
This engagement is separate from the audits of the annual
financial statements of the Entities and the report here
relates only to the matters specified and does not extend to
the Entities’ annual financial statements taken as a whole.
As set out in our audit reports on those financial statements,
those audit reports are made solely to the members of the
respective Entities, as a body, in accordance with Chapter 3
of Part 16 of the Companies Act 2006. The audit work has
been undertaken so that we might state to the members of
the respective Entities those matters we are required to
state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Entities and
the members, as a body, of each of the respective Entities
for the audit work, for the audit report, or for the opinions we
have formed in respect of those audits.
The purpose of our audit work and to whom we
owe ourresponsibilities
This report of the external auditor is made solely to the
Directors of the Entities, as their governing bodies, in
accordance with the requirement in Rule 4.1 (2) of the
External Audit Part of the PRA Rulebook for Solvency II firms
and the terms of our engagement. We acknowledge that the
Directors are required to submit the report to the PRA, to
enable the PRA to verify that an auditor’s report has been
commissioned by the Entities’ Directors and issued in
accordance with the requirement set out in Rule 4.1 (2) of the
External Audit Part of the PRA Rulebook for Solvency II firms
and to facilitate the discharge by the PRA of its regulatory
functions in respect of the Entities, conferred on the PRA by
or under the Financial Services and Markets Act 2000.
Our audit has been undertaken so that we might state to the
Directors those matters we are required to state to them in
an auditor’s report issued pursuant to Rule 4.1 (2) and for no
other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than
the Entities through their governing bodies, for our audit, for
this report, or for the opinions we have formed.
James Anderson
for and on behalf of KPMG LLP
15 Canada Square
London
E14 5GL
3 April 2024
Report of the Independent External Auditor continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202305
Report of the Independent External Auditor continued
Group
•
The following elements of Group template S.02.01.02:
•
Row R0550: Technical provisions–non-life (excluding
health) – risk margin;
•
Row R0590: Technical provisions–health (similar to
non-life) – risk margin;
•
Row R0640: Technical provisions–health (similar to life) –
risk margin;
•
Row R0680: Technical provisions–life (excluding health
and index-linked and unit- linked) – risk margin; and
•
Row R0720: Technical provisions–Index-linked and
unit-linked – risk margin.
•
The following elements of Group template S.22.01:
•
Column C0030: Impact of transitional measures on
technical provisions;
•
Row R0010: Technical provisions; and
•
Row R0090: Solvency Capital Requirement.
•
The following elements of Group template S.23.01:
•
Row R0020: Non-available called but not paid in
ordinary share capital at Group level;
•
Row R0060: Non-available subordinated mutual
member accounts at Group level;
•
Row R0080: Non-available surplus at Group level;
•
Row R0100: Non-available preference shares at Group
level;
•
Row R0120: Non-available share premium account
related to preference shares at Group level;
•
Row R0150: Non-available subordinated liabilities at
Group level;
•
Row R0170: The amount equal to the value of net
deferred tax assets not available at the Group level;
•
Row R0190: Non-available Own Funds related to other
Own Funds items approved by supervisory authority;
•
Row R0210: Non-available minority interests at Group
level;
•
Row R0380: Non-available ancillary Own Funds at Group
level;
•
Rows R0410 to R0440: Own Funds of other financial
sectors;
•
Row R0680: Group SCR;
•
Row R0740: Adjustment for restricted Own Fund items in
respect of matching adjustment portfolios and ring
fenced funds;
•
Row R0750: Other non-available Own Funds; and
•
Elements of the Narrative Disclosures subject to audit
identified as ‘unaudited’.
Company
The Relevant Elements of the Company’s Solvency and
Financial Condition Report that are not subject to audit
comprise:
•
The following elements of Solo template S.02.01:
•
Row R0550: Technical provisions–non-life (excluding
health) – risk margin;
•
Row R0590: Technical provisions–health (similar to
non-life) – risk margin;
•
Row R0640: Technical provisions–health (similar to life) –
risk margin;
•
Row R0680: Technical provisions–life (excluding health
and index-linked and unit-linked) – risk margin; and
•
Row R0720: Technical provisions – Index-linked and
unit-linked – risk margin.
•
The following elements of template S.12.01:
•
Row R0100: Technical provisions calculated as a sum of
BE and RM – risk margin; and
•
Rows R0110 to R0130: Amount of transitional measure on
technical provisions.
•
The following elements of template S.17.01:
•
Row R0280: Technical provisions calculated as a sum of
BE and RM – risk margin; and
•
Rows R0290 to R0310: Amount of transitional measure on
technical provisions.
•
The following elements of template S.22.01:
•
Column C0030: Impact of transitional measures on
technical provisions;
•
Row R0010: Technical provisions; and
•
Row R0090: Solvency Capital Requirement.
•
The following elements of template S.23.01:
•
Row R0580: SCR; and
•
Row R0740: Adjustment for restricted Own Fund items in
respect of matching adjustment portfolios and ring
fenced funds.
•
The following elements of template S.28.01:
•
Row R0310: SCR Elements of the Narrative Disclosures
subject to audit identified as ‘unaudited’.
Appendix to report of the external independent auditor to the Directors of Pension
Insurance Corporation Group Limited (‘the parent Company’) and Pension Insurance
Corporation (‘the Company’) pursuant to Rule 4.1 (2) of the external audit part of the PRA
Rulebook applicable to Solvency II firms – Relevant Elements of the Solvency and
Financial Condition Report that are not subject to audit
The Relevant Elements of the Solvency and Financial Condition Report that are not
subject to audit comprise:
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202306
The Solvency and Financial Condition Report (“SFCR”) is an annual report that is required to be produced as part of the
Solvency II (“SII”) regime in accordance with applicable Prudential Regulatory Authority (“PRA”) Rules and Solvency II
regulations. The requirement to prepare the SFCR is set out in a direction made by the PRA on 6 November 2019. Any
reference to the SII Directive in this document is a reference to the UK version of that regulation, unless otherwise stated.
The Group has permission to produce a single SFCR, covering both Pension Insurance Corporation plc (“PIC”, or the “Company”)
and Pension Insurance Corporation Group Limited (“PICG”, or the “Group”).
2022 IFRS comparatives have been restated throughout the SFCR following the Group’s adoption of IFRS 17 “Insurance
Contracts” and IFRS 9 “Financial Instruments”.
Business and performance
PIC is the primary operating subsidiary of the Group and it is authorised by the PRA to insure UK defined benefit pension
schemes. It is regulated by the PRA and the Financial Conduct Authority.
Both the Group and Company saw a decrease in their SII ratio to 211% (2022: 226% in PICGand 225% in PIC). The decrease in
the ratio in the year was primarily caused by the impact of writing £6.9 billion of new business alongside an increase in
Solvency Capital Requirement (“SCR”) from the refinement of our credit risk and hedging models. This was partly offset by
expected returns from the in-force book, the impact of risk margin reform and raising new debt, net of repurchases.
The Group IFRS profit before tax was £303 million for the year (2022: £96 million) and PIC’s profit before tax was £303 million
(2022: £96 million).
The Group also chooses to analyse its IFRS results on an alternative performance metric, Adjusted operating profit before tax
(“AOPBT”). AOPBT reflects value generated prior to the new business deferral and subsequent in-force release of profit via
the contractual service margin (“CSM”), and excludes investment related variances. The Company and Group’s AOPBT were
£893 million (2022: £383 million), an increase of 133%, largely resulting from higher expected returns reflecting higher risk-free
rates, the release of reserves following management’s review of assumptions and the greater volume of new business
written in the period.
The Group paid more than £2.1 billion, (2022: £1.8 billion) of pension payments to policyholders in 2023, with a customer
satisfaction rating of 99.3% (2022: 99.6%). Total number of pensions insured was 339,900 (2022: 302,200).
System of governance
Three lines of defence
PIC’s governance structure is in line with the “three lines of defence” model which is operated by the Group. The ‘first line’
represents the business functions who are responsible for managing risk in their day-to-day activities. The ‘second line’
consists of independent risk and compliance functions, whose responsibility is to set, monitor and oversee the risk framework
within which the first line operates, and the Actuarial Function Holder. The ‘third line’ comprises Internal Audit, which have
responsibility for assessing the operation of the risk and control environment.
The Board delegates specific responsibilities to the Board Committees, which assist the Board in its oversight and control of
the business. There are currently six Board Committees: Audit, Customer, Investment and Origination, Nomination,
Remuneration and Risk. The Investment and Origination and Customer Committees consider matters specific to PIC. The four
remaining Committees consider matters specific to both PIC and the Group, as per the delegations in their terms of
reference (further details are provided in section B.1). Members of the Committees are appointed by the Board on
recommendation of the Nomination Committee in consultation with the Committees’ chairs.
Risk Management Framework
The Risk Management Framework informs business decisions and is comprised of three elements. The first element is the risk
governance framework within which risk management responsibilities are delegated and governed. This includes the policy
framework and the implementation of three lines of defence. The second element is Risk Appetite Framework , which sets
limits and triggers in line with the Board’s risk preferences and appetite statements, within which the Group’s risk exposures
are managed. The third is the risk management system, by which risks are identified, assessed, mitigated, monitored
andreported.
Own Risk and Solvency Assessment
The annual Own Risk and Solvency Assessment (“ORSA”) assesses the risks which the Group is currently exposed to and the
forward-looking risks to the successful execution of the Group’s business strategy and objectives over the planning horizon.
This includes risks to all elements of the Group’s Risk Appetite Framework, including quantifiable risks such as solvency and
liquidity, and non-quantifiable risks such as conduct and reputational.
The ORSA provides an ongoing process to identify, assess, monitor and manage the most material risks to PIC’s business plan
and solvency over both the near term and the five-year business planning horizon.
Risk Profile
The Group and Company quantify their exposure to different types of risk using their Internal Model, which was approved for
use by the PRA in December 2015.
Summary (unaudited)
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202307
The Group’s total SCR represents the amount of capital the firm must hold to protect itfrom extreme risk events and comply
with regulatory requirements. The component risks which make up the SCR are detailed in section C.
The Group’s risk profile has remained stable over the reporting period.
Valuation for solvency purposes
The table below summarises the Group and Company’s assets and liabilities valued in accordance with its statutory
accounting basis (IFRS), and the Solvency II regulatory basis at 31 December:
2023
Group Company
Solvency
£m
IFRS
£m
Solvency
£m
IFRS
£m
Total Assets 78,438 78,538 78,347 78,441
Total Liabilities 71,855 74,070 71,806 73,992
Excess of Assets over Liabilities/Equity 6,583 4,468 6,541 4,449
2022
Group Company
Solvency
£m
IFRS
£m
(Restated*)
Solvency
£m
IFRS
£m
(Restated*)
Total Assets 65,461 65,225 65,429 65,191
Total Liabilities 59,582 60,850 59,596 60,848
Excess of Assets over Liabilities/Equity 5,879 4,375 5,833 4,343
* 31 December 2022 comparatives have been restated following the Group’s adoption of IFRS 9 “Financial Instruments” and IFRS 17
“Insurance Contracts”.
Differences in the valuation of assets and liabilities between the two bases are driven primarily by the following:
•
valuation of best estimate liabilities under Solvency II is higher than under IFRS, mainly due to differences in discount rates;
•
the Solvency II risk margin (net of transitional measures for technical provisions (“TMTP”)) which is an addition to the
Solvency II best estimate liabilities but is not required under IFRS;
•
IFRS 17 risk adjustment for non-financial risk is included in the IFRS 17 insurance and reinsurance balances which represents
the compensation PIC requires for taking non-financial risk (predominantly longevity and expense risk);
•
IFRS 17 contractual service margin which represents the unearned profit that the Group will recognise as it provides
insurance contract services;
•
valuation of subordinated debt liabilities, which are at amortised cost for IFRS purposes and at fair value under Solvency II;
and
•
deferred tax on the above.
The valuation differences above are explained in greater detail in section D.
Summary (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202308
Capital management
At 31 December 2023, PIC and the Group’s Solvency II ratios were 211% (2022: PIC 225%; PICG 226%) and they had surplus funds
of£4,320 million and £4,331 million respectively (2022: PIC £4,011 million; PICG £4,037 million) in excess of their SCR. The decrease
in the ratios in the year were primarily caused by the impact of writing £6.9 billion of new business alongside an increase in SCR
from the refinement of our hedging and credit risk models. This was partly offset by expected returns from the in-force book,
the impact of risk margin reform and raising new debt, net of repurchases.
On 13 November 2023, PIC issued £500 million subordinated loan notes, maturing in 2033, with a fixed coupon of 8.0% paid
annually in arrears. These notes were issued at 99.7% of par. Following the issue, £97 million of the 2024 and £203 million of the
2026 loan notes were repurchased for a total cost of £310 million.
On 26 March 2024, the Board approved a final dividend for 2023 of £147 million (2022: £100 million).
The Group’s dividend policy is to retain sufficient capital to invest in future growth opportunities of the UK pension risk
transfer market, whilst paying regular dividends to shareholders, based on the current and future projected capital position
of the business. The implications for solvency, leverage and liquidity are all considered when considering the appropriateness
of dividend payments.
The table below summarises the Group and Company’s capital and solvency position as at 31 December:
2023 Group Company
Own Funds £m 8,221 8,210
SCR £m 3,890 3,890
Solvency II surplus £m 4,331 4,320
Solvency II ratio % 211% 211%
2022 Group Company
Own Funds £m 7,236 7,210
SCR £m 3,19 9 3,19 9
Solvency II surplus £m 4,037 4,011
Solvency II ratio % 226% 225%
Summary (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202309
A.1 Business
A.1.1 Business overview
The full legal name of the undertaking is Pension Insurance Corporation plc. It is a Public Limited Company, registered
inEngland and Wales with the company registration number 05706720.
PIC is authorised by the Prudential Regulation Authority, 20 Moorgate, London EC2R 6DA and regulated by the Financial
Conduct Authority, 12 Endeavour Square, London E20 1JN and the Prudential Regulation Authority (FRN 454345).
The principal activity of PIC is the provision of pension risk transfer contracts to corporate pension schemes (also known as
“pension insurance” or “bulk annuities”). Pension risk transfer products are used by pension funds to transfer the risks and
liabilities arising from the benefit promises made to pension fund members to an insurance company.Insurance is also used
as a means by which the ultimate responsibility to pay the benefits promised is transferred to the insurance company
through the issuance of an individual annuity insurance policy to the pension fund member.
A.1.2 Legal structure of the Group
A simplified Group structure chart and a description of the Group as at 31 December 2023 are set out below:
Pension Insurance Corporation Group Limited (“PICG”)
PIC Holdings Limited (“PICH”)
Pension Services
Corporation Limited (“PSC”)
Pension Insurance
Corporation plc (“PIC”)
Group undertakings
Country of
incorporation Principal activity
Pension Insurance Corporation
GroupLimited
England Holding company for the other companies within the Group,
owning 100% of the equity. It has no employees and incurs
minimal administrative expenses. It also operates share
incentive plans for the benefit of the employees of the Group.
PIC Holdings Limited England An intermediate holding company, and has no material assets
or liabilities in the context of the Group.
Pension Insurance Corporation plc
(Regulated entity)
England Provision of insurance annuity products to corporate pension
schemes and their members. It also issues Restricted Tier 1 notes
and Tier 2 subordinated debt.
Pension Services Corporation Limited England Service company of the Group, and employs all the staff which are
responsible for the performance of the Group’s activities. It also
enters into the majority of material contracts (with the exception
of pension insurance contracts) on behalf of the Group.
The Group and Company prepare their financial statements in accordance with IFRS in conformity with the requirements
ofthe Companies Act 2006. There are no differences between the scope of the Group for the consolidated financial
statements and the scope under the default accounting consolidation method for solvency purposes. The external
auditorto the Group is KPMG LLP, 15 Canada Square, London E14 5GL.
A.1.3 Significant events in the period
Key appointments (Board level)
The following changes were made to the Board of Directors of PICG between 1 January 2023 and the date of this report:
Mark Stephen stepped down from the Board on 31 December 2023 and Andy Moss was appointed on 1 January 2024.
The following changes were made to the Board of Directors of PIC between 1 January 2023 and the date of this report:
Mark Stephen stepped down on 31 December 2023 and Andy Moss was appointed on 1 September 2023.
Arno Kitts was appointed the Board Sustainability Champion effective from 6 October 2023.
A. Business and Performance (unaudited)
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202310
Other key transactions
On 26 March 2024, the Board approved a final dividend for 2023 of £147 million (2022: £100 million).
Key business transactions
PIC has completed the £6.2 billion buy-in of two schemes sponsored by RSA Group, covering c.40,000 members. Following
this transaction, our balance sheet has remained very strong with a solvency ratio at 31 December 2023 of 211% (2022: 225%).
This positions us well to fulfil our purpose of paying the pensions of our current and future policyholders, as well as helping the
trustees of defined benefit schemes to secure the pension benefits of their members.
Transition to IFRS 17 reporting
From 1 January 2023, the Group adopted IFRS 17 “Insurance Contracts”, the new global insurance accounting standard that
has fundamentally changed how companies account for insurance and reinsurance contracts, including measurement,
income statement presentation and disclosure.
A.2 Performance of underwriting activity
The PIC and Group’s profit before tax for year was £303 million (2022: PIC £96 million; PICG £96 million).
In addition to the statutory result above, the Group also chooses to analyse its IFRS results using an alternative performance
metric, AOPBT, which has been redefined following the Group’s adoption of IFRS 17. The Group considers this alternative
performance metric to be an important metric for stakeholders as it reflects the Group’s operating activities which are core to
our business alongside certain management choices and decisions around those activities. This includes the writing and
management of pension insurance contracts and the management of risk through reinsurance. The operating performance of
the Group includes the full value generated from writing new business prior to the new business deferral and subsequent
in-force release of profit via the CSM, and excludes investment related variances. AOPBT for the period, for both PIC and the
Group, increased by 133% to £893 million (2022: PIC £383 million; PICG £383 million ), largely resulting from higher expected returns
reflecting higher risk-free rates, the release of reserves following management’s review of assumptions and the greater volume
of new business written in the period.
Information on premiums, claims and changes in technical provisions, which can be considered as key elements of underwriting
performance, is presented by Solvency II line of business in Quantitative Reporting Template (“QRT”) S.05.01 inAppendix B of
this report.
Adjusted operating profit before tax
2023 2022
Group
£m
Company
£m
Group
£m
(restated*)
Company
£m
(restated*)
Expected return from operations 495 495 264 264
New business and reinsurance profit 444 444 329 329
Underlying profit 939 939 593 593
Changes in valuation assumptions 194 194 12 12
Experience and other variances (18) (18) (19) (19)
Finance, project and other costs (222) (222) (203) (203)
Adjusted operating profit before tax 893 893 383 383
Movement in CSM (585) (585) (409) (409)
Investment related variances (38) (38) 89 89
Add back: Restricted Tier 1 coupon (treated as a dividend for statutory
purposes) 33 33 33 33
Profit before taxation 303 303 96 96
* 31 December 2022 comparatives have been restated following the Group’s adoption of IFRS 17 “Insurance Contracts”.
A.2.1 Underlying profit
Underlying profit has increased to £939 million (2022: £593 million). This includes:
•
Expected return from operations reflects the long-term expected returns arising from the management of the Group’s
assets and liabilities. It is based on opening economic assumptions applied to the opening assets and liabilities. Expected
returns of £495 million were above the prior year (2022: £264 million), mainly driven by the increase in opening interest rates.
A. Business and Performance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202311
•
New business and reinsurance profit represents the impact on profit of writing new pension risk transfer contracts and the
impact of entering into new reinsurance contracts on the in-force book. The profit is calculated using the economics at the
initial recognition date, the locked-in liquidity premium, expected reinsurance, pricing demographic and expense
assumptions and the target asset portfolio mix assumptions. New business also includes any acquisition expense variance,
being the difference between the actual acquisition expenses incurred in the year and those used in pricing. Any premium
adjustments or deferred acquisition costs are also included in this line.
New business andreinsurance profit was £444 million (2022: £329 million), resulting from the £6.9 billion of new business
premiums written (2022: £4.1 billion), primarily driven by the RSA transaction.
A.2.2 Changes in valuation assumptions
The Group’s focus remains on long-term profitability, and so we set assumptions in respect of the in-force liabilities and new
business acquired during the year, using our best estimate and applying an adjustment for non-financial risk. Under IFRS 17,
the impact of changes in such items is added to the CSM and spread over the future expected duration of the contracts.
AOPBT is shown before this deferral. Management regularly review these assumptions to ensure that they reflect the
characteristics of the Group’s book and wider market practice.
As part of this review in 2023, updated assumptions resulted in a benefit to AOPBT of £194 million (2022: £12 million).
A.2.3 Experience and other variances
Experience and other variances gave rise to a loss of £18 million in 2023 for both PICG and PIC (2022: PICG and PIC loss of
£19 million). Favourable impacts from updates to policy data were offset by differences between the maintenance expense
assumptions used for pricing new business compared to those used in the valuation basis; this negative expense variance
was partly offset by a reserve release within changes in valuation assumptions.
A.2.4 Finance, project and other costs
The interest costs of the subordinated Tier 2 debt capital issued by PIC and transaction costs increased slightly to £91 million
in 2023 (PICG: £91 million) from £90 million the previous year (PICG: £90 million).
Interest coupons paid on the Restricted Tier 1 (“RT1”) debt issued by PIC were £33 million (PICG: £33 million) and were unchanged
from prior year.
Project and other costs in 2023 were £98 million (PICG: £98 million) compared with costs of £80 million (PICG: £80 million) inthe
prior year. They reflect costs associated with other business-wide initiatives, alongside other shareholder and
regulatorycosts.
A.2.5 Movement in CSM
The movement in CSM comprises the deferral of new business profits on contracts written in the year and interest accretion
on the opening CSM, alongside the impact of changes in non-financial assumptions and experience variances on the CSM,
partly offset by the amortisation of CSM in respect of in-force business.
During the year, the total increase in CSM was £585 million, net of reinsurance (2022: £409 million). The CSM recognised from
new business written in year was £337 million up from £317 million in 2022. This reflects the new business written in the year
and represents an increase in the store of future value and the growth in the business. The amortisation of CSM also
increased to £181 million from £133 million in 2022 reflecting the increase in the size of the in-force book.
A.2.6 Investment related variances
Investment related variances include the differences between the expected long-term investment return and the actual
investment return earned in the period; changes in economic assumptions on liabilities and the impact of changes in
creditratings.
The Group carefully manages its risk to market and other economic factors and enters into derivative hedging contracts
tomanage these exposures in accordance with its risk appetite. The Group’s hedging strategy is primarily designed to
actively manage risk over the long term in the solvency balance sheet, and there exists a mismatch between this hedging
strategy and the IFRS balance sheet. This mismatch, and the resulting volatility, is included within the investment related
variance line.
Investment related variances resulted in a loss of £38 million in the period (2022: gain of £89 million), largely driven by
movements in interest rates and credit spreads partly offset by asset optimisation activities. In the prior year, the benefit
predominantly related to favourable market movements, including inflation movements and credit spreads.
A.2.7 Other operational highlights
In 2023, PIC was responsible for the current and future pension payments of 339,900 (2022: 302,200) policyholders. This includes
those with individual policies, and those for whom the trustees of the underlying pension schemes retain ultimateresponsibility.
At 31 December 2023, 85% (2022: 87%) of the Group’s gross benefit reserves had been reinsured. The Group has 14 reinsurance
counterparties, all of which have a credit rating of A- or above.
A. Business and Performance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202312
A.3 Performance of investment activity
The investment performance (including commissions earned) presented in the table below is a reflection of income,
gains(realised and unrealised), losses and expenses arising from the investment portfolios owned by the Group.
Investment return: by Solvency II asset class
Group and Company
2023
£m
2022
£m
(restated*)
Government bonds 549 (5,740)
Corporate bonds 1,218 (3,899)
Collective investment undertakings 85 293
Cash and deposits 12 12
Collateralised securities 27 (52)
Mortgages and loans 575 (3,1 97 )
Derivative-based instruments 743 224
Commissions earned 1 1
Investment return 3,210 (12,358)
Investment management expenses (54) (50)
Total 3,156 (12,408)
* 31 December 2022 comparatives have been restated following the Group’s adoption of IFRS 9 “Financial Instruments”.
Investment return comprises income received on fixed income securities, derivatives and investment property, and
unrealised and realised gains and losses on these investments. The table above allocates investment return across
theSolvency IIasset classes.
A.3.1 Gains and losses recognised directly in equity
Consistent with prior year, the Group did not recognise any gains or losses related to the Group’s investments directly in
equity during the year.
A.3.2 Information on securitisation
PIC invests in equity release mortgages (“ERMs”) because they are a good match for its long-term liabilities, and help diversify
the portfolio. ERMs are loans secured against property that are repayable on death or entry into long-term care of the
borrower. An ERM can also be repaid early voluntarily by the borrower, in which case an early repayment charge may apply.
The majority of PIC’s portfolio of ERMs has been legally transferred to the Group’s subsidiary PIC ERM 1 Limited; however PIC
retains substantially all of the risks and rewards of ownership through its holding of loan notes issued by PIC ERM 1 Limited.
The market value of securitised ERMs at 2023 was £1,110 million (2022: £887 million).
A.4 Performance of other activities
The Group does not have any other material activities.
A.5 Any other information
Economic uncertainty and market volatility
The global economic outlook continued to be volatile in 2023, with fluctuating interest rates and growing geopolitical risks,
particularly the continued Russian invasion of Ukraine and the conflict between Israel and Hamas.
The impacts of these market conditions on PIC can be both positive and negative. The current market conditions have
resulted in higher risk of credit downgrades and defaults, and heightened risk overall. Sustained levels of downgrades and
defaults would impact PIC’s solvency position. However, higher yields without downgrades or defaults could improve PIC’s
solvency position. The Group constantly monitors market conditions and has risk appetite limits for PIC’s exposure to market
risks. PIC also holds sufficient capital to protect the business against market movements and downgrades and defaults, and
it continues to develop its methodology for calculating the amount of capital to hold.
Rounding convention
The SFCR is presented in pounds sterling rounded to the nearest million which is consistent with the presentation in the IFRS
financial statements. The QRTs are presented in pounds sterling rounded to the pound. Rounding differences of +/- one unit
can occur.
A. Business and Performance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202313
B. System of Governance (unaudited)
The below chart shows the Group’s governance structure. Along with other annual reviews of our governance processes, the
structure is reviewed to make sure that it is fit for purpose and remains as such in the context of the Group’s growthprospects.
PICG
Board
Executive
Committee
Chief
Executive
Officer
Investment
and Origination
Committee
Board
Customer
Committee
Nomination
Committee
Remuneration
Committee
Risk
Committee
Audit
Committee
Management
and Operating
Committees
PIC
Board
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202314
B.1 Governance function
B.1.1 Board of Directors
Pension Insurance Corporation Group Limited
PICG is governed by its Board consisting of 13 Directors, 12 of whom are non-executive.
Of the non-executive Board members: two are nominated by Reinet PC Investments (Jersey) Limited, which as at 31 December 2023
holds a 49.496% interest in PICG; one is nominated by Luxinva S.A., a wholly owned subsidiary of the AbuDhabi Investment
Authority, which holds a 18.416% interest in PICG; one is nominated by Blue Grass Holdings Limited, aCVC entity, which holds a
17.376% interest in PICG; and one is nominated by MP 2019 K2 Aggregator, L.P., an HPS Investment Partners entity, which holds
a 10.231% interest in PICG.
The Board maintains overall responsibility for PICG Limited as an entity and an oversight responsibility for the Group to
ensure the Group operates in the best interests of its policyholders, shareholders, employees and other stakeholders.
TheBoard is also responsible for setting the Group’s long-term objectives and commercial strategy.
The main activities of the Group are conducted through its principal operating subsidiary, PIC.
The Board has delegated the day-to-day management and administration of the Company to the Chief Executive Officer
(“CEO”) who has established the Executive Committee at the operating entity level, PIC, to assist the CEO in the day-to-day
running of PIC.
Pension Insurance Corporation plc
PIC is governed by its Board consisting of 15 Directors until 31 December 2023 (14 Directors from 1 January 2024), 12 of whom are
non-executive.
Of the non-executive Board members: one is appointed by Reinet PC Investments (Jersey) Limited, one is appointed by LuxinvaS.A.,
a wholly owned subsidiary of the Abu Dhabi Investment Authority; one is appointed by Blue Grass Holdings Limited, a CVC
entity; and one is nominated by MP 2019 K2 Aggregator, L.P., a HPS Investment Partners entity.
Pension Insurance Corporation plc is a wholly owned subsidiary of PIC Holdings Limited which is a wholly owned subsidiary of
the ultimate parent entity Pension Insurance Corporation Group Limited.
The Board has overall responsibility for the operations of PIC and oversees the management of the Company in the best
interests of its policyholders, shareholders, employees and other stakeholders, and sets the Company’s long-term objectives
and commercial strategy.
The Board has delegated responsibility for a number of functions to Board Committees as set out below. The Committees
allhave terms of reference setting out their responsibilities in more detail.
B.1.2 Audit Committee
The Board has established the Committee in fulfilling its responsibilities regarding financial reporting, sustainability reporting
including Task Force on Climate-related Financial Disclosures report, the effectiveness ofinternal control and risk
management systems, processes and compliance matters.
The Audit Committee comprises four independent Non-Executive Directors. The Board is satisfied that members of the
AuditCommittee have relevant accounting and financial reporting experience.
The Board has delegated the responsibility of overseeing the following key areas to the Committee:
Financial and non-financial reporting
The Audit Committee monitors and, where necessary, challenges the Group’s financial reporting processes including key
accounting issues andjudgements as well as methods and assumptions used in the valuation of the technical provisions
under Solvency II andunder IFRS.
The Committee reviews and, where necessary, challenges all material information presented in the Annual Report and
Accounts and Sustainability Report before these are approved by the Board, and approves the Task Force on Climate-
related Financial Disclosures report.
The Committee is also responsible for reviewing the Group’s assessments of going concern, longer-term prospects and
viability of the business, and reviews of anyapplicable material which the Committee is required to review under the Group’s
and the Company’s Reporting and Disclosure Policy.
Internal controls and risk management
The Audit Committee oversees, reviews, challenges and assesses the framework, effectiveness and adequacy of the Group’s
systems of internal controls, including key financial, operational and compliance controls. The Committee also reviews whether
management has discharged its duty to maintain the effectiveness of such systems, processes and controls. The Committee
meets regularly with management, the Chief Risk Officer, the General Counsel and the Chief Internal Audit Officer to ensure
management take action to address any issues arising from this review.
B. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202315
The Committee reviews and approves the statements to be included in the annual report concerning the effectiveness of the
internal controls and risk management.
The Committee also oversees the annual validation process of the regulatory balance sheet and, jointly with the Risk
Committee, making appropriate recommendations to the Board.
The Audit Committee liaises closely with the Risk Committee to identify and mitigate any significant risk to the Group,.
Compliance, financial crime and whistleblowing
The Audit Committee reviews the Group’s compliance policies and procedures as part of oversight of the Group’s
compliance, with relevant regulatory and legal requirements, including the arrangements in place for the reporting and
investigation of concerns andfor ensuring fair customer outcomes.
The Committee reviews the adequacy of the Group’s whistleblowing policies and procedures, ensuring that such
arrangements allow for proportionate and independent investigation of such matters, and appropriate follow-up actions.
Reviewing the Group’s procedures for detecting fraud, systems and controls for prevention of bribery and market abuse is
also a function of the Committee.
Internal and External Audit
The Audit Committee oversees and monitors the role and effectiveness of the Group’s Internal Audit Function including approving
the annual internal audit plan, monitoring the reports arising from internal audits and the status of actions resulting therefrom.
The appointment or removal of the Chief Internal Audit Officer is also a key function of the Audit Committee.
The Committee is also responsible for reviewing and approving the integrated assurance plan, ensuring it aligns with the key
risks of the business.
The Committee manages the relationship with the external auditor; monitoring and reviewing its independence, objectivity and
performance, and leading any processes regarding audit tender or Senior Statutory Auditor change.
The Committee considers and makes recommendations to the Board on the appointment of the external auditor (including
approving theremuneration and terms of appointment) as well as reviewing the external auditor’s annual audit programme
and the resultstherefrom. It also reviews the policy on non-audit services carried out by the external auditor.
KPMG has been the external auditor for the Group for the last 17 years, with a tendering process last completed in 2016.
TheCommittee has taken due regard of the current Audit Directive and FRC guidance in respect of audit tendering. The
Committee approved the rotation of auditors from 1 January 2026, as required, meaning KPMG will perform its final audit for
the full year 2025 financial statements. The Committee has proactively started engagement with prospective audit firms as
part of its preparations.
B.1.3 Risk Committee
The Risk Committee provides oversight and advice to the Board on the current and future risk exposure of the Group
including oversight of the future risk strategy; determination of risk appetite and tolerance; and internal controls required
tomanage risk and the effectiveness of the Risk Management Framework. The Risk Committee oversees the operation and
development of the Internal Model.
The Committee comprises six Non-Executive Directors, five of whom are regarded as independent and the remaining
Director is shareholder nominated.
The Board has delegated to the Committee the responsibility for overseeing the following key areas:
Risk strategy, appetite and policies
The Risk Committee advises the Board on the Company’s overall risk exposures, and the current and future risk strategy.
TheCommittee reviews and recommends the Company’s design and implementation of Risk Management Framework
andmeasurement strategies to the Board. It ensures that climate change risks are appropriately incorporated in the Risk
Management Framework and the risk strategy. The Committee also reviews the risk appetite and tolerances and
recommends these to the Board for approval.
Risk oversight and monitoring
The Risk Committee monitors the Company’s overall risk identification, assessment and management process that influence
the Board’s decision making. The Committee is responsible for the oversight of Internal Model and reporting totheBoard on any
areas needing improvement, as well as updating the Board on the status of efforts to improve previously identified weaknesses.
The Committee advises the Board on the risks to the business plan and capital implications making sure that these are
adequately identified and assessed as part of the business planning process through stress testing and scenario analysis.
The Committee also works with the Nomination and Remuneration Committee to ensure that risk management is taken into
consideration in objective setting and the design of overall remuneration and risk weightings are applied to performance
objectives. It further provides advice, oversight and challenge necessary to embed and maintain a supportive risk culture
throughout the Company.
B. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202316
The Risk Committee also reviews reports on any material breaches of risk and compliance limits and material incidents.
TheCommittee monitors the adequacy of proposed actions and management’s responsiveness to remedial actions.
Public and regulatory disclosures
The Risk Committee reviews and recommends any risk related public and regulatory disclosures to the Board, such as the
Company’s ORSA reports, processes and outputs.
Risk Function and the Chief Risk Officer
The Risk Committee considers and approves the Risk Function and Actuarial Function Mandate and reviews and assesses
performance of the Chief Risk Officer (“CRO”). It works with the Nomination Committee on making recommendations to the
Board with regard to the appointment and removal of the CRO.
B.1.4 Investment and Origination Committee
The Investment and Origination Committee is responsible for overseeing the management of the investment policy and
investment strategy for PIC, and to provide oversight of the operation of PIC’s investment portfolios within the strategic and
risk frameworks. The Committee plays a key role in PIC’s governance of pricing by providing oversight of portfolio pricing for
large deals. The Committee is responsible for overseeing the integration of environmental, social and governance risks
(including climate change) into its decision making process and within the investment policy and for reviewing management’s
proposals on the Group’s sustainability strategy as it relates to PIC’s investments and their impact on asset holdings, third
parties and investment partners in line with risk strategy, appetite and limits.
The Committee also oversees all aspects of PIC’s new business and reinsurance origination within established strategy,
business plan and risk frameworks including conduct risk.
The Committee approves the pricing assumptions at least annually and approves the pricing authority for management.
The Committee comprises seven Non-Executive Directors, three of whom are regarded as independent and the remaining
four Directors are shareholder nominated.
B.1.5 Nomination Committee
The role of the Nomination Committee is to regularly review the structure, size and composition (including the skills,
knowledge, experience and diversity) of the Board and the Executive Committee, and to make recommendations
totheBoard with regard to any changes.
The Committee also oversees the process by which the Board and its Committee, with input from individual directors, assess
their performance; and reviews the results of this evaluation and makes appropriate recommendations to the Board.
The Committee comprises five Non-Executive Directors, three of whom are regarded as independent and the remaining two
Directors are shareholder nominated.
B.1.6 Remuneration Committee
The role of the Remuneration Committee is to determine and agree with the Board the framework or broad policy for the
remuneration of all employees and the specific compensation in respect of the Company’s Chairman, Non-Executive
Directors, Chief Executive, Executive Directors, Executive Committee and other material risk takers.
In 2023, the Committee expanded its remit to cover other people related matters. This includes assisting the Board in its
overall responsibility for overseeing the development and measuring of the Group’s culture, monitoring the Group’s diversity
and inclusion initiatives, employee engagement and general capacity and capability.
The Committee comprises six Non-Executive Directors, four of whom are regarded as independent and the remaining two
Directors are shareholder nominated.
B.1.7 Board Customer Committee
The role of the Board Customer Committee is to provide oversight and advice to the Board in relation to the implementation,
prioritisation, delivery and embedding of the new Consumer Duty requirements in the Company’s processes and business
activities. The Committee will also provide an annual customer satisfaction report to the Board.
The Committee comprises three independent Non-Executive Directors.
B.1.8 Environmental, Social and Governance (“ESG”) Committee
The ESG Committee was in place until 29 June 2023 when it was disbanded and its activities were reallocated to the other
Board Committees as part of embedding ESG into the Board and Committee structure. The ESG Committee met in March
and June 2023. The purpose of the Committee was to consider and oversee all ESG related matters and to ensure that the
Board and its Committees provide oversight of the Group’s ESG strategy and activities and that the Group complies with
legal and regulatory requirements in respect of ESG, enabling the Group to make the right decisions for the long-term benefit
ofits policyholders.
B. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202317
B.1.9 Executive Committee
The Executive Committee consists of the CEO, Chief Financial Officer (“CFO”) and senior management of the Company. Its role
is to assist the CEO in the overall management of the Company including (but not limited to) proposing strategy to the Board
and, once approved, implementing it together with operational plans, policies, procedures and budgets. The Committee’s
purpose is also to shape, embed and maintain a culture which safeguards PIC’s values by promoting attitudes and behaviours
of high ethical standards and integrity in everyday conduct of PIC’s business. The Committee further ensures that appropriate
systems and controls are in place, monitors operating and financial performance and assesses and controls risks. The
Committee also reviews resources and prioritises their use and allocation.
Apart from the disbanding of the ESG Committee on 29 June 2023, and the establishment of the Board Customer Committee
from June 2023, there were no material changes to the governance structure over the reporting period.
B.1.10 Remuneration policies and practices
Governance of remuneration
The Remuneration Committee (“RemCo”) oversees the governance of remuneration in accordance with its duties described
under section B.1.6.
In its oversight of the remuneration structures, the Committee takes full account of strategic objectives and stakeholder
views, as well as the interests of the customers and policyholders. The alignment of risk and reward is a prominent
consideration, and the Committee seeks input from the CRO, Chair of the Risk Committee, and the Chair of the Audit
Committee as appropriate in the design of remuneration policies and in determining collective and individual reward
outcomes. To minimise the risk of any conflicts of interest, no individual is involved in decisions regarding their own
remuneration.
The Committee also has responsibility for overseeing compliance with all relevant legal and regulatory requirements on
remuneration (including Solvency II). The Committee ensures that its remuneration policies and practices are suitably aligned
with the requirements of Solvency II, and is responsible for the oversight of individual remuneration arrangements and
outcomes in respect of all Solvency II Identified Staff. The remuneration for the CEO and CFO is also approved by the Board.
Remuneration policy
The Company’s remuneration policy is designed to enable the Company to recruit, retain and motivate employees of the
appropriate calibre to deliver its strategy over the long term. The policy is intended to be consistent with and to promote
sound and effective risk management and to ensure that it does not encourage risk taking that exceeds the tolerated risk
appetite of the Company.
A description of the different remuneration elements for 2023 is set out below.
Base salary Salaries are reviewed annually and are set to be market competitive taking into account the individual’s
skills, the size and scope of their role.
Salaries are set at such a level that employees are not overly dependent on variable pay and to allow
theCompany to operate a fully flexible bonus policy.
Benefits The following benefits are offered to all eligible employees: private health cover, annual travel insurance,
interest-free loans (up to £10,000) for season tickets, death in service life assurance, participation in the
Save As You Earn Plan, Cycle to Work scheme, income protection insurance, critical illness insurance,
28days’annual leave and family friendly policies.
Pension All employees who meet the minimum criteria are automatically enrolled in the Worksave Pension scheme.
Employees who have reached their lifetime or annual allowance limit for pensions for tax purposes may
receive a cash alternative in lieu of the Company’s contribution that otherwise would have been made
under the Worksave Pension arrangement.
No member of the administrative and management bodies or members of Committees and key function
holders benefit from any additional pension arrangement to those listed above including supplementary
pension or early retirement schemes.
Annual
bonus
The annual bonus plan provides eligible employees with an opportunity to receive a cash amount,
subjectto performance measured in respect of the relevant financial year.
Awards are based on the achievement of annual objectives. At all levels within the Group, individual
performance metrics include compliance with standards relating to risk and compliance set by the Board.
Other performance metrics assess alignment with the Group’s values, which include good conduct both
within the firm and in dealings with customers. Performance is also assessed against both financial and
non-financial criteria.
For Solvency II staff in assurance functions, at least 75% of the annual bonus award is based on the
achievement of objectives related to the individual’s assurance function. The remaining 25% relates to
theperformance of the Group. Awards for this population are subject to a prevailing affordability underpin,
and no bonuses will be paid if overall financial performance is not sufficient to fund awards.
B. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202318
Deferred
Bonus
Share Plan
The DBSP seeks to align the long-term interests of the Company for all senior management and other key
individuals through bonus deferral. Under the DBSP, bonuses comprise a cash element awarded annually
atthe end of the financial year and paid in March of the next year. The deferred element is awarded in
theform of nil cost options which vest after three years.
For Solvency II Identified staff a minimum of 40% of any variable award is deferred. Prior to vesting,
theRemCo can make adjustments to awards under the malus and clawback provisions.
Long term
Incentive
Plan
Each year selected senior individuals are invited, at the discretion of the RemCo, to receive LTIP share
awards. Theseindividuals are those tasked with delivering PIC’s long-term strategic goals and generating
long-term shareholder value.
LTIP awards vest over a three-year period, subject to the achievement of performance conditions. Awardsto
Executive Committee members become exercisable after a further retention period of up to twoyears.
The RemCo can make adjustments to LTIP awards by applying malus and clawback up to the fifth
anniversary of the date of grant (or longer if an investigation is ongoing at that point).
Non-
Executive
Directors
The NED fees are set and reviewed annually based on the membership of the Board and/or Committees.
Additional fees are awarded for taking extra responsibilities to the Board Chairman, Senior Independent
Director or Committee Chair. NEDs are also reimbursed for all reasonably incurred expenses in the proper
performance of their duties as Directors.
Link between pay and risk management
The Company’s Remuneration Policy includes the following elements which are intended to align employees’ reward
totheCompany’s risk management:
•
Maintaining an appropriate ratio between fixed and variable pay.
•
Performance measures – Variable remuneration is subject to an assessment of financial and non-financial performance.
Financial targets are set at a level consistent with the Company’s risk appetite. For all employees, there is consideration
ofperformance against risk and compliance criteria, thereby ensuring that there is risk adjustment at an individual and
Company level.
•
Long-term incentives – Alignment with the long-term interests of the Company for senior management is achieved by
theaward of variable remuneration in shares for a three-year vesting period (a post-vesting holding period of up to two
years currently applies to Executive Committee members) before liquidity can be obtained subject to the terms of the
relevant plan rules.
•
Risk adjustment process – The RemCo, in formulating its recommendation on aggregate variable pay to the Board for
approval, will review progress against strategic goals and financial targets, and seek input from the CRO and Chair of
theRisk Committee and Chair of the Audit Committee for an assessment of risk and compliance within established risk
appetite limitsas stated and approved by the Risk Committee.
•
If the performance has been achieved out of line with risk appetite, the variable incentive pool may be adjusted
downwards, including to zero.
•
Malus and clawback provisions apply to all share-based variable remuneration paid to employees whereby awards
maybe reduced, withheld or reclaimed in certain circumstances, as outlined in previous table.
•
For staff engaged in assurance functions, variable remuneration is mainly determined by reference to performance
against functional/individual performance. The RemCo signs off on all remuneration for senior assurance staff,
ensuringindependent review of achievements.
B. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202319
B.1.11 Material transactions during the reporting period
Transactions with Directors and key management personnel
Key management personnel comprise Directors of the Group and members of the Executive Committee.
There were no material transactions between Directors or key management personnel and PIC during the reporting period.
2023
£m
2022
£m
Short-term employee benefits 10 9
Share-based payments 3 4
Total 13 13
Other related party transactions
PIC holds €150 million 1.48% senior notes in Capital Investors Europe PBI Limited, a company within the CVC Group. Another
member of the CVC Group is a significant shareholder of PICG. Investment income during the year amounted to £2 million
(2022: £2 million) and the carrying value of the investment at 31 December 2023 was £108 million (2022: £97 million).
PIC holds investments in funds managed by HPS which is a member of a group that is a significant shareholder of PICG.
During theyear there were net capital contributions of £6 million (2022: net capital contributions of £33 million) and investment
income amounted to £16 million (2022: £14 million). As at 31 December 2023 the carrying value of the investments was
£179 million (2022: £166 million).
Transactions with shareholders
Pension Insurance Corporation plc
On 26 March 2024, the Board approved a final dividend for 2023 of £147 million (2022: £100 million). There were no other
transactions with its shareholder during 2023 (2022: £nil).
Pension Insurance Corporation Group Limited
On 26 March 2024, the Board approved a final dividend for 2023 of £147 million (2022: £100 million). Subject to approval by
shareholders, the dividend will be paid on or around 8 May 2024.
As PICG is a private limited company, it does not have a share price or tradeable securities so it has to generate internal
liquidity to allow participants of the Group’s share schemes to exercise their share options and sell shares they acquire
through the share schemes. With the exception of dividend paid and annual exercise liquidity event, there were no other
transactions with shareholders during 2023 (2022: £nil).
B.2 Fit and proper requirements
PIC’s Fit and Proper Policy sets out the procedures required by regulated firms to assess the fitness and propriety of
individuals who run these undertakings or who hold other key functions in them. PIC procedures ensure its staff are:
a) fit – Their professional qualifications, knowledge and experience are adequate to enable sound and prudent
management; and
b) proper – They are of good repute and integrity.
Prior to the appointment, the individual must be assessed as fit and proper for their position/role. Indeciding whether a
person is fit and proper, PIC carries out the appropriate assessments and checks in order to be satisfied that appointed
personnel have the required:
a) personal characteristics (including being of good repute and integrity);
b) level of competence, knowledge and experience;
c) qualifications; and
d) training.
In addition, PIC carries out DBS and credit checks on all staff who are involved in finance, investments, or administration
ofpolicies or who hold senior positions.
PIC also monitors staff throughout the year and reviews their performance by way of an appraisal. Staff are expected
tokeep up to date with relevant changes in applicable technical competencies and their Continuing Professional
Development (“CPD”) hours are recorded.
PIC has implemented the requirements of the Senior Managers and Certification Regime which was extended to insurance
companies on 10 December 2018. Staff were recertified on 1 April 2023.
B. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202320
B.3 Risk management system including the Own Risk and Solvency Assessment
Risk management is integrated into the business via the Enterprise Risk Management Framework and is used to inform a
range of business decisions. This consists of our Risk Governance Framework, Risk Policy Framework, Risk Processes and Risk
Appetite Framework:
•
the Risk Governance Framework sets out PIC’s risk management responsibilities;
•
the Risk Policy Framework sets, embeds and monitors the standards applied to each risk area;
•
the Risk Processes are the techniques and tools used to identify, assess, mitigate, monitor and report risk throughout PIC;
and
•
the Risk Appetite Framework sets the level of risk the Board is willing to take and in which areas and how performance
against risk appetite will be measured.
B.3.1 Risk Governance Framework
Broader risk governance
Risk governance within PIC forms part of the broader governance framework for managing the business, and is overseen by
theBoard. The PIC Board has ultimate responsibility for PIC’s risk management approach, and its Risk Management Framework.
The Board delegates a number of these responsibilities to the Board Risk Committee (“BRC”) as a focused point of risk
management decision making, supported by the CRO.
Further to this, the Management Risk Committee assist the CRO in:
•
effective implementation and operation of the Risk Management Framework and risk appetite and that the material risks
facing the Company are identified and monitored and remain within appetite;
•
providing insight and review to the Executive Committee and the Board and its Committees in relation to the risks facing
the Company; and
•
monitoring the risk profile and risk exposure of the Company.
Three lines of defence model
PIC operates a three lines of defence model that is shown below.
B. System of Governance (unaudited) continued
Board and Board Committees
Management Committees
First-line
businessunits
areresponsible
formanaging risk
intheir day-to-day
activities.
Second-line Risk and Compliance
areresponsible for the following
areas of activity:
Operational: owning,
maintaining and developing the
Risk Management Framework.
Advisory: facilitating
theembedding and
implementation of the Risk
Management Framework.
Oversight: providing
independent oversight and
challenge to the first-line in
carrying out risk management.
The purpose of
thethird-line
(Internal Audit)
istoprovide
independent
andobjective
assurance to
thePIC Board
ofDirectors.
Advisory and oversight activities
Independent Assurance over first-
and second-line activities
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202321
B.3.2 Risk Appetite Framework
The Risk Appetite Framework is a key tool for managing the material risks to the business operations, its strategy and to PIC’s
reputation with key stakeholders (including policyholders, trustees, regulators and investors). It is approved by the Board and
includes risk metrics (limits and triggers) within which the business must operate. It outlines the roles and responsibilities of those
who implement and monitor the Company’s risk appetite. The Company has developed primary and secondary risk appetite
metrics which are designed to support the safe delivery of the strategic objectives of the business within the Board approved
risk appetite.
To monitor the position against the risk appetite, metrics are set to help guard against PIC exceeding the level of risk we are
willing to take on. The risk appetite metrics are monitored by the business and performance against the metrics is reported to
the BRC and Board.
Consistent with other years, we reviewed our risk appetite statements and metrics in 2023, adding new metrics where
appropriate. This resulted in improved coverage of quantifiable measures of risk, for example relating to project risk
management and company culture.
B.3.3 Risk strategy – preferences and appetite statements
Our Risk Appetite Framework articulates the Board’s appetite for taking the different types of risks which PIC may be
exposed to in pursuit of its strategic objectives. Risk preferences are set for each risk as those PIC actively seeks, accepts or
wants to minimise.
PIC should actively seek risks that:
•
are aligned with the business strategy and the stakeholder expectations;
•
PIC believes are adequately rewarded; and
•
are within the capabilities and capacity of PIC’s people, processes and technology to manage.
PIC should accept and take measured amounts of risks that:
•
are an acceptable consequence of pursuing the business strategy; and
•
are within the capabilities and capacity of PIC’s people, processes and technology to manage.
PIC should minimise risks which:
•
are not aligned with the business strategy or the stakeholder expectations; or
•
are beyond the capabilities and capacity of PIC’s people, processes and technology to manage.
B. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202322
B. System of Governance (unaudited) continued
B.3.4 Risk management system
PIC’s risk management system outlines the risk management processes and tools to identify, assess, mitigate, monitor and
report risks throughout PIC as shown below. We use this for all risk types and it isacontinuous process, incorporating regular
monitoring, stress and scenario testing and deep dive reviews which are reported through relevant Committees to support
the decision-making processes of the business.
PIC also tracks and monitors a range of emerging and developing risks that may impact its business model and strategy to
assess whether any new risks need to be more extensively assessed and formally managed, including additional controls
and monitoring.
B.3.5 Own Risk and Solvency Assessment
The purpose of the ORSA is to provide an assessment of the current risk profile of the business and the forward-looking risks to the
successful execution of PIC’s strategic objectives over the business planning horizon. This includes risks to all elements of PIC’s Risk
Management Framework including quantifiable risk such as solvency and liquidity and non-quantifiable risks such as conduct and
reputational risks. It includes a forward-looking assessment of the appropriateness of the firm’s capital requirements from the
Internal Model based on the risk profile.
Quantifiable and material risks over the coming year which are mitigated through holding capital are measured using PIC’s Internal
Model, which is used to determine the appropriate SCR for the business to manage the impact of these risks. Those quantifiable
and material risks for which capital is not held as part of their risk mitigation treatment, or which are expected to occur beyond
the 12-month horizon of the SCR calculation, are not included within PIC’s Internal Model. Instead, these are measured by
considering their impact as part of the stress and scenario testing and discussed in risk and solvency reports such as the ORSA.
B.3.6 Capital risk appetite buffer
PIC’s capital risk appetite is subject to annual review to ensure it remains appropriate for the risk profile of the business, based
on the current and future projected operating environment. The Board determines its own view of the amount of capital it
believes the business needs to hold (as a buffer above SCR) which is informed by a number of factors including stress and
scenario testing. The Board’s assessment of the capital buffer held over the regulatory capital requirement serves to:
•
provide an extra layer of security to policyholder benefits;
•
provide an extra layer of security to debt investors;
•
safeguard the franchise value for equity investors;
•
act as a buffer against quantitative risks and absorb short-term balance sheet volatility, such as from credit spreads, or
interest, inflation or exchange rate movements;
•
act as a buffer against qualitative risks that do not readily lend themselves to statistical quantification but for which
capital is an appropriate risk mitigant; and
•
ensure financial flexibility by maintaining strong liquidity and access to a range of capital markets.
Identify
PIC uses tools and techniques
to identify current and
emerging risks to the
business.
Analyse
PIC assesses risks on both an
inherent and residual basis.
Report
PIC reports on risks. Reports
are discussed and debated
by the Management and
Board Risk Committees.
Mitigate
PIC puts in place mitigating
controls to bring the risk to an
acceptable level at
appropriate cost.
Monitor
PIC monitors risks to ensure
they remain within approved
appetite limits and targets.
Risk
Management
Processes
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202323
B.3.7 Internal Model governance
The BRC is responsible for the oversight of the Internal Model and providing recommendations to the Board with respect
toitscalibration and any proposed changes. These duties are supported by the Management Risk Committee which is
chaired by the CRO.
To ensure that the Internal Model is, and continues to be, suitable for the assessment of risk and capital, the Company
hasimplemented a governance framework through its Internal Model Policy and supporting policies and procedures.
Thesecover:
•
model use: to provide assurance that the model is widely used in the business and plays an important role in the system
ofgovernance and decision-making processes;
•
model change: where changes to the Internal Model are required, these are implemented in a controlled manner with
appropriate oversight and governance;
•
model data: controls are applied to ensure the data used by the Internal Model is accurate, complete and appropriate;
•
expert judgements: where judgements are required in the model, then these are informed by relevant internal and/or
external experts and supported with robust justification, considering the range of plausible assumptions and their
impactsand limitations;
•
model documentation: the Internal Model documentation outlines the data, methodology, assumptions and judgements within
the model, including highlighting the circumstances where the model does not work effectively. This allows management
todetermine whether the output is reasonable and reliable for its different uses; and
•
model validation: the Model Risk and Validation team within the Risk Function provides independent assurance that the
Internal Model remains fit for purpose and compliant with all applicable rules through a risk-based cycle of reviews. These
reviews use a range of quantitative and qualitative validation tools documented in the Internal Model validation procedure
such as profit and loss attribution and back-testing against experience. The annual validation plan and annual consolidated
validation report are agreed with the BRC.
In March 2023, the PRA approved updates to PIC’s Internal Model change policy. This included allowing an annual reset of the
accumulated minor model changes as permitted by the PRA’s Supervisory Statement SS12/16. There have been no other
material changes to the Company’s Internal Model governance over 2023.
B.4 Internal control system
PIC’s internal control framework is designed to provide reasonable assurance that the Company’s activities are focused on
ensuring that its objectives are achieved in an effective and efficient manner and with due regard to managing risk including
conduct risk. The daily control activities include approvals, reconciliations, management reviews, appropriate measurements
applicable to each business area, physical access controls, compliance with agreed limits and compliance with operating
principles/instructions and procedures. The control activities should be proportionate to the risks stemming from the
controlled activities and processes.
The Board takes responsibility for ensuring the implementation of a comprehensive framework of controls across the Company.
This is supported by relevant and regular monitoring processes to confirm that key policy objectives are met. EachCommittee
works with management to establish procedures and controls providing an appropriate control environment and supporting
the key processes for which the Committee is responsible.
B.4.1 Compliance
The operation of the Company’s internal control framework is supported by the Company’s Compliance Function.
TheCompliance Function sits with the General Counsel of the Company, who reports to the CEO.
The role of the Compliance Function within the three lines of defence model is to provide regulatory oversight and advice to
the first line business units and the Board in respect of regulatory and/or control risks that may be inherent in PIC’s business
decisions/activities.
Together with the other assurance functions, the Compliance Function is responsible for monitoring and regularly assessing
the adequacy and effectiveness of the systems, controls and procedures at PIC, and for advising and assisting the business
in carrying out regulated activities to ensure compliance with its obligations under the regulatory system.
The Compliance Monitoring programme forms part of the annual Integrated Assurance programme.
B.5 Internal Audit Function
B.5.1 Roles and responsibilities
The purpose of PIC’s Internal Audit (“IA”) Function is to provide independent, objective assurance and consulting services
which are designed to add value and improve PIC’s operations. The mission of IA is to enhance and protect organisational
value by providing risk-based and objective assurance, advice and insight. IA helps PIC accomplish its objectives by bringing
asystematic, disciplined approach to evaluate and improve the effectiveness of governance, risk management, and control
processes. The primary role of IA is to support the Board and executive management to protect the assets, reputation and
sustainability of PIC, by providing independent and objective assurance, advice and insight.
B. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202324
IA governs itself by adherence to the mandatory elements of The Institute of Internal Auditors’ International Professional
Practices Framework, including the Core Principles for the Professional Practice of Internal Auditing, the Code of Ethics and
guidance for effective Internal Audit in the financial services sector, theInternational Standards for the Professional Practice
of Internal Auditing, and the Definition of Internal Auditing.
TheChiefInternal Audit Officer (“CIAO”) will report periodically to senior management, the Board and the Audit Committee
regardingtheIA function’s conformance to the Code of Ethics and the International Standards for the Professional
Practiceof Internal Auditing.
B.5.2 Independence and objectivity of the Internal Audit Function
The CIAO will ensure that the IA Function remains free from all conditions that threaten the ability of internal auditors to
carry outtheir responsibilities in an unbiased manner, including matters of audit selection, scope, procedures, frequency,
timing and report content. If the CIAO determines that independence or objectivity may be impaired, in fact or appearance,
the details of impairment will be disclosed to appropriate parties.
Internal auditors will maintain an unbiased mental attitude that allows them to perform engagements objectively and in
such a manner that they believe in their work product, that no quality compromises are made and that they do not
subordinate their judgment on audit matters to others.
Internal auditors will have no direct operational responsibility or authority over any of the activities audited. Accordingly,
internal auditors will not implement internal controls, develop procedures, install systems, prepare records or engage in any
other activity that may impair their judgment, including:
•
assessing specific operations for which they had responsibility within the previous year;
•
performing any operational duties for PIC or its affiliates;
•
initiating or approving transactions external to the IA Function; and
•
directing the activities of any PIC employee not employed by the IA Function, except to the extent that such employees
have been appropriately assigned to auditing teams or to otherwise assist internal auditors.
Where the CIAO has or is expected to have roles, responsibilities, or both, that fall outside of internal auditing, safeguards will
be established to limit impairments to independence or objectivity.
Internal auditors will:
•
disclose any impairment of independence or objectivity, in fact or appearance, to appropriate parties;
•
exhibit professional objectivity in gathering, evaluating and communicating information about the activity or process being
examined;
•
make balanced assessments of all available and relevant facts and circumstances; and
•
take necessary precautions to avoid being unduly influenced by their own interests or by others in forming judgements.
The CIAO will confirm to the PIC Board and Audit Committee, at least annually, the organisational independence of the
IAFunction.
The CIAO will disclose to the PIC Board, Audit Committee, or both, any interference and related implications in determining
the scope of internal auditing, performing work and communicating results.
B.5.3 Authority and resources of the Internal Audit Function
IA is authorised to have full, complete, free and unrestricted access to all parts of PIC’s activities, records, physical
propertiesand personnel as necessary to discharge its responsibilities including free and unrestricted access to the Board,
Management Risk Committee and Audit Committee. IA will either be represented on, or have full access to minutes of and
presentations to, all the major management-level committees (e.g. the Executive Committee), so as to keep abreast of the
Company’s strategic direction, developments and risk and control breakdowns. IA expects timely assistance from all staff
tohelp itfulfil its role and responsibilities.
B.6 Actuarial function
The responsibilities relating to the Company’s Actuarial Function are split between a Line 1 Actuarial Finance Function,
ledbythe Chief Actuary, and a Line 2 Actuarial Assurance Function, led by the Actuarial Function Holder (“AFH”).
The Line 1 Chief Actuary is responsible for the calculation of the technical provisions, including making recommendations
tothe Board and Board Committees in relation to the assumptions, methodologies, data and models to be used. TheChief
Actuary also provides leadership and advice to management across PIC on actuarial aspects of other matters arising in
thecourse of the Company’s business, such as new business pricing.
The Line 2 AFH fulfils the statutory role with reporting responsibilities to the PRA in relation to the Actuarial Function.
TheAFHreports to the Company’s Chief Risk Officer and has direct access to the Board, Audit and Risk Committees.
B. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202325
The AFH team operates independently from the Line 1 teams responsible for the development of the underlying models,
methodologies and assumptions and the operation of these on a day-to-day basis to produce technical provisions, capital
requirements, new business pricing and associated management information. The AFH provides oversight over these activities
and provides independent opinions to the Board and Board Committees on: the adequacy of the technical provisions; the
underwriting policy; the adequacy of reinsurance arrangements; and contributing to the effective implementation of the risk
management systems, in particular to modelling risk in respect of the SCR, MCR and ORSA calculations.
B.7 Outsourcing
The PIC Third Party and Outsourcing Policy defines the governance structure, roles and responsibilities and segmentation
model used to risk assess and manage third party suppliers across the full lifecycle of such relationships. The policy contains
anoverview of the PIC risk assessment process and the approach taken to align risk levels with treatment standards andcontrols.
This includes pre-contract due diligence controls and legal agreement contents as well as post-contract requirements for, ongoing
due diligence, supervision arrangements, periodic risk assessment and the management ofchanges.
For third party suppliers in scope, the policy applies equally to any externally or internally (intra-group) outsourced activity
and is compliant with relevant regulatory expectations.
Under the PIC segmentation model, critical third party services, those material to the support of an Important businessservice,
orthose determined to be material outsourcing, are subject to the highest level of pre- and post-contractcontrols and monitoring;
this includes any required regulatory notification, performance and relationship reviews, regulatory compliance reviews, operational
resilience reviews, and risk and control assessments.
The policy and the associated controls have been updated as appropriate to align to the PRA regulations for outsourcing
and third party risk management (PRASS2/21) from January 2022.
While PIC has a number of outsource providers, it always has responsibility for the services they provide.
The material functions which are outsourced are administration of policies, investment management, custodian services and
certain IT related services.
The following key functions and activities have been outsourced to external third party providers:
•
policyholder, payroll and administration services;
•
custodian and investment accounting;
•
trade management;
•
asset management;
•
IT support; and
•
actuarial support services.
The Group’s service company, PSC, provides all staff and certain services to PIC under the terms of an intra-group
outsourcing services agreement.
PIC maintains sufficiently qualified staff to monitor the provision of these services and to carry out control checks and
provide reports on their performance to the relevant Board Committee.
Depending on the function outsourced, the relevant Board Committee must approve the outsourcing, or any material
changeto the outsourcing, of critical, important or material functions or activities.
In addition, all proposals for outsourcing, and material changes to the outsourcing, of critical, important or material functions
or activities are reviewed by the Board Risk Committee which will recommend approval or otherwise to the Board.
PIC’s Compliance, Risk and Internal Audit Functions also carry out reviews throughout the year both of the outsource
providers and also of the internal department that monitors the providers.
B.8 Any other information
Adequacy of systems of governance
The Board continues to believe that the systems of governance operated by the Group and Company remain appropriate
given the nature, scale and complexity of the risks inherent in the business.
B. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202326
Overview of the Group’s risk profile
The Group focuses on insuring the liabilities of UK defined benefit pension schemes and its purpose is to pay the pensions
ofits current and future policyholders by providing secure and stable retirement incomes through leading customer service,
comprehensive risk management and excellence in asset and liability management.
The Group’s solvency position is exposed to volatility and movements in the markets in which PIC operates. The principal
drivers of this volatility are movements in credit spreads, credit default and downgrade experience, rates (including interest
rates, inflation and foreign exchange rates), longevity experience and counterparty default experience. The Group is
expected to maintain solvency levels above the SCR, and an additional buffer approved by the Board to manage the
marketvolatility.
The Solvency Capital Requirement for both PICG and PIC was £3,890 million as at 31 December 2023 (31 December
2022: £3,199 million), as measured by the Group’s Internal Model.
In order of relative size of contribution to the Solvency Capital Requirement, the most important risks to the Company
areasshown below (pre-diversification):
2022
Market risk (including credit risk)
74%
Counterparty default risk
11%
Insurance risk
7%
Expense risk
6%
Operational risk
2%
2023
Market risk (including credit risk)
76%
Counterparty default risk
9%
Insurance risk
7%
Expense risk
6%
Operational risk
2%
Changes to Group’s risk profile
SII reform
On 1 January 2016, the solvency regime applicable to the UK insurance sector, known as Solvency II, came into force.
SolvencyII was intended to harmonise insurance regulation across the then EU member states. The regime takes a risk-
based approach to solvency requirements that aims to ensure the protection of policyholders and the financial stability of
the insurance industry. The UK withdrew from the EU on 31 January 2020. At that point, the EU law version of Solvency II was
retained in UK legislation. On 17 November 2022, HM Treasury set out the UK Government’s final reform package for a new
UKSolvency regime (“Solvency UK”). The reforms included a reduction in the size of the risk margin, increased investment
flexibility within the matching adjustment, and a reduction in the current reporting and administrative burden on firms.
The risk margin reform was implemented for reporting from 31 December 2023 onwards, reducing PIC’s risk margin at that point
by £619 million. PRA policy covering Internal Models and transitional measures was published on 28 February 2024, with further
policy on reporting and disclosures published on 29 February 2024. We expect the final policy on the matching adjustment
reforms in June 2024, with those reforms expected to take effect from 30 June 2024, and the remaining Solvency UK reforms
dueto come into effect from 31 December 2024.
Exposure to insurance special purpose vehicles
The Group does not have any exposure to insurance special purpose vehicles as defined in Article 211 of the
SolvencyIIDirective.
Exposure to off-balance sheet positions
The Group does not have any material exposure arising from off-balance sheet positions.
C. Risk Profile (unaudited)
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202327
Prudent person principle
The prudent person principle is embedded within the Company’s investment strategy and set out in the Company’s policies
and procedures. In accordance with the principle, the Company only invests in assets and instruments:
•
where the Company can properly identify, measure, monitor, manage, control and report risks;
•
that ensure the security, quality, liquidity and profitability of the portfolio as a whole;
•
that are appropriate to the nature and duration of insurance liabilities (for assets covering the technical provisions); and
•
that are in the best interest of policyholders and beneficiaries (for assets covering the technical provisions).
Compliance with the Company’s policies is managed through the risk framework described in section B. (System of Governance).
C.1 Market risk
Market risk is the risk of changes in the value of assets and liabilities caused by market movements, downgrades anddefaults.
C.1.1 Market risk exposure, measurement and mitigation
The Company is exposed to market risk because of fluctuations in values of asset and liabilities which are influenced by
oneor more external factors. These include changes and volatility in interest rates, credit spreads, inflation expectations,
currency exchange rates, property prices, fund values, and the market risk implications of climate change.
Credit risk is a material risk to the Company and is described separately in section C.5.
The Group’s hedging strategy is set by the Board and a management Committee meets weekly to oversee and manage
interest rate, inflation and foreign exchange risks in line with the hedging strategy and within clearly defined limits. The Group
manages market risk through an asset liability management framework that has been developed to closely match the
investment portfolio’s duration and income to its obligations under insurance contracts.
Capital is held to further protect the Company against crystallisation of market risks. Stress testing of the solvency position
isconducted to ensure a suitable solvency buffer is maintained.
C.1.1.1 Interest rate risk
Interest rate risk arises from the mismatch between assets and liabilities which are discounted at the risk-free rate. Interest
rate swaps are entered into to improve the matching of asset and liability cash flows and to ensure that risk driver
sensitivities are aligned across the maturity spectrum.
C.1.1.2 Inflation risk
Inflation risk arises from index-linked nature of the liabilities. Inflation swaps are entered into to improve the matching
ofassetand liability cash flows and to ensure that risk driver sensitivities are aligned across the maturity spectrum.
Bilateralassets and bonds are also used to improve inflation matching where contractual features of the assets include
inflation linkages.
C.1.1.3 Currency risk
Currency risk arises from the mismatch between the currencies of assets and liabilities. Currency forwards and swaps
areentered into to reduce currency risk on financial assets invested in non-sterling-based debt securities.
C.1.1.4 Credit spread risk
The Company is exposed to changes in credit spreads on its asset portfolio, principally through its holding of fixed income
assets. The use of cash flow matching and the recognition of matching adjustment partially mitigates this risk. Credit spread
risk is an integral part of the business model of the Company.
C.1.1.5 Property risk
The Company accepts property risks directly through investment in equity release mortgages and real estate assets
(including Build-to-Rent). Significant due diligence is undertaken for property construction projects, including an assessment
of third parties (e.g. construction contractors). Property risk inherent in equity release mortgages is mitigated through
underwriting criteria, maximum loan to value ratios, and legal requirements such as for properties to be insured. Short-term
investment property risk is mitigated by entering into long-term lease arrangements. The Group performs regular reviews of
both the movement in the property market specific to these properties and the financial status of the tenants.
In addition, the Company has indirect exposure to the property market within the corporate bond portfolio, for example
through investments in social housing and student accommodation. The credit rating (and therefore value) of these bonds
may be impacted by property risk events.
C.1.2 Market risk measurement
The Company uses a variety of stresses and appetite metrics to measure market risk:
•
stresses to interest rate, inflation and currency e.g. term structure shifts, volatility, slope and convexity;
•
stresses to asset price e.g. property and funds;
•
changes in realised and/or implied inflation; and
•
portfolio sensitivities
C. Risk Profile (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202328
These parameters are monitored regularly with significant changes included in management information reported to the Company.
The impact of certain scenarios on the reported Solvency II ratio is shown below for a range of market and on-market risks.
The sensitivities are shown on a non-cumulative basis, i.e. only the indicated item is varied relative to the base Solvency II
ratio shown.
2023 2022
(Restated*)
As reported 211% 226%
100 bps increase in interest rates
1
15% 17%
100 bps reduction in interest rates
1
(18)% (13)%
100 bps increase in credit spreads
1
16% 20%
100 bps reduction in credit spreads
1
(12)% (5)%
10% increase in house price index 0% 0%
10% decrease in house price index 0% 0%
20% credit downgrade
2
(10)% (14)%
5% reduction in base mortality
3
(2)% (4)%
* The solvency ratio is now reported at a consolidated Group level and as such has been presented for PICG. Comparatives have also
been restated to reflect the IFRS 17 (previously IFRS 4) tax impact on sensitivities.
All sensitivities reflect the impact of the TMTP being notionally recalculated in both the base and stress positions.
Notes:
1 For the interest rate and credit spread sensitivities, due to the nature and size of the impacts the notional recalculation of the TMTP
contributes significantly to the asymmetry of the results.
2 Shows an immediate full letter downgrade on 20% of all assets where the capital treatment depends on a credit rating. Downgraded
assets are assumed to be immediately traded back to the original credit rating, so the impact is primarily a reduction in Own Funds
from the loss of value on downgrade. The impact of the sensitivity depends upon the market levels of spreads and the asset mix
ofthe portfolio at the balance sheet date.
3 Equivalent to a 0.4-year increase in life expectancy from 22.5 years to 22.9 years for a typical male aged 65.
C.1.3 Market risk concentration
The Company manages market risk through concentration limits for asset classes including property, equities and funds, as
wellas particular aspects of property risks (e.g. construction risk). Concentration of the equity release mortgage portfolio
bygeography is monitored to manage exposure to location-specific property market shocks and environmental risks.
C.2 Underwriting risk
Underwriting risk, classified internally as insurance risk, is the risk that mortality experience of the Company’s policyholders
islighter than assumed, thus requiring pensions to be paid for a longer period than anticipated, resulting in a higher than
expected cost to the Company.
C.2.1 Underwriting risk exposure, management and mitigation
In order to help minimise this risk and also uncertainty arising through future longevity experience, PIC adopts an active
approach to reinsuring these risks where it is economic to do so. This reinsurance can be classified into two broad categories:
longevity-only reinsurance; and quota share (or ‘funded’) reinsurance, which are discussed below. PIC also chooses to retain
a small amount of longevity risk. The approach to setting assumptions for this portion of the book is also described below.
C.2.1.1 Longevity-only reinsurance
This provides longevity cover in respect of certain policyholders. Under these contracts, the Company has committed to
paythe reinsurer a fixed line of cash flows for specified sets of liabilities relating to members/former members of particular
pension schemes. The reinsurer undertakes to reimburse the actual cost of claims to the Company. Separately, there is also
areinsurance fee for which the Company is liable. Settlement of the contract is on a net basis. These contracts also transfer
the contingent longevity risk relating to any eligible dependants of relevant policyholders.
C.2.1.2 Quota share (or ‘funded’) reinsurance – longevity reinsurance via the transfer of assets
Under such contracts, in return for an initial single premium, the reinsurer agrees to reimburse the actual cost of future claims
to the Company in respect of an agreed set of policyholders. These contracts also transfer the contingent risks relating to
eligible dependants of relevant policyholders.
The Company monitors the levels of its counterparty risk and actively seeks to reinsure with a range of providers to help
mitigate its exposure to any one such entity.
C.2.1.3 Unreinsured longevity
Actuarial assumptions are made to derive the overall best estimate longevity assumptions. One aspect is to establish assumptions
for the ‘current’ or ‘initial’ rates of mortality, which are set by applying appropriate mortality factors to eachindividual member/
policyholder. Individual variations are subject to a number of factors including, but not limited to, anindividual’s gender, age,
pension amount, occupation and place of residence.
C. Risk Profile (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202329
The other aspect is the allowance for future improvements in mortality. The pattern in which mortality is expected to improve
over time is an important but complex assumption for cash flow and liability calculations. This is regularly reviewed in the
light of a number of factors including evolving methodologies for these projections together with views from industry and
professional bodies on the factors driving mortality change.
C.2.1.4 Risk arising from a specific insurance contract
The Company considers, as part of its risk management process, the risk attached to each new contract accepted and
themitigation of such risk.
C.3 Operational risk
Operational risk is the potential for loss resulting from inadequate or failed internal processes, people and systems, or from
external events. The Company’s internal control processes are supported by multi-level governance activities, the maintenance
of a central risk register, the ORSA process, scenario and stress testing, and independent Internal Audit review of the Operational
Risk Framework and its activities.
All material operational risk types are actively managed through a defined control framework and includes first line owned
activities and actions overseen and challenged by the second line.
C.3.1 Third party risk
The Company has significant outsourcing arrangements in respect of pension administration and other functions. These
arrangements are subject to agreements with formal service levels, operate within agreed authority limits and are subject to
regular review by senior management. There is a formal Third Party and Outsourcing Framework which contains clear
requirements with regard to the onboarding, relationship management and offboarding of third parties, supported by a
specialised third party management system.
C.3.2 Model risk
Given PIC’s business model, there is considerable use made of financial models and associated output throughout a range of
actuarial and financial reporting processes which expose the business to risk though inappropriate use or poor design. From
an operational risk perspective, extensive controls exist to mitigate risks related to model design, integration, operation and
change management. This is supported by a specific Model Risk Framework and associated Board approved policies which
provides direction and guidance in this respect. Model risk is overseen by a specialist team within the wider Risk Function.
C.3.3 Cyber risk
Cyber risk is the risk of electronic information security breaches or loss of digital assets. This includes losses arising from
internal employees acting carelessly or maliciously with electronic forms of data as well as external threat actors who may
target our electronic information and digital assets. Control gaps creates risks that threat actors (attackers) can exploit to
harm our information and data assets. PIC, or any of it its critical third parties, could be subject to a cyber-attack by a threat
actor (attacker) using advanced tools, methods, and access paths to harm or disable our systems, network, and sensitive/
critical data. A cyber incident could lead to significant loss or corruption of critical and/or sensitive information assets with
regulatory fines, and reputational damage.
There are a range of technical and process controls that are employed to help mitigate cyber risk including but not limited to:
•
antivirus, malware, phishing, end point, server and firewall protection controls;
•
security operations centre and security incident and event management;
•
vulnerability scanning and patching;
•
ongoing third party penetration tests;
•
backup and restoration processes supported with offsite data centres and tape retention;
•
network segmentation;
•
incident management team, Business Continuity and Disaster Recovery Procedures; and
•
crisis management team with lessons learned and continuous improvement activities.
C.3.4 Conduct risk
The Company is primarily exposed to conduct risk through its interactions with, and obligations to, its retail customers. Given
the demographic of the policyholder base, many policyholders are likely to exhibit characteristics of vulnerability. This requires
the Company to support their additional needs where possible such as offering alternative contact channels and methods
of communication. Conduct risk is mitigated through extensive controls such as staff training, policies and procedures,
quality assurance and contractual service level agreements.
C.3.5 Emergency and business continuity plans
Emergency and business continuity plans (“BCP”) have also been established to counter adverse occurrences and ensure
operational resilience. These plans are tested at regular intervals and the results of these tests are linked closely to the
operational risk scenario assessment process. Separate BCP scenarios are also identified and assessed as part of the
overallBCP process and drive management actions where identified.
C. Risk Profile (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202330
There is an annual operational risk scenario review process in place to examine potential risk impacts caused by both internal
and external events. Various scenarios are assessed by appropriate first line subject matter experts, based upon the Operational
Risk taxonomy and challenged by the Risk Team. Management mitigation actions that are identified as part of this activity
are approved through the risk governance process.
C.4 Expense risk
This is the risk that the Company’s expenses are higher than expected. This includes investment management expenses
andpolicy maintenance expenses. Expenses are managed through an internal budgeting and monitoring process and
through careful oversight of external investment managers and other outsourced service providers.
C.5 Credit risk
Counterparty default risk, classified internally as credit risk, is the risk of changes in the value of credit risk sensitive
instruments due to movements in mark-to-market value, downgrades or defaults.
C.5.1 Credit risk exposure
The Company is primarily exposed to credit risk through its investment in debt securities. A significant proportion of the asset
portfolio is comprised of corporate and government bonds and private debt held to back annuity liabilities. Credit risk also
arises in respect of derivative contracts and reinsurance arrangements to the extent that there is the potential for the
counterparties to default on their obligations.
C.5.2 Credit risk management and mitigation
The Company manages exposure to credit risk by maintaining a comprehensive due diligence and governance process for
assessing and selecting appropriate credit risks to acquire. Counterparty risk is controlled through establishment of collateral
agreements and master netting agreements on interest rate and currency swaps. Minimum credit quality requirements are
applied when selecting derivative and reinsurance partners to transact with and exposure limits are determined based on
credit ratings and projected exposure to losses on default. To manage the credit risk the Company maintains, the credit
portfolio and exposure to counterparties are monitored on a regular basis, and capital is held to further protect against
crystallisation of credit risk. Some reinsurance contracts will also have collateral arrangements to manage risk.
C.5.3 Credit risk concentration
The Company manages credit concentration risk by placing concentration limits for various characteristics (e.g. sectors,
credit rating, geographical) and on exposures to individual counterparties. Capital is held to protect against the additional
potential impact of concentrations within the portfolio in an adverse credit scenario.
C.6 Liquidity risk
Liquidity risk is the risk that the Company may not have cash or liquid assets available at the right times to be able to pay
itsobligations in a timely manner, without incurring excessive cost.
C.6.1 Liquidity risk exposure
Liquidity risk may arise if derivative contracts to manage foreign exchange, inflation and interest rates require liquid assets
tobe posted as collateral at short notice, or a large proportion of deferred policyholders opt to take transfer values. Liquidity
risk also arises if there is a lack of marketability for investments resulting in an inability to sell certain assets should the
Company desire to exit holdings for any reason.
C.6.2 Liquidity risk management and mitigation
PIC manages the most common sources of liquidity risk as follows:
•
Posting collateral: PIC’s risk policies define a minimum proportion of assets to be held in cash, gilts and highly liquid corporate
bonds, which can be posted as collateral on derivative contracts. This ensures that PIC would be able to meet demands from
derivative counterparties under extreme market scenarios.
•
Liability payments: Projected cash flows for all new pensioner liabilities taken on are determined as a part of the new
business origination process. This is used to identify appropriate assets which provide matching cash flows at an acceptable
price. The projected cash flows are updated regularly, and assumptions are updated at least annually, considering factors
such as mortality experience and how this affects the required cash flows in the future.
PIC’s risk policies also define a minimum amount of unencumbered cash available to meet pension liability outgoings
and business expenses over the following three months.
•
Termination of policies: PIC typically manages this risk by ensuring a suitable timeframe between policy termination
andthe requirement to pay back the scheme, and that a range of different assets can be passed back to the scheme
on termination.
C.6.3 Liquidity risk concentration
The Company manages liquidity concentration risk by placing concentration limits on the amount of cash on deposit
withindividual counterparties, and on the holdings in individual liquidity funds.
C. Risk Profile (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202331
C.7 Any other information
C.7.1 Stress and scenario testing
PIC performs stress and scenario testing (“SST”) (including reverse stress testing) on a rolling basis throughout the year.
PICperforms SST for a range of purposes including risk management, business planning and day-to-day decision making.
The purpose of SST is to assess the range of impacts on PIC’s key business and risk metrics on the business (both immediate
stressed and over the business planning period). It is a key tool in PIC’s risk management system and it forms part of the annual
ORSA process, allowing senior management and the Board to understand how PIC’s metrics may respond to relevant adverse
scenarios, and subsequently what management actions can be taken (either before or after an event) to alleviate the impacts.
SST also supports PIC in reviewing the effectiveness of pre-emptive risk mitigation and post-stress management actions.
C.7.2 Climate change risk
PIC considers climate change a cross-cutting risk, which could drive significant increases in risk across PIC’s risk profile. These
increases in risk could include:
•
increased market risk due to asset impairments;
•
increased operational risk due to operational disruption as a result of physical climate risk events;
•
increased reputational risk arising from failure to enact or evidence long-term climate actions, leading to increased cost
ofcapital and/or reduced new business volumes; and
•
increased regulatory risk due to failure to comply with fast-moving regulatory environment.
PIC is continually assessing how its business may be impacted by climate change risk. Importantly, PIC has developed its risk
management approach to identify, manage and report climate related risks to the Board Risk Committee, and ultimately the
Board. For systems and processes, PIC includes adaptation or operational disruption caused by physical and transition risk
associated with climate change in risk analysis and has actively started engaging with external providers. For the assets it
invests in, PIC accepts that some transition risk is inherent in doing business and aim to minimise the physical risk in the
portfolio. PIC has performed sensitivity analysis to further understand the impacts that physical and transitional climate
change risk could have on the balance sheet.
PIC produces a Climate Report, which outlines the approach to managing risks arising from climate change across four key
areas: strategy, metrics and targets, risk management and governance, in line with the recommendations of the Task Force
on Climate-related Financial Disclosures.
C. Risk Profile (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202332
Balance sheet: PICG
2023
31 December 2023
Section
reference
Solvency II
value
£m
Adjustment
£m
Statutory
Accounts
value
£m
Property, plant and equipment D.1.2.1 40 – 40
Investment property D.1.2.2 – 663 663
Holdings in related undertakings D.1.2.2 445 (445) –
Bonds D.1.2.3 35,371 – 35,371
Collective investments undertakings D.1.2.4 4,078 27 4,105
Derivative assets D.1.2.5 25,487 – 25,487
Total Investments 65,421 245 65,666
Loans and mortgages D.1.2.6 9,906 (463) 9,443
Reinsurance recoverables D.1.2.7 2,325 (4) 2,321
Other assets D.1.2.8 186 (177) 9
Deferred tax asset D.1.2.9 7 315 322
Receivables D.1 . 2 .1 0 63 (18) 45
Cash and cash equivalents D.1.2.11 499 233 732
Own shares held directly D.1.2.12 31 (31) –
Total Assets S.02.01 78,438 100 78,538
Technical provisions D.2.1 38,742 2,464 41,206
Derivative liabilities D.3 .1 28,566 – 28,566
Financial liabilities other than debts owed to credit institutions D.3.2 2,264 – 2,264
Insurance and other payables D.3.3 223 (9) 214
Deferred tax liability D.1.2.9 380 (380) –
Subordinated debt instruments D.3.4 1,680 140 1,820
Total Liabilities S.02.01 71,855 2,215 74,070
Excess of Assets over Liabilities/Equity 6,583 (2,115) 4,468
31 December 2022
Section
reference
Solvency II
value
£m
Adjustment
£m
Statutory
Accounts
value
(restated*)
£m
Property, plant and equipment D.1.2.1 4 1 5
Investment property D.1.2.2 – 244 244
Holdings in related undertakings D.1.2.2 308 (308) –
Bonds D.1.2.3 30,864 – 30,864
Collective investments undertakings D.1.2.4 4,017 16 4,033
Derivative assets D.1.2.5 22,451 – 22,451
Total Investments 57,644 (47) 57,597
Loans and mortgages D.1.2.6 5,627 (200) 5,427
Reinsurance recoverables D.1.2.7 1,140 (480) 660
Other assets D.1.2.8 105 (97) 8
Deferred tax asset D.1.2.9 6 351 357
Receivables D.1 . 2 .1 0 14 65 79
Cash and cash equivalents D.1.2.11 905 192 1,097
Own shares held directly D.1.2.12 20 (20) –
Total Assets S.02.01 65,461 (236) 65,225
Technical provisions D.2.1 32,516 1,197 33,713
Derivative liabilities D.3 .1 25,348 – 25,348
Insurance and other payables D.3.3 188 (21) 167
Deferred tax liability D.1.2.9 142 (142) –
Subordinated debt instruments D.3.4 1,388 234 1,622
Total Liabilities S.02.01 59,582 1,268 60,850
Excess of Assets over Liabilities/Equity 5,879 (1,504) 4,375
* 31 December 2022 comparatives have been restated following the Group’s adoption of IFRS 9 “Financial Instruments” and IFRS 17
“Insurance Contracts”.
D. Valuation for Solvency Purposes
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202333
Balance sheet: PIC
2023
31 December 2023
Section
reference
Solvency II
value
£m
Adjustment
£m
Statutory
Accounts
value
£m
Holdings in related undertakings D.1.2.2 445 (5) 440
Bonds D.1.2.3 35,371 – 35,371
Collective investments undertakings D.1.2.4 4,078 – 4,078
Derivative assets D.1.2.5 25,487 – 25,487
Total Investments 65,381 (5) 65,376
Loans and mortgages D.1.2.6 9,906 – 9,906
Reinsurance recoverables D.1.2.7 2,325 (4) 2,321
Other assets D.1.2.8 187 (187) –
Deferred tax asset D.1.2.9 – 317 317
Receivables D.1 . 2 .10 59 (27) 32
Cash and cash equivalents D.1.2.11 489 – 489
Total Assets S.02.01 78,347 94 78,441
Technical provisions D.2.1 38,742 2,464 41,206
Derivative liabilities D.3 .1 28,566 – 28,566
Financial liabilities other than debts owed to credit institutions D.3.2 2,264 – 2,264
Insurance and other payables D.3.3 174 (38) 136
Deferred tax liability D.1.2.9 380 (380) –
Subordinated debt instruments D.3.4 1,680 140 1,820
Total Liabilities S.02.01 71,806 2,186 73,992
Excess of Assets over Liabilities/Equity 6,541 (2,092) 4,449
31 December 2022
Section
reference
Solvency II
value
£m
Adjustment
£m
Statutory
Accounts
value
(restated*)
£m
Holdings in related undertakings D.1.2.1 308 (4) 304
Bonds D.1.2.3 30,864 30,864
Collective investments undertakings D.1.2.4 4,017 – 4,017
Derivative assets D.1.2.5 22,451 – 22,451
Total Investments 57,640 (4) 57,636
Loans and mortgages D.1.2.6 5,627 – 5,627
Reinsurance recoverables D.1.2.7 1,140 (480) 660
Other assets D.1.2.8 105 (103) 2
Deferred tax asset D.1.2.9 – 352 352
Receivables D.1 . 2 .10 15 (3) 12
Cash and cash equivalents D.1.2.11 902 – 902
Total Assets S.02.01 65,429 (238) 65,191
Technical provisions D.2.1 32,516 1,197 33,713
Derivative liabilities D.3 .1 25,348 – 25,348
Insurance and other payables D.3.3 202 (37) 165
Deferred tax liability D.1.2.9 142 (142) –
Subordinated debt instruments D.3.4 1,388 234 1,622
Total Liabilities S.02.01 59,596 1,252 60,848
Excess of Assets over Liabilities/Equity 5,833 (1,490) 4,343
* 31 December 2022 comparatives have been restated following the Group’s adoption of IFRS 9 “Financial Instruments” and IFRS 17
“Insurance Contracts”.
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202334
D.1. Assets
Consolidation approach
The PICG consolidated balance sheet has been prepared under the default accounting consolidation method. This differs
tothe IFRS consolidation method as follows:
Type of subsidiary Solvency II method IFRS method
Insurance undertakings, Insurance
holding companies and ancillary
servicecompanies
Full consolidation under Solvency II
valuation rules
Full consolidation under IFRS
valuationrules
Other undertakings (primarily
investment property vehicles)
Included within a single line ‘Holdings in
related undertakings’ under Solvency II
valuation rules
Full consolidation under IFRS valuation
rules if entity is controlled by PIC or
PICGor equity accounted in a single
linein the IFRS balance sheet
Where undertakings are fully consolidated, all of the consolidated entities’ intra-group balances and transactions are
eliminated in full.
Under IFRS, Investments in joint ventures that are managed at fair value as part of a portfolio of financial investments, and
are unrelated to the Group’s core insurance business, are classified as collective investment scheme financial investments.
Under Solvency II, they are classified as ‘Holdings in related undertakings’.
The presentation and valuation differences between the Solvency II and IFRS balance sheets are analysed below.
D.1.1 Asset recognition and derecognition (PIC and PICG)
A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial
assets are derecognised if the Group’s contractual rights to the cash flows from the financial assets expire, orifeither the
Group transfers the financial asset to another party without retaining control or substantially all risks andrewards of the asset
are transferred to another party. Regular purchases and sales of financial assets are accounted forat the trade date. Financial
liabilities are derecognised when the Group’s obligations specified in the contract expire or are discharged or cancelled. There
is no difference between IFRS and Solvency II in terms of recognition and derecognition of financial instruments.
D.1.2 Asset valuation basis
The fair values of investments quoted in an active market are based on their bid market prices. For unlisted securities and all
other financial assets for which there is no active market, the Group establishes fair value using appropriate valuation
techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially
the same, discounted cash flow analysis, counterparty and broker valuations and option pricing models. These assessments
are based largely on observable market data. If material differences in valuation arise these are described in the relevant
sections below.
D.1.2.1 Property plant and equipment
Property, plant and equipment on the Solvency II balance sheet is held in relation to right of use assets arising from leases
entered into by PSC. The Group’s leases consist of office buildings and office equipment required to enable it to carry out its
operations. Right of use assets are valued for Solvency II purposes on the same basis as IFRS, on the grounds of materiality.
Right of use assets are initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease
payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of restoration costs,
less any lease incentives received. A right of use asset is depreciated on a straight-line basis over the leaseterm and is regularly
reviewed for impairment.
Valuation difference in Group of £1 million in 2022 was in relation to intangible assets recognised under IFRS. Intangible
assetsare not permissible assets under Solvency II, giving rise to a valuation difference betweenthe SII basis and the
IFRSstatutory accounts.
Group
2023
£m
Company
2023
£m
Group
2022
£m
Company
2022
£m
Solvency II value 40 – 4 –
Valuation differences – – 1 –
Statutory Accounts value 40 – 5 –
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202335
D.1.2.2 Investment property/Holdings in related undertakings
The Group’s holdings in investment properties are not for occupation by the Group, but are held for rental income and capital
appreciation. All properties are located inthe United Kingdom and are held via the Group’s investment entities. BothPICand
PICG recognise these entities as holdings inrelated undertakings on the SII balance sheet. PIC also recognises these entities
as holdings in related undertakings onitsIFRS balance sheet, whereas PICG consolidates the entities’ assets and liabilities
into the IFRS balance sheet. Holdings in related undertakings are valued using the adjusted equity method which equates to
the net assets value on a Solvency II basis.
Investment properties are carried at fair value. In the early period of construction of an investment property, If there are
circumstances where fair value is not reliably measurable, the investment property is measured at construction cost until fair
value becomes reliably measurable. Construction cost is used as proxy for fair value on the basis of materiality.
Refer to D.4 for more details.
Group
2023
£m
Company
2023
£m
Group
2022
£m
Company
2022
£m
Solvency II value of holdings in related undertakings 445 445 308 308
Consolidation differences 223 – (60) –
Valuation differences (5) (5) (4) (4)
Statutory Accounts value of Investment properties (PICG)/Holdings in
related undertakings (PIC) 663 440 244 304
The consolidation difference of £223 million (2022: £(60) million) relates to the other net assets of the investment property
entities that are presented under other lines in the Statutory Accounts.
A valuation difference of £(5) million (2022: £(4) million) arises due to intra-group liabilities of investment entities being valued
excluding changes in own credit risk under Solvency II.
D.1.2.3 Bonds
Bonds on the SII balance sheet includes the Group’s and Company’s investments in government and corporate bonds,
private investments and collateralised securities. These are valued for Solvency II purposes on the same basis as the IFRS
financial statements.
The fair value of government and corporate bonds is determined by reference to their quoted bid price at the reporting date.
The fair values of the Group’s and the Company’s private debt are determined as the present value of future cash flows,
discounted at a rate based on yields for comparable quoted bonds. Further details of the valuation method are provided inD.4.
The Group’s and Company’s investments in collateralised securities are measured at fair value, determined by reference to
their quoted market price.
D.1.2.4 Collective investment undertakings
The fair value of collective investment undertakings is determined by reference to their quoted bid price at the reporting
date where available.
Fair values of unlisted collective investments are based on fund manager valuations which are derived from the fair value
ofthe underlying assets in the fund.
Group
2023
£m
Company
2023
£m
Group
2022
£m
Company
2022
£m
Solvency II value of collective investment undertakings 4,078 4,078 4,017 4,017
Consolidation differences 27 – 16 –
Statutory Accounts value 4,105 4,078 4,033 4,017
On a Solvency II basis, investments in subsidiaries that are not consolidated and presented as holdings in related
undertakings give rise to the consolidation difference within the Group.
D.1.2.5 Derivative assets
Derivative financial instruments are measured at fair value on both the SII balance sheet and the IFRS statutory balancesheet.
Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently
remeasured at their fair value. The fair value of foreign exchange forward contracts, futures and swaps is based on market
prices, where available. For swaps, market prices are calculated using discounted cash flow techniques based on adjusted
market data such as composite curves derived from a number of market counterparties.
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202336
D.1.2.6 Loans and mortgages
This asset class contains equity release mortgages, private investments and reverse repurchase agreements.
The fair value of equity release mortgages is determined on a mark-to-model basis. For more details see section D.4.3.
The fair value of private investments is estimated as the present value of future cash flows, discounted at a rate based on
yields for comparable quoted bonds, adjusted (where applicable) for illiquidity and idiosyncratic risk. The credit spreads used
to derive the discount rates for the private investments portfolio ranged from 0.0% to 6.5% (2022: 0.0% to 6.4%). Further details
of the valuation method are provided in D.4.
Fair value of reverse repurchase agreements is based on the discounted cash flows expected to be paid, using an
observable market interest rate.
Group
2023
£m
Company
2023
£m
Group
2022
£m
Company
2022
£m
Solvency II value 9,906 9,906 5,627 5,627
Consolidation differences (463) – (200) –
Statutory Accounts value 9,443 9,906 5,427 5,627
The consolidation differences within the Group in the above table relate to loan holdings in related undertakings that are
eliminated under IFRS consolidation methodology.
D.1.2.7 Reinsurance recoverables
As this asset is directly related to regulatory technical provisions, the valuation is discussed in the technical provisions section D.2.
Group &
Company
2023
£m
Group &
Company
2022
(restated*)
£m
Solvency II value 2,325 1,140
Valuation differences (10) (458)
Presentation differences 6 (22)
Statutory Accounts value 2,321 660
* 31 December 2022 comparatives have been restated following the Group’s adoption of IFRS 17 “Insurance Contracts”.
There are several differences in the approaches used by IFRS and Solvency II in calculating technical provisions, liabilities and
the associated reinsurance recoverables and assets. The primary differences relate to the inclusion of a risk margin under
Solvency II regulations whereas IFRS has a risk adjustment and Contractual Service Margin as well as differences in the
valuation rate of interest applied and expense assumptions. Further differences are due to the presentation of certain
reinsurance receivable and reinsurance payable balances in reinsurance recoverables under IFRS.
D.1.2.8 Other assets
This asset class contains prepayments.
Group
2023
£m
Company
2023
£m
Group
2022
£m
Company
2022
£m
Solvency II value 186 187 105 105
Valuation differences 10 – 6 –
Presentation differences (187) (187) (103) (103)
Statutory Accounts value 9 – 8 2
Insurance related prepayments of £187 million (2022: £103 million) are presented within technical provisions under IFRS.
Prepayments are carried at cost as proxy for fair value due to their short term nature. The valuation difference of £10 million
(2022: £6 million) within PICG relates tothe removal of the Group’s service company prepayments which are reported in IFRS,
but are written off under Solvency II.
D.1.2.9 Deferred tax asset and liability
Deferred tax is provided on temporary differences between the carrying amount of asset and liabilities for Solvency II
reporting purposes, and the amounts used for taxation purposes.
Group
2023
£m
Company
2023
£m
Group
2022
(restated*)
£m
Company
2022
(restated*)
£m
Solvency II value deferred tax asset 7 – 6 –
Solvency II value deferred tax liability (380) (380) (142) (142)
Valuation differences 695 697 493 494
Statutory Accounts value deferred tax assets 322 317 357 352
* 31 December 2022 comparatives have been restated following the Group’s adoption of IFRS 17 “Insurance Contracts”.
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202337
Deferred tax valuation differences arise primarily due to differences between the carrying value of technical provisions under
IFRS and Solvency II.
D.1.2.10 Receivables
Receivable assets are measured on a Solvency II basis at the values for which they could be exchanged between
knowledgeable willing parties in an arm’s length transaction. This is equivalent to the value for IFRS accounting purposes.
Group
2023
£m
Company
2023
£m
Group
2022
(restated*)
£m
Company
2022
(restated*)
£m
Solvency II value 63 59 14 15
Consolidation differences 9 – 68 –
Presentation differences (27) (27) (3) (3)
Statutory Accounts value 45 32 79 12
* 31 December 2022 comparatives for valuation difference and statutory value have been restated following the Group’s adoption of
IFRS 9 “Financial Instruments”.
On a Solvency II basis, investments in subsidiaries that are not consolidated and presented as holdings in related
undertakings, give rise to the consolidation difference within the Group of £9 million (2022: £68 million) in the above table.
Presentation differences arises with regard to SII reinsurance receivables because they are recognised within the reinsurance
recoverables under IFRS, but as insurance receivables under Solvency II.
D.1.2.11 Cash and cash equivalents
The fair value of cash and cash equivalents represents their cash value in current terms. All deposits are redeemable within
three months and consequently no discounting adjustment is made at period end.
Group
2023
£m
Company
2023
£m
Group
2022
£m
Company
2022
£m
Solvency II value 499 489 905 902
Consolidation differences 233 – 192 –
Statutory Accounts value 732 489 1,097 902
On a Solvency II basis, those investments in subsidiaries that are not consolidated and presented as holdings in related
undertakings give rise to the consolidation difference within the Group in the above table.
D.1.2.12 Own shares directly held
These assets are treated as a deduction from equity in the IFRS financial statements of PICG. For regulatory purposes, they
are held as an asset and are marked to model in accordance with Solvency II regulations, using an estimate of the valuation
of PICG as a whole. Also, in accordance with Solvency II regulations, the amounts are deducted from the available Own
Fundsfigure.
Group
2023
£m
Company
2023
£m
Group
2022
£m
Company
2022
£m
Solvency II value 31 – 20 –
Valuation differences (31) – (20) –
Statutory Accounts value – – – –
D.2 Technical provisions
PIC only writes one line of business, i.e. bulk annuities in relation to UK defined benefit pension schemes. The Company’s
insurance contracts are a mixture of ‘buy-in’ policies, where the policyholder is the pension scheme and the insured liabilities
cover defined benefits within the scheme, and ‘buyout’ policies, where the policyholder is an individual.
All the Company’s insurance liabilities represent contracts that provide immediate annuities for current pensioners and deferred
annuities for members who have not yet reached pensionable age. Annuities are payable for the life of the policyholder, and in
some cases a reversionary annuity is paid to the surviving spouse, or other dependants, after the death of the mainmember.
Annuities, in deferment and in payment, can be: level; subject to fixed increases; inflation linked; or a mixture of the three. In
many cases, the increases applied are also subject to defined caps and floors, also known as limited price indexation or LPI.
The insurance liabilities also include a limited number of member options, such as the option to commute part of the pension
for a tax-free cash lump sum on vesting, the option to transfer deferred benefits to another pension scheme and the option to
take early or late retirement. In these cases, the options are generally set on a basis which is broadly financially neutral to
theCompany. There are no other material options and guarantees such as guaranteed annuity options.
Further detail is provided on S.12.01 within Appendix B.
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202338
D.2.1 Technical provisions on regulatory solvency basis
The following table summarises the technical provisions of the Group and the Company as at 31 December 2023 on the
regulatory solvency basis. The equivalent figures for 31 December 2022 are also shown.
Group &
Company
2023
£m
Group &
Company
2022
£m
Best estimate liabilities
•
Liabilities gross of reinsurance 38,432 31,824
•
Value of reinsurance recoverables (2,325) (1,140)
•
Net-of-reinsurance liabilities 36,107 30,684
Risk margin (“RM”) 328 900
Transitional measures deduction (18) (208)
Total net technical provisions 36,417 31,376
Add back value of reinsurance recoverables 2,325 1,140
Total gross technical provisions 38,742 32,516
Technical provisions, before the transitional measures deduction, represent the value of policyholder obligations if these were
to be transferred to a third party in an arm’s length transaction at the valuation date. The technical provisions comprise a best
estimate liability, determined using a matching adjustment or volatility adjustment where appropriate, and a risk margin
reduced by the transitional measures deduction.
The total technical provisions, gross of reinsurance, as at 31 December 2023 were £38,742 million (2022: £32,516 million).
There are no additional technical provisions maintained by the Group outside PIC.
Group &
Company
2023
£m
Group &
Company
2022
(restated*)
£m
Solvency II value 38,742 32,516
Valuation differences 2,634 1,302
Presentation differences (170) (105)
Statutory Accounts value 41,206 33,713
* 31 December 2022 comparatives for valuation difference and statutory value have been restated following the Group’s adoption of
IFRS 17 “Insurance Contracts”.
There are several differences in the approaches used in calculating the IFRS 17 and Solvency II technical provisions and
liabilities. The primary differences relate to:
•
the inclusion of a risk adjustment and contractual service margin under IFRS 17 – these are not applicable under Solvency II;
•
the inclusion of a risk margin (net of TMTP) under Solvency II regulations – this is not applicable under IFRS 17; and
•
differences in the expense assumptions and in the valuation rate of interest applied.
These items are covered in more depth in section D.2.8 below.
D.2.2 Valuation methods and assumptions for the solvency valuation
The principal methods and assumptions used in the valuation of the technical provisions for solvency purposes are asfollows:
Valuation methodology for best estimate liabilities (“BEL”)
For the vast majority of the business, the best estimate liability is calculated as the present value of future annuity and other
benefit payments plus an allowance for future expenses. This calculation involves projecting each individual policy for
itsexpected natural lifetime and discounting the resultant cash flows to the valuation date at the valuation discount rate.
For a very small proportion of the best estimate liabilities, approximate methods are used which are appropriate to the
nature of the liabilities in question.
Valuation discount rate
The discount rate used is derived from the basic risk-free rate, which is based on the prescribed Solvency II swaps rates.
Forthe majority of the business in force, this is increased by use of a matching adjustment as described in section D.2.3.
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202339
Mortality and demographic assumptions
The base mortality assumptions as at 31 December 2023, inherent in the projected cash flows used in the valuation
ofinsurance contract liabilities, are set with reference to the S3 series of mortality tables published by the Continuous
MortalityInvestigation (“CMI”), a research body with strong links to the Institute and Faculty of Actuaries in the UK.
Adjustments are applied to the S3 mortality rates according to a number of factors including, but not limited to,
anindividual’s gender, age, pension amount, occupation and postcode. In addition, an adjustment is made to allow
fortheriskof anti-selection.
The assumption for future improvements to mortality is modelled using the CMI 2022 model, with adjustments.
Themodelisparameterised with a long-term improvement rate of 1.75% for both males and females.
Adjustments are applied according to a number of factors including, but not limited to, an individual’s gender, age,
pensionamount, occupation and postcode. In addition, an adjustment is made to allow for the risk of anti-selection.
Assumptions are also made in respect of the take-up rates on policyholder options, such as the option to take a pension
contribution lump sum payment on vesting and certain early retirement options. For policyholder options where the
observed take-up rates are low and/or the financial impact is broadly neutral, no assumptions are applied in the
actuarialvaluation.
In addition, other less material assumptions are required for items such as the age difference between main members
andspouses and proportions married, in cases where the relevant information is not available from the valuation data.
Inflation assumptions
Assumptions for expected future Retail Price Index (“RPI”) inflation are based on a curve derived from market prices
ofinflation-linked swap contracts. Assumptions for expected Consumer Price Index (“CPI”) inflation are based on
theRPIcurveless a stepped deduction. The projected liabilities for annuities linked to RPI or CPI use these curves.
The most common type of LPI-linked benefit is LPI(0,5), under which increases are capped at 5.0% and floored at 0.0%,
butarange of other types of LPI exist. These are not regarded as ‘options’ in the sense that neither the policyholder nor
theCompany can elect to change the benefit, but are simply a special form of indexation. However, an option-based
methodology is required to allow for the reserving and capital impacts of the caps and floors. PIC uses a mark-to-model
approach to derive appropriate inflation curves for each LPI type to allow for the inherent optionality, as there is currently
nodeep and liquid market in appropriate swap contracts.
Expense assumptions
The following items are factored into the calculation of the liabilities:
•
internal costs of maintaining the existing insurance contracts;
•
fees payable to third party administrators engaged to manage payments due under the in-force policies;
•
fees due to reinsurers;
•
investment management expenses; and
•
certain specific project costs.
These include an estimate of the impact of future inflation where this is applicable. No allowances are included for
expectedexpenses incurred by the Company in relation to the generation of new business.
Risk margin (unaudited)
The risk margin is determined as the amount in addition to best estimate liabilities that would be required by a hypothetical third
party (the “reference undertaking”) to take on the Company’s insurance obligations. This would provide an amount of eligible Own
Funds equal to the capital necessary to support those obligations over their future lifetime assuming that all risks considered to be
hedgeable had been eliminated.
The risk margin is calculated by estimating the solvency capital requirement in respect of risks considered to be non-hedgeable
(the “reference SCR”) of the reference undertaking in each future year over the period in which the in-force business runs off. A
cost-of-capital calculation is then performed using a prescribed rate applied to each future year’s estimated reference SCR, with
the results discounted at the basic risk-free rate. With effect from 31 December 2023, following changes in the UK’s application of
Solvency II regulation, the risk margin calculation has been amended so that a risk tapering (‘lambda’) factor is also applied to the
projection of the reference SCR and the prescribed rate used for the cost-of capital calculation has been reduced from 6.0% per
annum to 4.0% per annum. These changes in the Solvency II regulation reduced the risk margin by around two-thirds.
The principal drivers underlying the estimate of the undertaking’s reference SCR are insurance risk, counterparty credit risk
(with respect to reinsurance contracts and other material exposures), expense risk, and residual economic risk relating to
inflation volatility, specifically LPI and the basis risk between RPI and CPI, and certain operational risks. Insurance risk is
assessed by considering separately the risk of mis-estimation of base mortality rates, future mortality improvement rates
and other, less material influences on future demographic experience, and allowing for the mitigation afforded by existing
reinsurance arrangements.
The projection of the reference SCR over the lifetime of the business is carried out by approximate means allowing for the
expected changes in the size and relative impacts of the respective risk drivers as the in-force business continues to mature.
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202340
Transitional measures deduction on technical provisions (unaudited)
PIC uses a transitional measures deduction on technical provisions in its Solvency II balance sheet. The TMTP allows
companies to smooth the transition from the previous regulatory regime to the Solvency II approach, for example in having
to set up the risk margin. Prior to 31 December 2023, a restriction was applied such that the TMTP did not result in the overall
financial resources requirements (i.e. technical provisions and capital requirements) for all business under Solvency II being
less than that under Solvency I. This restriction is referred to as the Financial Resources Requirements (“FRR”) Test. In January
2024, the PRA confirmed that PIC does not need to perform the FRR Test in the formal recalculation of the TMTP as at
31 December 2023, or for any recalculations required until 31 December 2024, subject to certain conditions continuing to be
met. Therefore, the TMTP recalculated as at 31 December 2023 does not reflect the FRR Test. The TMTP is expected to
amortise to zero over a 16-year period starting from 1 January 2016. Since the start of Solvency II, there have been six
recalculations of the TMTP, four due to the biennial recalculation requirement (as at 31 December 2017, 31 December 2019,
31 December 2021 and 31 December 2023), and two (as at 31 December 2020 and 30 June 2022) reflecting particular
economic circumstances and the impact on PIC’s risk profile.
Uncertainty in the valuation of technical provisions
The best estimate liabilities are calculated using data and assumptions which reflect the Company’s best estimate of the
position as at the valuation date. However, there are a number of uncertainties in the valuation. In particular:
•
A key assumption is the rate of future policyholder mortality, which is expressed as a combination of a base mortality rate
(reflecting the current observed experience) and a rate of future mortality improvements. Changes in these assumptions
could have a material impact on the BEL calculation.
•
For deferred annuity policyholders, there is uncertainty about the extent to which certain options will be taken up prior
toor at retirement. The most important option is the commutation of part of the pension benefit for a lump sum. While
thistake-up has been reasonably stable in the past, there remains uncertainty as to whether future take-up rates will
beasexpected.
•
The discount rate used in the valuation is determined allowing implicitly for an assumed level of future defaults arising in
relation to the supporting assets. The allowance, which is set having regard to factors stipulated by the PRA, may not be
agood representation of the actual level of defaults arising in practice, and variations in experience (positive or negative)
will arise as a result.
•
A significant proportion of the annuity benefits escalate in line with defined inflation indices. A range of indices applies,
including CPI and LPI linkages, and assumptions have to be made as to how these indices will evolve going forward.
•
The expenses allowed for in the valuation are based on the Company’s view of its likely expense outgoings required to
managethe in-force business. Variations in these expense levels and in the impact of inflation of these expense levels
alsointroduce uncertainty.
In addition, projection of the run-off over time of the reference SCR used in the risk margin calculation requires a significant
degree of judgement, given the length and nature of PIC’s annuity liability cash flows.
D.2.3 Use of matching adjustment
In December 2015, PIC was granted permission by the PRA to apply a matching adjustment in relation to the value of its
insurance liabilities. Following an update to the matching adjustment application in 2020, PIC made another application
inJune 2022, which was approved by the PRA in October 2022.
As at 31 December 2023, all of the business in force (aside from an immaterial net of reinsurance amount of Euro-denominated
liabilities and one small scheme awaiting transfer to the matching adjustment fund) was eligible for use of the matching
adjustment, with over 99.9% of the net modelled business held within the matching adjustment fund and valued using the
matching adjustment. A small percentage of the liabilities, amounting to less than 0.1% of the total net modelled liabilities was
held outside the matching adjustment fund. No business was valued using the volatility adjustment.
The assets used comprise a mixture of UK government bonds and UK and overseas corporate bonds, together with a relatively
small amount of cash and cash equivalents, loans and mortgages (including structured equity release mortgages) and property
assets. In addition, the assets include derivatives designed to transform overseas cash flows to sterling, and to transform
floating rate cash flows to fixed rates. All of the assets, once transformed through the use of appropriate derivatives,
meetthe requirements of Article 77b(1) of the Solvency II Directive.
PIC holds all assets and liabilities for which the matching adjustment applies in a clearly ring-fenced fund, the matching
adjustment fund (“MA Fund”). The matching adjustment calculation relies on close matching of the asset cash flows and the
liability cash flows in this fund. In making this assessment, the liability cash flows are the gross-of-reinsurance best estimate
liability cash flows for the business taken from the Company’s liability projection model. The matching asset cash flows are
the aggregate of the cash flows on each individual asset adjusted for the default component of the ‘fundamental spread’
toallow for the credit risks retained by the Company plus the projected cash flows in respect of reinsurance recoverables
calculated using the Company’s liability projection model.
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202341
The initial matching adjustment is calculated as the difference between two annual effective internal rates of return, i.e.
(a)the flat discount rate which, if applied to the gross liability cash flows, would equate these to the aggregate value of the
matching assets; and (b) the flat rate which, if applied to the gross liability cash flows, would equate these to the value of
those liability cash flows calculated using the basic risk-free rate curve. In making this assessment, the value of non-market
assets is determined using models developed by the Company and the value of reinsurance recoverables is determined
atthe basic risk-free rate.
The matching adjustment is then further adjusted for the cost-of-downgrade component of the fundamental spread.
The assets in the MA Fund used in the matching adjustment calculation can be summarised as follows:
Group &
Company
2023
£m
Group &
Company
2022
£m
Government bonds 14,902 11,515
Corporate bonds 17,643 16,809
Derivative assets 6,773 5,099
Loans and mortgages 9,066 5,289
Collateralised securities 219 219
Collective investment undertakings 395 929
Cash and cash equivalents 289 571
Total assets 49,287 40,431
Derivative liabilities (10,844) (8,316)
Repurchase agreement liabilities (1,141) –
Net value of assets 37,302 32,115
PIC maintains close control of the asset and liability cash flow matching in order to ensure that at all times it can meet the
requirements of Article 77(b)(1)(c) of the Solvency II Directive. In addition, PIC monitors the asset and liability matching of the
MA Fund against the three specific tests identified in regulatory requirements. As at 31 December 2023, all of the test results
were within the required limits (as was the case as at 31 December 2022).
The impact of not applying the matching adjustment but instead valuing the liabilities using the basic risk-free curve would
have been as follows. Note that under this scenario the volatility adjustment (“VA”) is assumed not to apply to any liabilities
(as was the case as at 31 December 2022) and it is assumed that there is no change to the TMTP. The figures presented
include the effect of removing the matching adjustment on the credit taken for the loss absorbing capacity of deferred
taxesin theSCR.
Impact of matching adjustment
31 December 2023
Including
matching
adjustment
£m
Excluding
matching
adjustment
£m
Impact of not
applying
matching
adjustment
£m
Technical Provisions (gross of reinsurance) 38,742 45,741 6,999
Basic Own Funds 8,210 2,961 (5,249)
Eligible Own Funds to meet SCR 8,210 2,517 (5,693)
SCR 3,890 9,241 5,351
Excess assets over SCR 4,320 (6,724) (11,044)
Eligible Own Funds to meet MCR 6,725 (73) (6,798)
MCR 973 2,311 1,338
Excess assets over MCR 5,752 (2,384) (8,136)
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202342
31 December 2022
Including
matching
adjustment
£m
Excluding
matching
adjustment
£m
Impact of not
applying
matching
adjustment
£m
Technical Provisions (gross of reinsurance) 32,516 38,760 6,244
Basic Own Funds 7,210 2,527 (4,683)
Eligible Own Funds to meet SCR 7,210 2,218 (4,992)
SCR 3,19 9 7,423 4,224
Excess assets over SCR 4,011 (5,205) (9,216)
Eligible Own Funds to meet MCR 5,982 89 (5,893)
MCR 800 1,856 1,056
Excess assets over MCR 5,182 (1,767) (6,949)
D.2.4 Use of volatility adjustment
In December 2015, PIC was granted permission by the PRA to apply a volatility adjustment in relation to the value
ofitsinsurance liabilities.
As detailed in section D.2.3, as at 31 December 2023, less than 0.1% (2022: 0.1%) of the total net modelled liabilities were held
outside the MA Fund. These were not eligible for valuation using the VA.
The impact of not applying the VA to the liabilities is therefore £nil as at 31 December 2023 (£nil as at 31 December 2022).
Impact of volatility adjustment
31 December 2023
Including
VA
£m
Excluding
VA
£m
Impact of not
applying VA
£m
Technical Provisions (gross of reinsurance) 38,742 38,742 –
Basic Own Funds 8,210 8,210 –
Eligible Own Funds to meet SCR 8,210 8,210 –
SCR 3,890 3,890 –
Excess assets over SCR 4,320 4,320 –
Eligible Own Funds to meet MCR 6,725 6,725 –
MCR 973 973 –
Excess assets over MCR 5,752 5,752 –
31 December 2022
Including
VA
£m
Excluding
VA
£m
Impact of not
applying VA
£m
Technical Provisions (gross of reinsurance) 32,516 32,516 –
Basic Own Funds 7,210 7,210 –
Eligible Own Funds to meet SCR 7,210 7,210 –
SCR 3,19 9 3,19 9 –
Excess assets over SCR 4,011 4,011 –
Eligible Own Funds to meet MCR 5,982 5,982 –
MCR 800 800 –
Excess assets over MCR 5,182 5,182 –
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202343
D.2.5 Use of transitional measures adjustment (unaudited)
PIC does not apply any adjustment to the risk-free interest rate term structure referred to in Article 308c of Directive
2009/138/EC.
In December 2015, PIC was granted permission to apply a transitional measure on technical provisions. PIC calculated the TMTP
as at 31 December 2015 as £1,355 million. As noted in section D.2.2, PIC has been granted permission to recalculate the TMTP on
six occasions, most recently as at 31 December 2023. Allowing for this recalculation, the TMTP as at 31 December 2023 is
£18 million (2022: £208 million).
The impact of not applying the TMTP would have been as follows. Under this scenario, the MA is assumed to continue toapply.
Impact of TMTP
31 December 2023
Including
TMTP
£m
Excluding
TMTP
£m
Impact of
excluding
TMTP
£m
Technical provisions (gross of reinsurance) 38,742 38,760 18
Basic Own Funds 8,210 8,196 (14)
Eligible Own Funds available to meet SCR 8,210 8,196 (14)
SCR 3,890 3,894 4
Excess assets over SCR 4,320 4,302 (18)
Solvency II ratio based on SCR 211% 210% (1%)
Eligible Own Funds available to meet MCR 6,725 6,711 (14)
MCR 973 974 1
Excess assets over MCR 5,752 5,737 (15)
Solvency II ratio based on MCR 691% 689% (2%)
31 December 2022
Including
TMTP
£m
Excluding
TMTP
£m
Impact of
excluding
TMTP
£m
Technical provisions (gross of reinsurance) 32,516 32,724 208
Basic Own Funds 7,210 7,054 (156)
Eligible Own Funds available to meet SCR 7,210 7,054 (156)
SCR 3,19 9 3,251 52
Excess assets 4,011 3,803 (208)
Solvency II ratio based on SCR 225% 217% (8%)
Eligible Own Funds available to meet MCR 5,982 5,830 (152)
MCR 800 813 13
Excess assets 5,182 5,017 (165)
Solvency II ratio based on MCR 748% 717% (31%)
D.2.6 Reinsurance
PIC seeks to limit its exposure to longevity risk by entering into reinsurance arrangements with third party reinsurers. As at
31 December 2023, approximately 85% (as measured by best estimate benefit liabilities) of the longevity risk was reinsured
(2022: 87%).
PIC has entered into two types of reinsurance arrangements:
•
Longevity swap arrangements, whereby PIC pays the reinsurer a fixed agreed stream of annuity benefit cash flows,
together with a defined reinsurance fee, and the reinsurer pays PIC annuity benefits based on the actual mortality
experience of the lives in question. All of the longevity swap arrangements are similar in nature. PIC has entered into these
arrangements with 11 reinsurers. The total net value of the longevity swap arrangements, excluding the fees payable to the
reinsurers, was £(1,183) million as at 31 December 2023 (2022: £(756) million).
•
Quota share (or ‘funded’) reinsurance arrangements whereby in return for an upfront single premium, PIC will receive from
the reinsurer a percentage share of a defined subset of the annuity liabilities paid out in future. PIC has entered into these
arrangements with three reinsurers. The total value of the quota share reinsurance arrangements was £3,550 million as at
31 December 2023 (2022: £1,908 million).
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202344
The value of the amounts recoverable from reinsurance is calculated using the same projection model and assumptions
(other than the discount rate) that are used for the gross best estimate liabilities, by projecting both the payments dueto
reinsurers and the payments expected from reinsurers, in each case calculated on a policy-by-policy basis. Thevalueof
reinsurance recoverables is calculated by discounting the projected payments at the basic risk-freerate.
The value of the reinsurance recoverables is reduced by a counterparty default adjustment of £52 million (2022: £21 million),
which is calculated by applying an assumed probability of default to an estimated loss given default (for each reinsurer),
allowing for an assumed rate of recovery, measured over the lifetime of the reinsurance contracts in question.
In addition, there is a recoverable amount of £9 million (2022: £10 million) in respect of a small tranche of annuities where PIC
has undertaken inwards reinsurance.
Therefore, the total value of the reinsurance recoverables asset is £2,325 million (2022: £1,140 million). PIC does not have any
arrangements with special purpose vehicles in respect of its gross or net liabilities.
D.2.7 Review of valuation methods and assumptions
PIC regularly reviews its valuation assumptions and methodology for its technical provisions to ensure that they are fit for
purpose and meet the requirements of Section 3.1 of Chapter III of the Solvency II Delegated Acts.
For year end 2023, PIC updated several valuation assumptions. The most material changes related to assumptions for
policyholder longevity, the proportion of lives having an eligible second live on death, cash commutation take-up rates,
expense assumptions (including project costs), and the modelling of inflation (including LPI). In addition, the valuation
assumptions were updated to reflect current market expectations of future interest and inflation rates, and to reflect
changes to the prescribed fundamental spread assumptions underlying the derivation of the matching adjustment.
PIC also updated the methodology used to calculate its risk margin, adopting changes to the prescribed cost of capital and
the addition of the new ‘lambda’ parameter, as per the statutory instrument published by HM Treasury and laid before
Parliament on 8 December 2023.
D.2.8 Valuation methods and assumptions for the financial statements
Apart from the valuation discount rate and expenses, the methods and assumptions used to estimate the present value of
future cash flows for the purposes of the new IFRS 17 financial statements are derived from the same best estimate
assumptions that are used in the valuation for solvency purposes. Uncertainty about the amount and timing of the cash
flows from non-financial risk is covered by the Risk Adjustment, which replaces the prudential margins used for those risks
under previous IFRS 4 rules. This is calculated using a ‘value at risk’ approach to represent the probability (set at the 85th
percentile) that the fulfilment cash flows could increase by the risk adjustment over the next 12 months. For the purpose of
the financial statements, the contractual service margin represents unearned profits that the Company expects to earn as it
provides services over the lifetime of the in-force business, and is valued using market conditions at contract inception. These
initial market conditions are used to calculate subsequent updates to the CSM resulting from changes in fulfilment cash flows
related to future service. PIC is satisfied that the basis used meets the relevant requirements of IFRS 17.
The valuation discount rate has been set by considering the yield on a portfolio of assets (a “reference portfolio”) that reflects the
characteristics of the liabilities. The yield is then adjusted to remove the impact of credit risk and any remaining features that are
not relevant to the liabilities using a “top down” approach. The assets that PIC holds in the MA Fund, as well as assets expected to
be used to meet liability cash flows in future, represent a reasonable reference portfolio for the IFRS 17 discount rate.
The credit risk adjustment in the valuation discount rate has been set with reference to historical average default rates and
allows for expected recovery rates in the event of default.
Expenses for the purpose of valuing fulfilment cash flows in the financial statements are restricted to those expenses that are
directly attributable in selling and fulfilling obligations under insurance contracts only, including performing investment activity.
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202345
The following table shows the transition from the technical provisions used in Own Funds under Solvency II to the insurance
contract liabilities used within IFRS net assets presented in the Company’s financial statements. The equivalent figures as at
31 December 2022 are shown for comparison.
Reconciliation between Solvency II and IFRS insurance contract liabilities
Group &
Company
2023
£m
Group &
Company
2022
(restated*)
£m
Solvency II technical provisions (gross of reinsurance) 38,742 32,516
Less:
– Value of best estimate reinsurance recoverables on SII basis (2,325) (1,140)
Solvency II technical provisions (net of reinsurance) 36,417 31,376
Less:
– Risk margin (328) (900)
– Transitional measures deduction 18 208
Solvency II best estimate liability (net of reinsurance) 36,107 30,684
Add:
– Impact of valuation discount rate (net of reinsurance) (110) (156)
– Impact of expenses and other reserving differences (net of reinsurance) (384) (246)
– Deferred acquisition costs – (13)
– Other insurance and reinsurance net receivables and payables (177) (68)
– IFRS estimates of present value of future cash flows (reinsurance) 572 (319)
IFRS estimates of present value of future cash flows (gross of reinsurance) 36,008 29,882
Add:
– Gross risk adjustment 1,228 1,069
– Gross contractual service margin 3,970 2 ,762
IFRS insurance contract liabilities (gross of reinsurance) 41,206 33,713
* 31 December 2022 comparatives for valuation difference and statutory value have been restated following the Group’s adoption of
IFRS 17 “Insurance Contracts”.
D.3 Other liabilities
Other liabilities at 31 December reflect derivative liabilities, financial liabilities, deferred tax and accounting accruals
andcreditors.
Other than the liabilities noted below, other liabilities are valued at fair value for the purposes of solvency rules, which is
equivalent tothe IFRS values in the Group’s and Company’s financial statements. There are no significant estimates or
judgements inthe valuation of these liabilities.
D.3.1 Derivative liabilities
Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently
remeasured at their fair value. The fair value of foreign exchange forward contracts, futures and swaps are based on market
prices, where available. For swaps, market prices are calculated using discounted cash flow techniques based on adjusted
market data such as composite curves derived from a number of market counterparties. Whilst derivative contracts may
notbe readily tradeable, the valuations are based on market observable inputs. The value of overall derivative assets and
liabilities is the same under IFRS asunderSolvency II.
D.3.2 Financial liabilities other than debts owed to credit institutions
This represents repurchase agreements and cash collateral liabilities. Repurchase agreements are valued based on the
discounted cash flows expected to be paid, using an observable market interest rate. Cash collateral relates to collateral
pledged on derivative contracts.
D.3.3 Insurance and other payables
This represents amounts payable, at fair value, relating to sundry business creditors and accruals, current taxation payments
due and reinsurance fees payable. These items are payable within 12 months. Due to the short timescales, no discounting
has been applied. Obligations under funding agreements are removed from regulatory values as the full value of the funding
amount is subject to SII regulations.
Also included within insurance and other payables is the Group’s lease liability. Under IFRS, a lease liability is initially measured
as the value of expected future lease payments, discounted using the Group’s incremental borrowing rate, and is subsequently
measured at amortised cost using the effective interest method. Lease liabilities for Solvency II are valued in line with IFRSon
the grounds of materiality. Further information on lease arrangements is disclosed in D.3.5.
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202346
Group
2023
£m
Company
2023
£m
Group
2022
£m
Company
2022
£m
Solvency II value 223 174 188 202
Consolidation differences 29 – 16 –
Presentation differences (38) (38) (37) (37)
Statutory Accounts value 214 136 167 165
On a Solvency II basis, those investments in subsidiaries that are not consolidated and presented as holdings in related
undertakings give rise to the consolidation difference within the Group of £29 million (2022: £16 million) in the above table.
Presentation differences are due to insurance payables being presented under technical provisions and reinsurance
payables within reinsurance recoverables under IFRS.
D.3.4 Subordinated debt instruments
For regulatory purposes, the subordinated debt instruments issued by the Company are valued in accordance with Article 75
of Directive 2009/138/EC, making no adjustment to take account of the own credit standing of the Company. This differs from
the valuation used for IFRS accounting purposes, where the subordinated debt instruments are valued at amortised cost.
In addition, the subordinated debt instruments are treated as liabilities for the purposes of IFRS accounting. Whilst for the
purposes of regulatory accounting they are shown on the balance sheet (S.02.01) within liabilities, they form a part of the
Own Funds of the Company (S.23.01) and the Group (S.23.01).
Further detail on the subordinated debt instruments, including the issue amounts and the maturity dates, is provided in
section E.1.4.
Group &
Company
2023
£m
Group &
Company
2022
£m
Solvency II value 1,680 1,388
Valuation differences 140 234
Statutory Accounts value 1,820 1,622
The valuation differences arise because the subordinated debt is measured at amortised cost for IFRS purposes and at
fairvalue under Solvency II. Fair value is calculated by discounting projected cash flows at the prevailing risk-free rate and
theCompany’s credit spread at inception.
Restricted Tier 1 notes (included in Own Funds)
In 2019, PIC issued £450 million of new RT1 loan notes with a fixed coupon of 7.375% paid semi-annually in arrears beginning
on25 January 2020. The notes are perpetual with the first call date in 2029 at the discretion of the issuer. The interest rate is
reseton 25 July 2029 and every five years thereafter. The RT1 notes are treated as equity capital and interest payments
arising are recognised in equity upon payment under IFRS, and as Restricted Tier 1 Own Funds for Solvency II purposes.
Adeduction is made in the valuation of Own Funds available to take account of projected foreseeable dividends in
respectof the RT1 notes. At 31 December 2023 this value was £11 million (2022: £11 million).
D.3.5 Leases and contingent liabilities
During the year, PIC exercised an option to terminate an existing office lease in 2024 and has also entered into a 15-year lease
for a new office building, commencing in December 2023. The new lease includes an option to extend for a period of five years
as well as an option to terminate after ten years. The right of use asset and lease liability have been calculated on the basis
that the lease will terminate in December 2033, as the Group is not reasonably certain that the lease period will extend
beyondthispoint.
At 31 December 2023, the Group recognised a right of use asset of £40 million (2022: £4 million) and a corresponding lease
liability of £40 million (2022: £9 million).
The Group does not have any material liabilities in respect of contingent liabilities.
D.3.6 Employee benefits
The Company pays expenses to a service company owned by the Group holding company, which funds employee benefits.
There are no defined benefit obligations in connection with any past or present employees.
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202347
D.4. Alternative methods for valuation
The Group and the Company use alternative valuation methods, as defined in the Solvency II regulations, to determine
thefair values of certain investments as explained in section D.1. Given the methodology used below is the same as the
oneused to value the investments for IFRS purposes, no differences arise between IFRS and Solvency II values.
The details of these alternative valuation methods are provided below; the values shown represent the fair value for the
assets where alternative methods for valuation have been used.
D.4.1 Property (other than for own use) – £663 million PIC and PICG (2022: £244 million PIC and PICG)
D.4.1.1 Investment property
Investment properties are held indirectly through investment entities and included in the Solvency II balance sheet within
holdings in related undertakings line on an adjusted equity basis. The investment entities are fully consolidated in the PICG
statutory balance sheet, with Investment properties presented as a separate line item. In the PIC plc individual statutory
balance sheet, Investment properties are included within holdings in related undertakings. Fair value of the properties is
determined annually by professional external valuers using the Royal Institution of Chartered Surveyors guidelines. The RICS
guidelines apply separate assumptions to the value of the land, buildings and tenancy associated with each property.
Fair values generally are determined based on a valuation approach which applies investment yield to the rental income.
The investment yield is derived from available transactional evidence of similar rental units considering the property-specific
factors such as its location, the unexpired term, current rent, size of the unit and other factors. In some circumstances, a
combination of valuation approaches is used for a single property, applying a discounted cash flow approach for thelong-
term lease element (where the long-term cash flows are with a single lessee counterparty, similar in nature to a privateloan),
with the residual value of the property at the end of the lease determined using an investment yield approach.
The external valuers also consider changes in market conditions and the status of the tenants in determining whether a full
physical inspection is required each year. Irrespective of such considerations, each property is fully inspected periodically
aspart of the valuation process. The cost of additions and renovations is capitalised and considered when estimating
fairvalue.
D.4.1.2 Leasehold assets and leasehold liabilities
For Solvency II values, IFRS carrying values are used as a proxy for the fair value on the grounds of materiality. A right of use
asset and a lease liability are recognised at the lease commencement date. Right of use assets are initially measured at cost,
which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement
date, plus any initial direct costs incurred and an estimate of restoration costs, less any lease incentives received. A right of
use asset is depreciated on a straight-line basis over the shorter of the lease term and the useful life of the asset.
A lease liability is initially measured as the value of expected future lease payments, discounted using the Group’s incremental
borrowing rate. The incremental borrowing rate is determined using the yield on the Group’s external borrowing, adjusted to
reflect the terms of the lease. Lease liabilities are measured at amortised cost using the effective interest method.
D.4.2 Unlisted bonds (direct investment) – £8,353 million PIC and PICG (2022: £6,561 million PIC and PICG)
Under both IFRS and Solvency II, the fair value of unlisted bonds is determined using discounted cash flow techniques
onamark-to-model basis.The models consider the anticipated future cash flows expected to be derived from the assets
and discount themtoreflect the timing of payments and the likelihood of default given the relative seniority of the holding
inorder ofrepayment. The discount rate is derived from yields for comparable quoted bonds, adjusted, where applicable,
forilliquidity and idiosyncraticrisk.
D.4.3 Equity release mortgages – £1,124 million PIC and PICG (2022: £1,013 million PIC and PICG)
The fair value of equity release mortgages is determined on a mark-to-model basis. The fair value of each individual mortgage
is calculated using a discounted cash flow model, in which the future cash flows are projected using a number of
unobservable inputs including mortality, morbidity, interest rates and property prices. These cash flows are discounted at a
rate equivalent to the risk-free rate based on the swap curve plus an equivalent spread. The equivalent spread is calculated
separately for each mortgage at the date of the initial advance for that mortgage.
Under the terms of the equity release mortgages, a guarantee is provided that when a property is sold on the event of death
ormove into long-term care and the mortgage repaid, the amount repayable will be capped at the sale value of the underlying
property after deducting reasonable costs of selling the property. The value of the ‘No Negative Equity Guarantee’ has been
calculated using option pricing techniques in which an explicit house price growth assumption is used.
These assets are included in the loans and mortgages section of the S.02.01 balance sheet presented in Appendix B.
D.4.4 Own shares held directly – PICG £31 million (2022: £20 million)
This is determined using a modelled valuation of the Group, determined with the assistance of third party
valuationspecialists.
D.5 Any other information
There is no other material information to disclose regarding the valuation of assets and liabilities for solvency purposes.
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202348
E.1 Own Funds
E.1.1 Objectives, policies and processes
The objectives, policies and processes employed by the Group and Company to manage its Own Funds are set out in
itsCapital Management Policy, which is approved by the Company’s Board.
As a part of this, the Board ensures that a Medium Term Capital Plan is prepared on an annual basis for approval as
partofthe overall business planning cycle. The Medium Term Capital Plan covers at least a five-year period, and includes
consideration of the need for further Own Funds, the type of Own Funds, repayment of any Own Funds and dividend and
distribution policy.
The Company’s regulatory Solvency II ratio (measured as its eligible Own Funds divided by its Solvency Capital Requirement)
is a key metric in the management of the financial position of the Company and the Group.
Group Company
2023 2022 2023 2022
Own Funds £m 8,221 7,236 8,210 7,210
SCR £m 3,890 3,199 3,890 3,19 9
Solvency II surplus £m 4,331 4,037 4,320 4,011
Solvency II ratio % 211% 226% 211% 225%
The Board has a risk appetite limit and tolerance for the Company’s solvency level, and monitors this regularly. During times of
market volatility or stress, the regularity of these meetings is increased. If the solvency ratio is above our risk appetite and within
our solvency tolerances, no formal action is required. However, if the solvency ratio moves out of our approved tolerances then
the Board is notified and a range of actions is available to return the business to within tolerances; these actions will vary
depending on the circumstances. As our Solvency II ratio gets closer to our minimum risk appetite we would expect the
significance of the management actions taken to increase.
As a part of its day-to-day management of the Company’s solvency position, management employ solvency monitoring
techniques and measurements which are run at a minimum weekly, or more often where required. Management are also
ableto employ various techniques to manage its capital and solvency, including (but not limited to):
•
managing the type and volume of new business written;
•
reinsurance of existing business;
•
risk mitigation techniques;
•
hedging strategies to manage key exposures such as credit risk, interest rate risk or inflation risk;
•
asset management strategy; and
•
seeking further external debt or equity capital.
The Group’s dividend policy is to retain sufficient capital to invest in future growth opportunities of the UK pension risk
transfer market, whilst paying regular dividends to shareholders, based on the current and future projected capital position
of the business. The implications for solvency, leverage and liquidity are all considered when considering the appropriateness
of dividend payments.
E. Capital Management
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202349
E.1.2 Structure of basic Own Funds by tier
Further information is available at S.23.01.
The amount of Own Funds of the Group and Company classified by tier is:
2023
Group Company
Tier 1
£m
Tier 2
£m
Tier 3
£m
Total
£m
Tier 1
£m
Tier 2
£m
Tier 3
£m
Total
£m
Ordinary share capital 2 – – 2 1,226 – – 1,226
Share premium account 873 – – 873 524 – – 524
Reconciliation reserve 5,222 – – 5,222 4,336 – – 4,336
Restricted Tier 1 debt 444 – – 444 444 – – 444
Subordinated liabilities – 1,680 – 1,680 – 1,680 – 1,680
Amount of basic Own Funds available
and eligible to cover SCR 6,541 1,680 – 8,221 6,530 1,680 – 8,210
Eligibility deduction in Tier 2 Own
Funds – (1,485) – (1,485) – (1,485) – (1,485)
Amount of basic Own Funds eligible
tocover MCR 6,541 195 – 6,736 6,530 195 – 6,725
2022
Group Company
Tier 1
£m
Tier 2
£m
Tier 3
£m
Total
£m
Tier 1
£m
Tier 2
£m
Tier 3
£m
Total
£m
Ordinary share capital 2 – – 2 1,226 – – 1,226
Share premium account 873 – – 873 524 – – 524
Reconciliation reserve 4,529 – – 4,529 3,628 – – 3,628
Restricted Tier 1 debt 444 – – 444 444 – – 444
Subordinated liabilities – 1,388 – 1,388 – 1,388 – 1,388
Amount of basic Own Funds available
and eligible to cover SCR 5,848 1,388 – 7,236 5,822 1,388 – 7,210
Eligibility deduction in Tier 2 Own
Funds – (1,228) – (1,228) – (1,228) – (1,228)
Amount of basic Own Funds eligible
tocover MCR 5,848 160 – 6,008 5,822 160 – 5,982
Tier 1 notes
The Company’s and the Group’s Tier 1 capital consists of £450 million, 7.375% reset perpetual Restricted Tier 1 contingent
convertible notes issued on 25 July 2019. The notes are callable on25 July 2029 (the first call date) and every 5 years after
thefirst call date. If not called, the coupon is reset at a fixed rate ofthe prevailing five-year benchmark gilt yield plus 6.658%
onthe first call date and on each fifth anniversary of the first call date thereafter. The notes are perpetual securities with
nofixed maturity date. Optional cancellation of coupon payments isat the discretion of PIC and mandatory cancellation
isupon the occurrence of certain conditions. Upon the occurrence ofcertain trigger events, the notes are irrevocably
converted into ordinary shares at the prevailing conversion price.
The issue is treated as equity under IFRS reporting. The interest payments are recognised in equity upon payment as dividends.
Under Solvency II, the notes are classified as RT1 Own Funds. Foreseeable coupon payments are deducted in calculating the
eligible Own Funds amount.
Tier 2 capital
The notes represent direct, unsecured and subordinated obligations of the Company, and are classified as qualifying dated
Tier2 securities for the purposes of regulatory capital requirements.
The Tier 2 instruments are valued in accordance with Article 75 of the Solvency II Directive, being fair value, excluding changes
in own credit risk, and therefore at a different value than that used in the Company’s IFRS financial statements. Increase in the
risk-free rate in the period, together with issue of £500 million Tier 2 notes, offset by a repurchase of £300 million of notes, led to
an increase in the value of the subordinated debt of £292 million (2022: decrease £220 million).
E. Capital Management continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202350
The Company and Group’s Tier 2 capital
Issue Date
Issue amount
£m
% of
par value
Coupon
%
Redemption
date
Solvency
II value
2023
£m
2022
£m
03/07/14 300* 9 9.107 6.5 03/07/24 207 302
23/11/16 250* 98.916 8.0 23/11/26 45 228
20/09/18 350 99.693 5.625 20/09/30 322 308
07/05/20 300 99.554 4.625 07/05/31 259 246
21/10/20 400 9 9.1 29 3.625 21/10/32 321 304
13/11/23 500 99.688 8.0 13/11/33 526 –
Total Tier 2 capital 1,680 1,388
* The Solvency II values of loan notes maturing in 2024 and 2026 have reduced to £207 million and £45 million respectively following their
partial redemption. Par amounts decreased to £203m and £47m respectively.
There are no items of ancillary Own Funds at 31 December 2023 (2022: nil).
E.1.3 Reconciliation of opening and closing Own Funds
E.1.3.1 Reconciliation of opening and closing Own Funds: PICG
2023
Tier 1 Tier 2
Total
£m
Share
capital
£m
Share
premium
£m
Reconciliation
reserve
£m
Tier 1
Restricted
capital
£m
Subordinated
Debt
£m
At start of year 2 873 4,529 444 1,388 7,236
Issued in year – – – – 526 526
Redeemed – – – – (300) (300)
Movements in year – – 693 – 66 759
At end of year 2 873 5,222 444 1,680 8,221
2022
Tier 1 Tier 2
Total
£m
Share
capital
£m
Share
premium
£m
Reconciliation
reserve
£m
Tier 1
Restricted
capital
£m
Subordinated
debt
£m
At start of year 2 873 3,772 444 1,608 6,699
Movements in year – – 757 – (220) 537
At end of year 2 873 4,529 444 1,388 7,236
There was no additional share capital raised during the year (2022: no additional share capital raised during the year).
£500 million of Tier 2 notes were issued and £300 million repurchased in 2023 (2022: no subordinated debt raised or
repurchased during the year).
Further analysis of the reconciliation reserve is set out in section E.1.6.
E. Capital Management continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202351
E.1.3.2 Reconciliation of opening and closing Own Funds: PIC
2023
Tier 1 Tier 2
Total
£m
Share
capital
£m
Share
premium
£m
Reconciliation
reserve
£m
Tier 1
Restricted
capital
£m
Subordinated
debt
£m
At start of year 1,226 524 3,628 444 1,388 7,210
Issued in year – – – – 526 526
Redeemed – – – – (300) (300)
Movements in year – – 708 – 66 774
At end of year 1,226 524 4,336 444 1,680 8,210
2022
Tier 1 Tier 2
Total
£m
Share
capital
£m
Share
premium
£m
Reconciliation
reserve
£m
Tier 1
Restricted
capital
£m
Subordinated
debt
£m
At start of year 1,226 524 2,867 444 1,608 6,669
Movements in year – – 761 – (220) 541
At end of year 1,226 524 3,628 444 1,388 7,210
There was no additional share capital raised during the year (2022: no additional share capital raised during the year).
£500 million of Tier 2 notes were issued and £300 million repurchased in 2023 (2022: no subordinated debt raised or
repurchased during the year).
E.1.4 Restrictions to Own Funds and capital tiering
No restrictions have been made to the amounts of basic Own Funds which can be used to cover the Company’s SCR requirement.
For the purposes of MCR coverage, the amount of Tier 2 basic Own Funds which can be used to cover MCR has been
restricted to £195 million (2022: £160 million) or 20% of the MCR amount. In the event that any Tier 3 basic Own Funds items
were held by the Group, no Tier 3 basic Own Funds could be used to provide MCR coverage.
E.1.5 Reconciliation of Own Funds to IFRS Equity
The following differences exist between Equity as shown in the Company’s IFRS financial statements at the reporting date,
and Own Funds under regulatory classifications:
Group Company
2023
£m
2022
(restated*)
£m
2023
£m
2022
(restated*)
£m
Equity per IFRS financial statements 4,468 4,375 4,449 4,343
Add: Reclassification of subordinated debt as Tier 2 capital for regulatory
purposes, included at regulatory value 1,680 1,388 1,680 1,388
Deferred tax liability arising from subordinated debt revaluation (35) (59) (35) (59)
Adjustment of subordinated debt value between IFRS and
regulatoryvalue 140 234 140 234
Adjustment for RT1 accrued interest (11) (11) (11) (11)
Contractual service margin 3,970 2,762 3,970 2,762
Increase in technical provisions under regulatory rules (1,506) (1,565) (1,506) (1,565)
Decrease in reinsurance recoverable and other assets under
regulatoryrules (140) 195 (132) 201
Increase in deferred tax liability under regulatory rules (345) (83) (345) (83)
Own Funds per regulatory requirements 8,221 7,236 8,210 7,210
* 31 December 2022 comparatives have been restated following the Group’s adoption of IFRS 9 “Financial Instruments” and IFRS 17
“Insurance Contracts”.
Items marked with a ‘’ above, which totals £2,073 million for PICG (2022: £1,473 million) and £2,081 million for PIC
(2022: £1,479 million), form part of the regulatory reconciliation reserve (see E.1.6 below). There are no restrictions on the
availability and transferability of Own Funds within the Company or the Group.
E. Capital Management continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202352
E.1.6 Constituents of reconciliation reserve
The reconciliation reserve at 31 December is formed of the following elements:
2023
Group
£m
Company
£m
IFRS retained earnings per financial statements 2,070 2,195
Capital contribution reserve per financial statements – 60
Capital reduction reserve per financial statements 1,055 –
Other reserves per financial statements 55 –
Differences between IFRS rules and Solvency II rules (marked with ‘’ in table E.1.5) 2,073 2,081
Treasury shares per financial statements (31) –
Reconciliation reserve at 31 December 2023 5,222 4,336
2022
Group
(restated*)
£m
Company
(restated*)
£m
IFRS retained earnings per financial statements 1,967 2,089
Capital contribution reserve per financial statements – 60
Capital reduction reserve per financial statements 1,055 –
Other reserves per financial statements 54 –
Differences between IFRS rules and Solvency II rules (marked with ‘’ in table E.1.5) 1,473 1,479
Treasury shares per financial statements (20) –
Reconciliation reserve at 31 December 2022 4,529 3,628
* 31 December 2022 comparatives have been restated following the Group’s adoption of IFRS 17 “Insurance Contracts”.
E.2 SCR and MCR (unaudited)
E.2.1 Components of SCR
The Group and Company quantify their exposure to different types of risk using their Internal Model, which was approved for
use by the PRA in December 2015. A major model change was approved by the PRA in December 2017 relating to the treatment
of longevity and inflation risk and in December 2020 relating to equity release mortgages.
No adjustment to the SCR has been made by the PRA, in respect of the third subparagraph ofArticle 51(2) of Directive
2009/138/EC.
As at 31 December 2023, PICG’s and PIC’s SCR amounted to £3,890 million (2022: £3,199 million), and its MCR amounted to
£973 million (2022: £800 million), being 25% of the SCR.
The principal movements in these items arise from:
•
the run-off of required capital for the in-force insurance business;
•
an increase in the volume of business in force, due to new insurance contracts written during 2023;
•
the impact of changes in economic conditions over the year, in particular a narrowing of credit spreads which reduced
capital requirements;
•
the impact of changes in the investment mix used by the Company to support its insurance liabilities; and
•
the impact of changes made in respect of the modelling of credit risk, hedging risk and other smaller items.
PIC uses an internal model agreed with the PRA to calculate its SCR. It does not apply the standard formula in the business.
The split of the SCR by risk category as at 31 December 2023 is as follows:
2023
£m
2022
£m
Risk capital before diversification:
•
Market risk 4,057 3,340
•
Counterparty credit risk 98 93
•
Insurance risk 502 484
•
Expense risk 320 272
•
Operational risk 359 313
Total before diversification 5,336 4,502
Diversification benefit (1,041) (935)
Loss absorbing capacity of deferred tax (“LACDT”) (405) (368)
Total diversified SCR after LACDT 3,890 3,19 9
E. Capital Management continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202353
E.2.1.1 Loss absorbing capacity of deferred tax
The total SCR for the Company has been adjusted for LACDT. At 31 December 2023 the amount of the adjustment was
£405 million (2022: £368 million). LACDT is a deferred tax benefit, reflecting the tax relief that would be available following a
loss equal to the SCR.
LACDT support arises from the following sources:
•
deferred tax liabilities included in the Solvency II Own Funds of the Company, largely arising from differences between
Solvency II Own Funds and IFRS equity; and
•
carry back, as the UK tax regime permits carry back of trading losses against tax due in respect of profits made in the
current and previous tax years.
E.2.2 Key inputs for the calculation of the MCR
The Minimum Capital Requirement has been calculated as follows:
•
Step 1. The higher amount of 2.1% of the value of best estimate liabilities net of reinsurance recoverables or 25% of the
Solvency Capital Requirement.
•
Step 2. The lower amount of the result from Step 1 and 45% of the Solvency Capital Requirement.
The result of this calculation at year end was that the MCR equals 25% of the SCR (2022: 25%).
E.3 Use of the duration-based equity risk sub-module in the calculation of the SCR (unaudited)
This section is not applicable to PIC and PICG. PIC and PICG do not use the duration-based equity risk sub-module
(2022:notapplicable)
E.4 Difference between the Standard Formula and any Internal Model used (unaudited)
E.4.1 Use of the Internal Model
The primary purpose of the Internal Model is to calculate the solvency capital requirement under Solvency II for PIC and
PICG. The PRA has approved the use of a full Internal Model covering all of the risks set out in section E.4.2.
The Internal Model is also widely used in, and plays an important role in, PIC’s systems of governance. PIC expects to use the
Internal Model in all decision making where capital is a relevant factor. If decisions are made without the use of the Internal Model,
and capital is a relevant factor, then each decision is logged along with a justification for why the Internal Model was not used.
Each executive is required to provide an annual attestation either confirming that, in their area, the Internal Model, or suitable
approximation, has been used in all relevant decision making or else justifying why the Internal Model was not used. The
attestations are subject to oversight by the Risk Function. PIC uses its Internal Model within the key business processes
outlined below:
Key business processes Responsible oversight committee
Strategy and business planning Board
New business and reinsurance Investment and Origination Committee
Risk management Risk Committee
Asset Liability management Investment and Origination Committee
Performance management Remuneration Committee
Financial reporting Audit Committee
E.4.2 Internal Model calculation methodology
PIC uses the same risk measure and time horizon as set out in Article 101(3) of the Solvency II Directive, namely the value at
risk ofbasic Own Funds subject to a confidence level of 99.5% over a one-year period.
Like the Standard Formula, PIC’s Internal Model uses a modular approach. Five key risk modules are modelled, with some
being further divided into several sub-risks as appropriate to reflect PIC’s risk exposures most accurately:
•
Market: The risk of loss arising from adverse changes to the market value of PIC’s assets. The most material sub-risk within
Market Risk is Credit Risk which can arise from reductions in the market value of credit sensitive investments due to
changes in credit spreads, credit rating transitions and defaults.
•
Insurance: The risk of loss arising from adverse changes in the value of policy benefits from demographic experience.
Themost material sub-risk within Insurance Risk is Future Mortality Improvement Risk, reflecting the risk of policyholders
living longer than expected because of higher future mortality improvements.
•
Counterparty: The risk that a reinsurance or derivative counterparty fails to meet its financial obligations to PIC in a timely
manner, resulting in loss or the need for PIC to recapture amounts previously reinsured or invested.
•
Expense: The risk of loss arising from adverse changes to PIC’s expected expense base.
•
Operational: The risk of loss arising from inadequate or failed internal processes, or from personnel and systems,
orfromexternal events. PIC’s definition of operational risk includes legal and reputational risks and excludes risks
arisingfrom strategic decisions of the Board.
E. Capital Management continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202354
A variety of quantitative and qualitative methods are used to derive the 1-in-200 stresses for each risk which are then used
tocalculate the SCR.
For market risks, PIC primarily uses a variety of statistical methods, where the stress calibrations are generated by fitting
probability distributions to historical data series.
The 1-in-200 stresses for other risk modules are primarily driven by scenario analysis, which is heavily informed by expert
judgement because of limited historical data. Internal and external experts are used as appropriate to set and validate
these expert judgements.
The 1-in-200 stresses for each risk (or sub-risk) are then used to calculate the change in Own Funds to derive the standalone
SCR for the given risk (or sub-risk).
The sub-risks and overall risk modules are then aggregated, allowing for diversification between the risks. This aggregation
process is primarily achieved using a variance-covariance approach, although other methods (i.e. a copula) are used for
some sub-risks. Suitable consideration is given to any non-linearity between risks as part of the aggregation process.
An end-piece adjustment is applied to the overall SCR to reflect the LACDT.
E.4.3. Nature and appropriateness of data used within the Internal Model
PIC uses a variety of data sources in its Internal Model, both internal and external. Some of this data is used directly in
thecalibration of the stresses for each risk, whilst other data is used post the risk calibration process within the calculation
oftheSCR.
Internal data used by PIC includes:
•
policyholder data and relevant PIC specific historical experience for helping with calibrating some insurance risk and
expense risk stresses;
•
the operational risk register for setting some operational risk scenarios; and
•
internal investment data for assisting with the calibration of some market risks.
External data used by PIC includes:
•
market and investment data sourced from Moody’s, Merrill Lynch and Bloomberg for calibrating some Market Risk stresses;
•
population and mortality data from the Office for National Statistics to feed into some insurance risk calibrations; and
•
scientific research and forecasts from a variety of sources for informing some insurance risk stresses.
All data used for the Internal Model is governed by PIC’s general Data and Information Management Policy, and PIC’s Internal
Model Data Policy more specifically. These policies set out minimum requirements for controls and standards required to
ensure that the data used by PIC in the Internal Model is of a suitably high standard, and as such can be deemed to be
complete, accurate and appropriate.
E.4.4 Comparison of the Company’s Internal Model with the Standard Formula (unaudited)
The following table compares the SCR calculated on the Standard Formula basis and using the Company’s Internal Model.
Internal
Model with
matching
adjustment
FY2023
£m
Standard
Formula with
matching
adjustment
FY2023
£m
Market risk 4,057 4,785
Insurance risk 502 281
Operational risk 359 359
Expense risk 320 241
Counterparty credit risk 98 43
Benefit of diversification (1,041) (425)
Loss absorbing capacity of deferred tax (405) (419)
Solvency Capital Requirement 3,890 4,865
E. Capital Management continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202355
Internal
Model with
matching
adjustment
FY2022
£m
Standard
Formula with
matching
adjustment
FY2022
£m
Market risk 3,340 3,979
Insurance risk 484 276
Operational risk 313 164
Expense risk 272 204
Counterparty credit risk 93 75
Benefit of diversification (935) (414)
Loss absorbing capacity of deferred tax (368) (388)
Solvency Capital Requirement 3,1 9 9 3,896
Of note, the Standard Formula was originally calibrated with respect to an average European insurance entity. As PIC is
aUKspecialist insurance provider, the Company’s business is not well represented by the Standard Formula. Using a risk
capital model that does not represent the risks to the business does not incentivise good risk management, with actions
being taken to optimise a position under a formula rather than aligned to the risks.
In particular, the design and calibration of the Standard Formula is not deemed appropriate to reflect PIC’s internal view
ofits main risk drivers – market risk, including inflation risk and basis risk, and insurance risk, particularly the allowance for
therisks associated with mortality improvements. PIC’s Internal Model adopts a more granular approach to determining
thecapital requirements for both of these major risks as well as incorporating additional risks such as those associated
withtaking on liabilities with inflation-linked benefits.
For PIC’s less important risks, the Internal Model calibration is also more bespoke than the Standard Formula. For operational
risk, the capitalis based on an assessment of the actual operational risks compared with the Standard Formula which is a
function of premium income received in the previous year, which can bear little relationship to where operational risks may
arise.For counterparty credit risk, PIC uses a bespoke stochastic model allowing for all risk mitigants it deploys to manage
such risks. For expense risk, PIC again has a bespoke calibration reflecting the key source of expense risk such as investment
management fees and policy maintenance costs.
E.5 Non-compliance with the MCR and significant non-compliance with the SCR
Both PIC and PICG have been fully compliant with both the MCR and the SCR throughout 2023 and up to the date of approval of
this report.
E.6 Any other information (unaudited)
Future changes to Internal Model
On 27 March 2024 the PRA approved a major model change application for the calculation of the Solvency Capital Requirement in
respect of credit risk, effective from the date of approval.
E. Capital Management continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202356
Appendix A – Glossary of terms
Annuities
A type of insurance policy that pays out regular amounts of benefit to the policyholder for the remainder of insured
individual’s lifetime and, in certain cases, that of their spouse and/or dependants. The payments may commence
immediately (“immediate annuity”) or may be deferred to commence from a future date, such as the date of retirement
(“deferred annuity”). Immediate annuities and deferred annuities may be purchased for an individual and his or her
dependants or on a bulk purchase basis for groups of individuals.
Best Estimate Liability (“BEL”)
The best estimate liability (“BEL”) represents the value of future liability and expense cash flows. It is based on realistic
assumptions with no prudent margins (other than in the default and downgrade assumptions stipulated for the calculation
ofthe valuation discount rate) and is calculated using well-established actuarial and statistical methods.
Buy-in
An annuity policy bought by trustees that is an asset of the scheme and helps manage their ongoing liabilities. The trustees
and scheme remain in place and the administration stays the responsibility of the trustees.
Buyout
Annuities bought in bulk, covering all the scheme’s liabilities. The scheme typically winds up and members become PIC
policyholders. We also take on responsibility for ongoing administration alongside payment of policyholders’ pensions.
Consumer Price Index (“CPI”)
The Consumer Price Index (“CPI”) is published by the Office for National Statistics. It measures the average change from
monthto month in the prices of goods and services purchased by most households in the UK.
CPIH
The CPIH is identical to the CPI, with the exception of inclusion of owner occupiers’ housing costs and Council Tax.
Internal Model
A risk management system developed by PIC to analyse its overall risk position, to quantify risks and to determine the capital
required to meet those risks. PIC has obtained appropriate approval from the PRA to use its Internal Model to calculate its
solvency capital requirement under Solvency II.
International Financial Reporting Standards (“IFRS”)
International Financial Reporting Standards (“IFRS”), also known as International Accounting Standards. The accounting
framework used by the Group and Company in their statutory accounts.
Limited Price Index (“LPI”)
The Limited Price Index (“LPI”) is a pricing index used to calculate increases in components of scheme pension payments in
theUK. Usually the lesser of the annual increase in the Retail Price Index (or Consumer Price Index) and 5%, although the
percentage limit can vary.
Loss Absorbing Capacity of Deferred Tax (“LACDT”)
Loss absorbing capacity of deferred tax (“LACDT”). A reduction to the capital requirements to allow for tax losses that may
arise asaresult of a shock event.
Matching adjustment
The matching adjustment is an upward adjustment to the risk-free rate where insurers hold certain long-term assets with
cash flows that match the liabilities. It reflects the fact that long-term buy-and-hold investors are not exposed to spread
movements in the same way that short-term traders of such assets are.
Own Funds
Own Funds represent the equity base of the Company under the Solvency II regime. Own Funds can be classified as
‘basicOwn Funds’ and ‘ancillary Own Funds’, and are structured into Tiers (Tier 1, Tier 2 and Tier 3) which broadly
representthe quality and permanency of the capital.
Own Risk and Solvency Assessment (“ORSA”)
Own Risk and Solvency Assessment (“ORSA”). The name given to the entirety of the processes and procedures employed by
an insurer to identify, assess, monitor, manage and report the short- and long-term risks it faces or may face and to determine
thecapital necessary to ensure that the insurer’s overall solvency needs are met at all times.
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202357
Quantitative Reporting Template (“QRTs”)
Quantitative Reporting Templates (“QRTs”) are quarterly and annual solvency returns submitted to the national regulator.
Retail Price Index (“RPI”)
The Retail Price Index (“RPI”) is an older measurement of inflation that is still published because it is used to calculate cost
ofliving and wage escalation.
Risk Margin (“RM”)
Life insurance companies hold technical provisions (reserves) calculated on actuarial bases to ensure they have sufficient
funds available to pay their technical liabilities when they fall due. The technical provisions comprise a BEL and an RM. The RM
calculation, which is prescribed under the Solvency II regulations, is intended to represent the amount that a notional third
party, a reference undertaking, would require in order to take over the liabilities and have sufficient capital to support them
over their future lifetime.
Standard formula
A risk-based mathematical formula used by insurers to calculate their solvency capital requirement under Solvency II. The
standard formula is intended for use by most EU insurers, although they may use an Internal Model instead, subject to
regulatory approval.
Solvency and Financial Condition Report (“SFCR”)
Solvency and Financial Condition Report (“SFCR”) is a public disclosure report which is required to be published annually by
all insurers and will contain detailed quantitative andqualitative elements.
Solvency Capital Requirement (“SCR”)
Solvency Capital Requirement (“SCR”) represents the capital that the Company needs to hold in order to be able to survive
a1-in-200-year risk event over the 12 months following the balance sheet date. PIC calculates its SCR using a Company-specific
model (the Internal Model) which has been approved by the PRA. The main components of the SCR for PIC are market risk
andinsurance risk, but the internal model also covers counterparty default risk, expense risk and operational risk.
Technical Provisions
Life insurance companies hold technical provisions (reserves) calculated on actuarial bases to ensure they have sufficient
funds available to pay their technical liabilities when they fall due. Under the Solvency II framework, these represent the
sumof BEL, RM and the TMTP.
Transitional Measures on Technical Provisions (“TMTP”)
Transitional Measures on Technical Provisions (“TMTP”). PIC uses a transitional measures deduction on technical provisions in
its Solvency II balance sheet. The TMTP allows companies to smooth the transition from the previous regulatory regime to the
Solvency II approach, for example in having to set up the risk margin. The TMTP only applies in respect of business that was
inforce at 31 December 2015. This will decrease linearly to zero over 16 years, but may be recalculated to allow for material
changes in the risk profile for the Company, subject to regulatory approval.
Valuation adjustment
Valuation adjustment is the umbrella name for adjustments made to the fair value of a derivatives contract to take into
account funding, credit risk and regulatory capital costs.
Volatility adjustment
The volatility adjustment is a measure to ensure the appropriate treatment of insurance products with long-term guarantees
under Solvency II.
Appendix A – Glossary of terms continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202358
Appendix B – Index of QRTs attached
The following QRTs are required to be included in the SFCR:
Pension Insurance Corporation plc
QRT REF QRT NAME
S.02.01 Balance sheet
S.05.01 Premiums, claims and expenses
S.12.01 Life and Health SLT Technical Provisions
S.22.01 Impact of long-term guarantees measures and transitionals
S.23.01 Own Funds
S.25.03 SCR – for undertakings on Full Internal Models
S.28.01 MCR – Only life or only non-life insurance or reinsurance activity
Pension Insurance Corporation Group Limited
QRT REF QRT NAME
S.02.01 Balance sheet
S.05.01 Premiums, claims and expenses
S.22.01 Impact of long-term guarantees measures and transitionals
S.23.01 Own Funds
S.25.03 SCR – for undertakings on Full Internal Models
S.32.01 Undertakings in the scope of the group
The appendices to the SFCR are presented in GBP sterling.
Rounding convention
The SFCR is presented in pounds sterling rounded to the nearest million which is consistent with the presentation in the IFRS
financial statements. The QRTs are presented in pounds sterling rounded to the pound. Rounding differences of +/- one unit
can occur.
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202359
S.02.01
Pension Insurance Corporation plc
Balance sheet
2023
Solvency II value
C0010
Assets
R0010 Goodwill 0
R0020 Deferred acquisition costs 0
R0030 Intangible assets 0
R0040 Deferred tax assets 0
R0050 Pension benefit surplus 0
R0060 Property, plant & equipment held for own use 0
R0070 Investments (other than assets held for index-linked and unit-linked contracts) 65,380,208,533
R0080 Property (other than for own use) 0
R0090 Holdings in related undertakings, including participations 444,916,672
R0100 Equities 0
R0110 Equities – listed 0
R0120 Equities – unlisted 0
R0130 Bonds 35,370,595,692
R0140 Government Bonds 17,151,653,247
R0150 Corporate Bonds 17,957,073,854
R0160 Structured notes 0
R0170 Collateralised securities 261,868,590
R0180 Collective Investments Undertakings 4,077,867,801
R0190 Derivatives 25,486,828,368
R0200 Deposits other than cash equivalents 0
R0210 Other investments 0
R0220 Assets held for index-linked and unit-linked contracts 0
R0230 Loans and mortgages 9,905,781,440
R0240 Loans on policies 0
R0250 Loans and mortgages to individuals 0
R0260 Other loans and mortgages 9,905,781,440
R0270 Reinsurance recoverables from: 2,324,696,355
R0280 Non-life and health similar to non-life
R0290 Non-life excluding health 0
R0300 Health similar to non-life 0
R0310 Life and health similar to life, excluding health and index-linked and unit-linked 2,324,696,355
R0320 Health similar to life 0
R0330 Life excluding health and index-linked and unit-linked 2,324,696,355
R0340 Life index-linked and unit-linked 0
R0350 Deposits to cedants 0
R0360 Insurance and intermediaries receivables 0
R0370 Reinsurance receivables 35,544,976
R0380 Receivables (trade, not insurance) 24 ,979,153
R0390 Own shares (held directly) 0
R0400 Amounts due in respect of Own Fund items or initial fund called up but not yet paid in 0
R0410 Cash and cash equivalents 489,156,477
R0420 Any other assets, not elsewhere shown 187,085,737
R0500 Total assets 78,347,452,671
Appendix B continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202360
Appendix B continued
S.02.01 (continued)
Pension Insurance Corporation plc
Balance sheet
2023
Solvency II value
C0010
Liabilities
R0510 Technical provisions – non-life 0
R0520 Technical provisions – non-life (excluding health) 0
R0530 Technical provisions calculated as a whole 0
R0540 Best Estimate 0
R0550 Risk margin 0
R0560 Technical provisions – health (similar to non-life) 0
R0570 Technical provisions calculated as a whole 0
R0580 Best Estimate 0
R0590 Risk margin 0
R0600 Technical provisions – life (excluding index-linked and unit-linked) 38,741,603,294
R0610 Technical provisions – health (similar to life) 0
R0620 Technical provisions calculated as a whole 0
R0630 Best Estimate 0
R0640 Risk margin 0
R0650 Technical provisions – life (excluding health and index-linked and unit-linked) 38,741,603,294
R0660 Technical provisions calculated as a whole 0
R0670 Best Estimate 38,431,577,535
R0680 Risk margin 310,025,759
R0690 Technical provisions – index-linked and unit-linked 0
R0700 Technical provisions calculated as a whole 0
R0710 Best Estimate 0
R0720 Risk margin 0
R0730 Other technical provisions 0
R0740 Contingent liabilities 0
R0750 Provisions other than technical provisions 0
R0760 Pension benefit obligations 0
R0770 Deposits from reinsurers 0
R0780 Deferred tax liabilities 380,383,277
R0790 Derivatives 28,565,862,225
R0800 Debts owed to credit institutions 0
R0810 Financial liabilities other than debts owed to credit institutions 2,263,703,650
R0820 Insurance & intermediaries payables 494,696
R0830 Reinsurance payables 25,343,799
R0840 Payables (trade, not insurance) 149,167,253
R0850 Subordinated liabilities 1,679,842,919
R0860 Subordinated liabilities not in Basic Own Funds 0
R0870 Subordinated liabilities in Basic Own Funds 1,679,842,919
R0880 Any other liabilities, not elsewhere shown 0
R0900 Total liabilities 71,806,401,112
R1000 Excess of assets over liabilities 6,541,051,559
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202361
Appendix B continued
S.05.01
Pension Insurance Corporation plc
Premiums, claims and expenses by line of business
Line of Business for:
life insurance obligations
Life
Other life insurance
C0240
Total
C0300
Premiums written
R1410 Gross 6,949,226,646 6,949,226,646
R1420 Reinsurers’ share 1,331,795,673 1,331,795,673
R1500 Net 5,617,430,973 5,617,430,973
Premiums earned
R1510 Gross 6,949,226,646 6,949,226,646
R1520 Reinsurers’ share 1,331,795,673 1,331,795,673
R1600 Net 5,617,430,973 5,617,430,973
Claims incurred
R1610 Gross 2,260,844,264 2,260,844,264
R1620 Reinsurers’ share 79,128,0 9 6 79,128,096
R1700 Net 2,181,716,167 2,181,716,167
Changes in other technical provisions
R1710 Gross -7,493,011,078 -7,493,011,078
R1720 Reinsurers’ share -1,661,039,600 -1,661,039,600
R1800 Net -5,831,971,478 -5,831,971,478
R1900 Expenses incurred 238,154,979 238,154,979
R2500 Other expenses
R2600 Total expenses 238,154,979
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202362
Appendix B continued
S.12.01
Pension Insurance Corporation plc
Life and Health SLT Technical Provisions
Other life insurance
Contracts without
options and
guarantees
Contracts with
options or
guarantees
Total
(Life other than
health insurance, incl
Unit-linked)
C0060 C0070 C0080 C0150
R0010
Technical provisions calculated
as a whole 0
R0020
Total Recoverables from reinsurance/
SPV and Finite Re after the adjustment
for expected losses due to counterparty
default associated to TP as a whole 0
Technical provisions calculated
asasumof BE and RM
Best Estimate
R0030 Gross Best Estimate 38,431,577,535 38,431,577,535
R0040
Total recoverables from reinsurance/
SPV and Finite Re before the
adjustment for expected losses due to
counterparty default 2,376,234,586 2,376,234,586
R0050
Recoverables from reinsurance
(except SPV and Finite Re) before
adjustment for expected losses 2,376,234,586 2,376,234,586
R0080
Total Recoverables from reinsurance/
SPV and Finite Re after the adjustment
for expected losses due to
counterparty default 2,324,696,355 2,324,696,355
R0090
Best estimate minus recoverables from
reinsurance/SPV and Finite Re – total 36,106,881,179 0 36,106,881,179
R0100 Risk Margin 328,238,493 328,238,493
Amount of the transitional
onTechnicalProvisions
R0110
Technical Provisions
calculatedasawhole 0
R0120 Best estimate 0
R0130 Risk margin -18,212,734 -18,212,734
R0200 Technical provisions – total 38,741,603,294 38,741,603,294
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202363
Appendix B continued
S.22.01
Pension Insurance Corporation plc
Impact of long term guarantees measures and transitionals
Amount with Long
Term Guarantee
measures and
transitionals
Impact of
transitional on
technical
provisions
Impact of
transitional
on interest
rate
Impact of
volatility
adjustment
set to zero
Impact of
matching
adjustment
set to zero
C0010 C0030 C0050 C0070 C0090
R0010 Technical provisions 38,741,603,294 18,212,734 6,999,169,991
R0020 Basic Own Funds 8,209,847,132 -13,659,550 -5,248,585,323
R0050
Eligible Own Funds to meet
SolvencyCapital Requirement 8,209,847,132 -13,659,550 -5,692,585,323
R0090 Solvency Capital Requirement 3,890,193,393 4,553,183 5,346,243,154
R0100
Eligible Own Funds to meet
MinimumCapital Requirement 6,724,513,883 -13,431,891 -6,802,653,961
R0110 Minimum Capital Requirement 972,548,348 1,138,296 1,336,560,789
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202364
Appendix B continued
S.23.01
Pension Insurance Corporation plc
Own Funds
Total
Tier 1
unrestricted Tier 1 restricted Tier 2 Tier 3
Basic Own Funds before deduction for participations in other financial sector as foreseen in article 68 of Delegated Regulation 2015/35 C0010 C0020 C0030 C0040 C0050
R0010 Ordinary share capital (gross of own shares) 1,226,384,310 1,226,384,310 0
R0030 Share premium account related to ordinary share capital 523,426,034 523,426,034 0
R0040 Initial funds, members' contributions or the equivalent basic own – fund item for mutual and mutual-type undertakings 0 0 0
R0050 Subordinated mutual member accounts 0 0 0 0
R0070 Surplus funds 0 0
R0090 Preference shares 0 0 0 0
R0110 Share premium account related to preference shares 0 0 0 0
R0130 Reconciliation reserve 4,335,792,665 4,335,792,665
R0140 Subordinated liabilities 1,679,842,919 0 1,679,842,919 0
R0160 An amount equal to the value of net deferred tax assets 0 0
R0180 Other Own Fund items approved by the supervisory authority as basic Own Funds not specified above 444,401,204 0 444,401,204 0 0
Own Funds from the financial statements that should not be represented by the reconciliation reserve and do not meet the criteria to be classified as Solvency II Own Funds
R0220
Own Funds from the financial statements that should not be represented by the reconciliation reserve and do not meet the criteria to be classified as
Solvency II Own Funds 0
Deductions
R0230 Deductions for participations in financial and credit institutions 0 0 0 0
R0290 Total basic Own Funds after deductions 8,209,847,132 6,085,603,009 444,401,204 1,679,842,919 0
Ancillary Own Funds
R0300 Unpaid and uncalled ordinary share capital callable on demand 0
R0310
Unpaid and uncalled initial funds, members' contributions or the equivalent basic Own Fund item for mutual and mutual – type undertakings, callable
on demand 0
R0320 Unpaid and uncalled preference shares callable on demand 0
R0330 A legally binding commitment to subscribe and pay for subordinated liabilities on demand 0
R0340 Letters of credit and guarantees under Article 96(2) of the Directive 2009/138/EC 0
R0350 Letters of credit and guarantees other than under Article 96(2) of the Directive 2009/138/EC 0
R0360 Supplementary members calls under first subparagraph of Article 96(3) of the Directive 2009/138/EC 0
R0370 Supplementary members calls – other than under first subparagraph of Article 96(3) of the Directive 2009/138/EC 0
R0390 Other ancillary Own Funds 0
R0400 Total ancillary Own Funds 0 0 0
Available and eligible Own Funds
R0500 Total available Own Funds to meet the SCR 8,209,847,132 6,085,603,009 444,401,204 1,679,842,919 0
R0510 Total available Own Funds to meet the MCR 8,209,847,132 6,085,603,009 444,401,204 1,679,842,919
R0540 Total eligible Own Funds to meet the SCR 8,209,847,132 6,085,603,009 444,401,204 1,679,842,919 0
R0550 Total eligible Own Funds to meet the MCR 6,724,513,883 6,085,603,009 444,401,204 194,509,670
R0580 SCR 3,890,193,393
R0600 MCR 972,548,348
R0620 Ratio of Eligible Own Funds to SCR 211%
R0640 Ratio of Eligible Own Funds to MCR 691%
Reconciliation reserve C0060
R0700 Excess of assets over liabilities 6,541,051,559
R0710 Own shares (held directly and indirectly) 0
R0720 Foreseeable dividends, distributions and charges 11,047,346
R0730 Other basic Own Fund items 2,194,211,548
R0740 Adjustment for restricted Own Fund items in respect of matching adjustment portfolios and ring fenced funds 0
R0760 Reconciliation reserve 4,335,792,665
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202365
Appendix B continued
S.25.03
Pension Insurance Corporation plc
Solvency Capital Requirement – for undertakings on Full Internal Models
Unique
number of
component Component description
Calculation of the
Solvency Capital
Requirement
Row C0010 C0020 C0030
1 10310I Interest rate risk – interest rate down more onerous 0
2 10320I Interest rate risk – interest rate up more onerous 520,537,870
3 10600I Property Risk 0
4 10700I Spread risk – if matching adjustment impact not identified 2,985,681,529
5 10900I Currency risk 5,015,653
6 11010I Other market risk – inflation risk 234,429,537
7 11020I Other market risk – implied volatility risk 316,775,716
8 11030I Other market risk – RPI/CPI basis risk 19,892,559
9 11090I Other market risk – funds risk 1,257,097,412
10 19900I Diversification within market risk -1,282,591,152
11 20120I Type 1 counterparty risk – external reinsurance 69,168,756
12 20190I Type 1 counterparty risk – asset counterparty 29,091,407
13 30210I Longevity risk – longevity mis-estimation 118,217,312
14 30220I Longevity risk – longevity trend 425,431,840
15 30290I Longevity risk – other longevity risks 335,130,850
16 30299I Longevity risk – longevity diversification -376,400,782
17 30600I Expense risk 474,447,642
18 39900I Life underwriting risk diversification -154,750,446
19 70100I Operational risk 358,556,897
20 80300I Loss-absorbing capacity of deferred tax -405,065,124
Calculation of Solvency Capital Requirement C0100
R0110 Total undiversified components 4,930,6 67,474
R0060 Diversification -1,040,474,081
R0160 Capital requirement for business operated in accordance with Art. 4 of Directive 2003/41/EC 0
R0200 Solvency capital requirement excluding capital add-on 3,890,193,393
R0210 Capital add-ons already set 0.00
R0220 Solvency capital requirement 3,890,193,393
Other information on SCR
R0300 Amount/estimate of the overall loss-absorbing capacity of technical provisions 0
R0310 Amount/estimate of the overall loss-absorbing capacity of deferred taxes -405,065,124
R0410 Total amount of Notional Solvency Capital Requirements for remaining part 1,440,267,942
R0420 Total amount of Notional Solvency Capital Requirement for ring fenced funds 0
R0430 Total amount of Notional Solvency Capital Requirement for matching adjustment portfolios 2,449,925,451
R0440 Diversification effects due to RFF nSCR aggregation for article 304 0
R0460 Net future discretionary benefits 0
Approach to tax rate C0109
R0590 Approach based on average tax rate No
LAC DT
Calculation of loss absorbing capacity of deferred taxes C0130
R0640 Amount/estimate of LAC DT -405,065,124
R0650 Amount/estimate of LAC DT justified by reversion of deferred tax liabilities -376,700,829
R0660 Amount/estimate of LAC DT justified by reference to probable future taxable economic profit 0
R0670 Amount/estimate of LAC DT justified by carry back, current year -28,364,295
R0680 Amount/estimate of LAC DT justified by carry back, future years 0
R0690 Amount/estimate of Maximum LAC DT -1,073,814,629
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202366
S.28.01
Pension Insurance Corporation plc
Minimum Capital Requirement – Only life or only non-life insurance or reinsurance activity
Linear formula component for non-life insurance and reinsurance obligations
Net (of reinsurance/SPV)
best estimate and TP
calculated as a whole
Net (of reinsurance)
written premiums in the
last 12 months
C0020 C0030
R0020 Medical expense insurance and proportional reinsurance
R0030 Income protection insurance and proportional reinsurance
R0040 Workers’ compensation insurance and proportional reinsurance
R0050 Motor vehicle liability insurance and proportional reinsurance
R0060 Other motor insurance and proportional reinsurance
R0070 Marine, aviation and transport insurance and proportional reinsurance
R0080 Fire and other damage to property insurance and proportional reinsurance
R0090 General liability insurance and proportional reinsurance
R0100 Credit and suretyship insurance and proportional reinsurance
R0110 Legal expenses insurance and proportional reinsurance
R0120 Assistance and proportional reinsurance
R0130 Miscellaneous financial loss insurance and proportional reinsurance
R0140 Non-proportional health reinsurance
R0150 Non-proportional casualty reinsurance
R0160 Non-proportional marine, aviation and transport reinsurance
R0170 Non-proportional property reinsurance
Linear formula component for life insurance and reinsurance obligations
Net (of reinsurance/SPV)
best estimate and TP
calculated as a whole
Net (of reinsurance/SPV)
total capital at risk
C0050 C0060
R0210 Obligations with profit participation – guaranteed benefits
R0220 Obligations with profit participation – future discretionary benefits
R0230 Index-linked and unit-linked insurance obligations
R0240 Other life (re)insurance and health (re)insurance obligations 36,106,881,179
R0250 Total capital at risk for all life (re)insurance obligations
MCR components
Non-life activities Life activities
C0010 C0040
R0010 MCRNL Result
R0200 MCRL Result 758,244,505
Overall MCR calculation C0070 C0070
R0300 Linear MCR 758,244,505
R0310 SCR 3,890,193,393
R0320 MCR cap 1,750,587,027
R0330 MCR floor 972,548,348
R0340 Combined MCR 972,548,348
R0350 Absolute floor of the MCR 3,494,640
R0400 Minimum Capital Requirement 972,548,348
Appendix B continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202367
Appendix B continued
S.02.01
Pension Insurance Corporation Group Limited
Balance sheet
2023
Solvency II value
C0010
Assets
R0010 Goodwill 0
R0020 Deferred acquisition costs 0
R0030 Intangible assets 0
R0040 Deferred tax assets 6,619,555
R0050 Pension benefit surplus 0
R0060 Property, plant & equipment held for own use 39,978,895
R0070 Investments (other than assets held for index-linked and unit-linked contracts) 65,380,219,476
R0080 Property (other than for own use) 0
R0090 Holdings in related undertakings, including participations 444,927,615
R0100 Equities 0
R0110 Equities – listed 0
R0120 Equities – unlisted 0
R0130 Bonds 35,370,595,692
R0140 Government Bonds 17,151,653,247
R0150 Corporate Bonds 17,957,073,854
R0160 Structured notes 0
R0170 Collateralised securities 261,868,590
R0180 Collective Investments Undertakings 4,077,867,801
R0190 Derivatives 25,486,828,368
R0200 Deposits other than cash equivalents 0
R0210 Other investments 0
R0220 Assets held for index-linked and unit-linked contracts 0
R0230 Loans and mortgages 9,905,781,440
R0240 Loans on policies 0
R0250 Loans and mortgages to individuals 0
R0260 Other loans and mortgages 9,905,781,440
R0270 Reinsurance recoverables from: 2,324,696,355
R0280 Non-life and health similar to non-life 0
R0290 Non-life excluding health 0
R0300 Health similar to non-life 0
R0310 Life and health similar to life, excluding health and index-linked and unit-linked 2,324,696,355
R0320 Health similar to life 0
R0330 Life excluding health and index-linked and unit-linked 2,324,696,355
R0340 Life index-linked and unit-linked 0
R0350 Deposits to cedants 0
R0360 Insurance and intermediaries receivables 0
R0370 Reinsurance receivables 35,544,976
R0380 Receivables (trade, not insurance) 27,988,996
R0390 Own shares (held directly) 30,767,680
R0400 Amounts due in respect of Own Fund items or initial fund called up but not yet paid in 0
R0410 Cash and cash equivalents 498,684,278
R0420 Any other assets, not elsewhere shown 187,762,104
R0500 Total assets 78,438,043,757
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202368
Appendix B continued
S.02.01 (continued)
Pension Insurance Corporation Group Limited
Balance sheet
2023
Solvency II value
C0010
Liabilities
R0510 Technical provisions – non-life 0
R0520 Technical provisions – non-life (excluding health) 0
R0530 Technical provisions calculated as a whole 0
R0540 Best Estimate 0
R0550 Risk margin 0
R0560 Technical provisions – health (similar to non-life) 0
R0570 Technical provisions calculated as a whole 0
R0580 Best Estimate 0
R0590 Risk margin 0
R0600 Technical provisions – life (excluding index-linked and unit-linked) 38,741,603,294
R0610 Technical provisions – health (similar to life) 0
R0620 Technical provisions calculated as a whole 0
R0630 Best Estimate 0
R0640 Risk margin 0
R0650 Technical provisions – life (excluding health and index-linked and unit-linked) 38,741,603,294
R0660 Technical provisions calculated as a whole 0
R0670 Best Estimate 38,431,577,535
R0680 Risk margin 310,025,759
R0690 Technical provisions – index-linked and unit-linked 0
R0700 Technical provisions calculated as a whole 0
R0710 Best Estimate 0
R0720 Risk margin 0
R0730 Other technical provisions 0
R0740 Contingent liabilities 0
R0750 Provisions other than technical provisions 0
R0760 Pension benefit obligations 0
R0770 Deposits from reinsurers 0
R0780 Deferred tax liabilities 380,383,277
R0790 Derivatives 28,565,862,225
R0800 Debts owed to credit institutions 0
R0810 Financial liabilities other than debts owed to credit institutions 2,263,703,650
R0820 Insurance & intermediaries payables 494,696
R0830 Reinsurance payables 25,343,799
R0840 Payables (trade, not insurance) 197,417,086
R0850 Subordinated liabilities 1,679,842,919
R0860 Subordinated liabilities not in Basic Own Funds 0
R0870 Subordinated liabilities in Basic Own Funds 1,679,842,919
R0880 Any other liabilities, not elsewhere shown 0
R0900 Total liabilities 71,854,650,944
R1000 Excess of assets over liabilities 6,583,392,813
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202369
Appendix B continued
S.05.01
Pension Insurance Corporation Group Limited
Premiums, claims and expenses by line of business
Line of Business for:
life insurance obligations
Other life insurance Total
Life C0240 C0300
Premiums written
R1410 Gross 6,949,226,646 6,949,226,646
R1420 Reinsurers' share 1,331,795,673 1,331,795,673
R1500 Net 5,617,430,973 5,617,430,973
Premiums earned
R1510 Gross 6,949,226,646 6,949,226,646
R1520 Reinsurers' share 1,331,795,673 1,331,795,673
R1600 Net 5,617,430,973 5,617,430,973
Claims incurred
R1610 Gross 2,260,844,264 2,260,844,264
R1620 Reinsurers' share 79,128 ,09 6 79,128,096
R1700 Net 2,181,716,167 2,181,716,167
Changes in other technical provisions
R1710 Gross -7,493,011,078 -7,493,011,078
R1720 Reinsurers' share -1,661,039,600 -1,661,039,600
R1800 Net -5,831,971,478 -5,831,971,478
R1900 Expenses incurred 242,004,754 242,004,754
R2500 Other expenses
R2600 Total expenses 242,004,754
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202370
Appendix B continued
S.22.01
Pension Insurance Corporation Group Limited
Impact of long term guarantees measures and transitionals
Amount with Long
Term Guarantee
measures and
transitionals
Impact of
transitional on
technical provisions
Impact of
transitional on
interest rate
Impact of
volatility
adjustment
set to zero
Impact of
matching
adjustment
set to zero
C0010 C0030 C0050 C0070 C0090
R0010 Technical provisions 38,741,603,294 18,212,734 0 0 6,999,169,991
R0020 Basic Own Funds 8,221,420,705 -13,659,550 0 0 -5,248,585,323
R0050
Eligible Own Funds to
meetSolvency Capital
Requirement 8,221,420,705 -13,659,550 0 0 -5,692,585,323
R0090
Solvency Capital
Requirement 3,890,193,393 4,553,183 0 0 5,346,243,154
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202371
Appendix B continued
S.23.01
Pension Insurance Corporation Group Limited
Own Funds
Total
Tier 1
unrestricted
Tier 1
restricted Tier 2 Tier 3
Basic Own Funds before deduction for participations in other financial sector C0010 C0020 C0030 C0040 C0050
R0010 Ordinary share capital (gross of own shares) 2,157,119 2,157,119 0
R0020 Non-available called but not paid in ordinary share capital at group level 0
R0030 Share premium account related to ordinary share capital 873,213,835 873,213,835 0
R0040 Initial funds, members' contributions or the equivalent basic own – fund item for mutual and mutual-type undertakings 0 0 0
R0050 Subordinated mutual member accounts 0 0 0 0
R0060 Non-available subordinated mutual member accounts at group level 0
R0070 Surplus funds 0
R0080 Non-available surplus funds at group level 0
R0090 Preference shares 0 0 0 0
R0100 Non-available preference shares at group level 0 0 0 0
R0110 Share premium account related to preference shares 0 0 0 0
R0120 Non-available share premium account related to preference shares at group level 0
R0130 Reconciliation reserve 5,221,805,628 5,221,805,628
R0140 Subordinated liabilities 1,679,842,919 0 1,679,842,919 0
R0150 Non-available subordinated liabilities at group level 0
R0160 An amount equal to the value of net deferred tax assets 0 0
R0170 The amount equal to the value of net deferred tax assets not available at the group level 0
R0180 Other items approved by supervisory authority as basic Own Funds not specified above 444,401,204 0 444,401,204 0 0
R0190 Non available Own Funds related to other Own Funds items approved by supervisory authority 0
R0200 Minority interests (if not reported as part of a specific Own Fund item) 0
R0210 Non-available minority interests at group level 0
R0220
Own Funds from the financial statements that should not be represented by the reconciliation reserve and do not meet the criteria to be classified as
Solvency II Own Funds 0
Deductions 0
R0230 Deductions for participations in other financial undertakings, including non-regulated undertakings carrying out financial activities 0
R0240 Whereof deducted according to art 228 of the Directive 2009/138/EC 0
R0250 Deductions for participations where there is non-availability of information (Article 229) 0
R0260 Deduction for participations included by using D&A when a combination of methods is used 0 0 0 0 0
R0270 Total of non-available Own Fund items 0 0 0 0 0
R0280 Total deductions 0 0 0 0 0
R0290 Total basic Own Funds after deductions 8,221,420,705 6,097,176,582 444,401,204 1,679,842,919 0
Ancillary Own Funds
R0300 Unpaid and uncalled ordinary share capital callable on demand 0
R0310
Unpaid and uncalled initial funds, members' contributions or the equivalent basic Own Fund item for mutual and mutual – type undertakings, callable
on demand 0
R0320 Unpaid and uncalled preference shares callable on demand 0
R0330 A legally binding commitment to subscribe and pay for subordinated liabilities on demand 0
R0340 Letters of credit and guarantees under Article 96(2) of the Directive 2009/138/EC 0
R0350 Letters of credit and guarantees other than under Article 96(2) of the Directive 2009/138/EC 0
R0360 Supplementary members calls under first subparagraph of Article 96(3) of the Directive 2009/138/EC 0
R0370 Supplementary members calls – other than under first subparagraph of Article 96(3) of the Directive 2009/138/EC 0
R0380 Non available ancillary Own Funds at group level 0
R0390 Other ancillary Own Funds 0
R0400 Total ancillary Own Funds 0 0 0
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202372
Total
Tier 1
unrestricted
Tier 1
restricted Tier 2 Tier 3
Basic Own Funds before deduction for participations in other financial sector C0010 C0020 C0030 C0040 C0050
Own Funds of other financial sectors
R0410 Credit institutions, investment firms, financial institutions, alternative investment fund managers, UCITS management companies – Total 0
R0420 Institutions for occupational retirement provision 0
R0430 Non regulated entities carrying out financial activities 0
R0440 Total Own Funds of other financial sectors 0 0 0 0 0
R0450 Own Funds when using the D&A, exclusively or in combination of method 1
R0450 Own Funds aggregated when using the D&A and combination of method 0
R0460 Own Funds aggregated when using the D&A and combination of method net of IGT 0 0 0 0 0
R0520
Total available Own Funds to meet the consolidated group SCR (excluding Own Funds from other financial sector and from the undertakings included via
D&A ) 8,221,420,705 6,097,176,582 444,401,204 1,679,842,919 0
R0530 Total available Own Funds to meet the minimum consolidated group SCR 8,221,420,705 6,097,176,582 444,401,204 1,679,842,919
R0560
Total eligible Own Funds to meet the consolidated group SCR (excluding Own Funds from other financial sector and from the undertakings included via D&A
) 8,221,420,705 6,097,176,582 444,401,204 1,679,842,919 0
R0570 Total eligible Own Funds to meet the minimum consolidated group SCR 6,736,087,456 6,097,176,582 444,401,204 194,509,670
R0590 Consolidated Group SCR 3,890,193,393
R0610 Minimum consolidated Group SCR 972,548,348
R0630 Ratio of Eligible Own Funds to the consolidated Group SCR (excluding other financial sectors and the undertakings included via D&A ) 211%
R0650 Ratio of Eligible Own Funds to Minimum Consolidated Group SCR 693%
R0660 Total eligible Own Funds to meet the group SCR (including Own Funds from other financial sector and from the undertakings included via D&A ) 8,221,420,705 6,097,176,582 444,401,204 1,679,842,919
R0670 SCR for entities included with D&A method 0
R0680 Group SCR 3,890,193,393
R0690 Ratio of Eligible Own Funds to SCR including other financial sectors' Own Funds and capital requirements 211%
Reconciliation reserve C0060
R0700 Excess of assets over liabilities 6,583,392,813
R0710 Own shares (held directly and indirectly) 30,767,680
R0720 Foreseeable dividends, distributions and charges 11,047,346
R0730 Other basic Own Fund items 1,319,772,158
R0740 Adjustment for restricted Own Fund items in respect of matching adjustment portfolios and ring fenced funds 0
R0750 Other non available Own Funds
R0760 Reconciliation reserve 5,221,805,628
Expected profits
R0770 Expected profits included in future premiums (EPIFP) – Life Business
R0780 Expected profits included in future premiums (EPIFP) – Non- life business
R0790 Total Expected profits included in future premiums (EPIFP) 0
Appendix B continued
S.23.01 continued
Pension Insurance Corporation Group Limited
Own Funds continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202373
Appendix B continued
S.25.03
Pension Insurance Corporation Group Limited
Solvency Capital Requirement – for groups on Full Internal Models
Unique
number of
component Component description
Calculation of the
Solvency Capital
Requirement
Row C0010 C0020 C0030
1 10310I Interest rate risk – interest rate down more onerous 0
2 10320I Interest rate risk – interest rate up more onerous 520,537,870
3 10600I Property Risk 0
4 10700I Spread risk – if matching adjustment impact not identified 2,985,681,529
5 10900I Currency risk 5,015,653
6 11010I Other market risk – inflation risk 234,429,537
7 11020I Other market risk – implied volatility risk 316,775,716
8 11030I Other market risk – RPI/CPI basis risk 19,892,559
9 11090I Other market risk – funds risk 1,257,097,412
10 19900I Diversification within market risk -1,282,591,152
11 20120I Type 1 counterparty risk – external reinsurance 69,168,756
12 20190I Type 1 counterparty risk – asset counterparty 29,091,407
13 30210I Longevity risk – longevity mis-estimation 118,217,312
14 30220I Longevity risk – longevity trend 425,431,840
15 30290I Longevity risk – other longevity risks 335,130,850
16 30299I Longevity risk – longevity diversification -376,400,782
17 30600I Expense risk 474,447,642
18 39900I Life underwriting risk diversification -154,750,446
19 70100I Operational risk 358,556,897
20 80300I Loss-absorbing capacity of deferred tax -405,065,124
Calculation of Solvency Capital Requirement
C0100
R0110 Total undiversified components 4 ,930,667,474
R0060 Diversification -1,040,474,081
R0160 Capital requirement for business operated in accordance with Art. 4 of Directive 2003/41/EC 0
R0200 Solvency capital requirement excluding capital add-on 3,890,193,393
R0210 Capital add-ons already set 0
R0220 Solvency capital requirement 3,890,193,393
Other information on SCR
R0300 Amount/estimate of the overall loss-absorbing capacity of technical provisions 0
R0310 Amount/estimate of the overall loss-absorbing capacity of deferred taxes -405,065,124
R0410 Total amount of Notional Solvency Capital Requirements for remaining part 1,440,267,942
R0420 Total amount of Notional Solvency Capital Requirement for ring fenced funds 0
R0430 Total amount of Notional Solvency Capital Requirement for matching adjustment portfolios 2,449,925,451
R0440 Diversification effects due to RFF nSCR aggregation for article 304 0
R0460 Net future discretionary benefits 0
R0470 Minimum consolidated group solvency capital requirement 972,548,348
Information on other entities
R0500 Capital requirement for other financial sectors (Non-insurance capital requirements)
R0510
Capital requirement for other financial sectors (Non-insurance capital requirements) –
Creditinstitutions, investment firms and financial institutions, alternative investment funds
managers, UCITS management companies
R0520
Capital requirement for other financial sectors (Non-insurance capital requirements) –
Institutions for occupational retirement provisions
R0530
Capital requirement for other financial sectors (Non-insurance capital requirements) –
Capitalrequirement for non- regulated entities carrying out financial activities
R0540 Capital requirement for non-controlled participation requirements
R0550 Capital requirement for residual undertakings
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202374
S.32.01
Pension Insurance Corporation Group Limited
Undertakings in the scope of the Group
Criteria of influence
Inclusion in the scope
of Group supervision
Group
solvency
calculation
Country
C0010
Identification
code of the
undertaking
C0020
Type of
codeofthe
identification
ofthe
undertaking
C0030
Legal name of
theundertaking
C0040
Type of undertaking
C0050
Legal form
C0060
Category (mutual/
non-mutual)
C0070
Supervisory
authority
C0080
% capital
share
C0180
% used for the
establishment
ofconsolidated
accounts
C0190
% voting
rights
C0200
Other
criteria
C0210
Level of
influence
C0220
Proportional
share used
for Group
solvency
calculation
C0230
Yes/No
C0240
Date of
decision if
Article 214
isapplied
C0250
Method used
and under
method 1,
treatment of the
undertaking
C0260
GB 5493007PY8C1S8BSNK41 1 – LEI PIC ERM 1
Limited
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB 549300Q8BH2WRUKFLA05 1 – LEI PIC Holdings
Limited
5 – Insurance
holding company
as defined in
Article 212(1) (f) of
Directive
2009/138/EC
0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
1 – Method 1:
Full
consolidation
GB 549300R4HHJMZHQB8G02 1 – LEI Pension
Services
Corporation
Limited
10 – Ancillary
services
undertaking as
defined in Article 1
(53) of Delegated
Regulation (EU)
2015/35
0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
1 – Method 1:
Full
consolidation
GB 549300UN2IF0TWMZYC35 1 – LEI Pension
Insurance
Corporation
Group
Limited
5 – Insurance
holding company
as defined in
Article 212(1) (f) of
Directive
2009/138/EC
0 2 – Non-mutual 0% 0% 0% 1 – Dominant 0% 1 – Included
in the scope
1 – Method 1:
Full
consolidation
GB 549300X7DQTBRJ1NIK13 1 – LEI PIC Real
Estate GP
Limited
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB M31AVDIX8NY21MAUQF46 1 – LEI Pension
Insurance
Corporation
plc
1 – Life insurance
undertaking
Company
limited by
shares
2 – Non-mutual The
Prudential
Regulation
Authority
100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
1 – Method 1:
Full
consolidation
GB M31AVDIX8NY21MAUQF46GB00006 2
– Specific
code
Senior Living
Investment
Partners
Limited
Partnership
99 – Other 0 2 – Non-mutual 99% 99% 99% 1 – Dominant 99% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB M31AVDIX8NY21MAUQF46GB00007 2
– Specific
code
Senior Living
Investment
Partners
(General
Partner)
Limited
99 – Other 0 2 – Non-mutual 49% 49% 49% 2 – Significant 49% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB M31AVDIX8NY21MAUQF46GB00008 2
– Specific
code
PIC Real
Estate
(Cedar) GP
Limited
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB M31AVDIX8NY21MAUQF46GB00009 2
– Specific
code
PIC Real
Estate
(Cedar)
Nominee
Limited
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB M31AVDIX8NY21MAUQF46GB00010 2
– Specific
code
PIC Real
Estate
(Cedar) LP
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
Appendix B continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202375
Criteria of influence
Inclusion in the scope
of Group supervision
Group
solvency
calculation
Country
C0010
Identification
code of the
undertaking
C0020
Type of
codeofthe
identification
ofthe
undertaking
C0030
Legal name of
theundertaking
C0040
Type of undertaking
C0050
Legal form
C0060
Category (mutual/
non-mutual)
C0070
Supervisory
authority
C0080
% capital
share
C0180
% used for the
establishment
ofconsolidated
accounts
C0190
% voting
rights
C0200
Other
criteria
C0210
Level of
influence
C0220
Proportional
share used
for Group
solvency
calculation
C0230
Yes/No
C0240
Date of
decision if
Article 214
isapplied
C0250
Method used
and under
method 1,
treatment of the
undertaking
C0260
GB M31AVDIX8NY21MAUQF46GB00011 2
– Specific
code
PIC Real
Estate (Ruskin
Square) LP
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB M31AVDIX8NY21MAUQF46GB00012 2
– Specific
code
PIC LSQ
Holdco LLP
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB M31AVDIX8NY21MAUQF46GB00013 2
– Specific
code
PIC AR SQR
LLP
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB M31AVDIX8NY21MAUQF46GB00014 2
– Specific
code
PIC LSQ
Buildco 1 LLP
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB M31AVDIX8NY21MAUQF46GB00015 2
– Specific
code
PIC SO SQR
LLP
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB PICBOWBCKGP 2
– Specific
code
PIC Bowback
GP Limited
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB PICBOWBCKNOM 2
– Specific
code
PIC Bowback
Nominee
Limited
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB PICBOWBCKPART 2
– Specific
code
PIC Bowback
Limited
Partnership
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GG PICBOWBCKUT 2
– Specific
code
PIC Bowback
Unit Trust
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB PICGPAFRSTPART 2
– Specific
code
PIC Real
Estate
Limited
Partnership
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB PICNEWVICGP 2
– Specific
code
PIC New
Victoria GP
Limited
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB PICNEWVICNOM 2
– Specific
code
PIC New
Victoria
Nominee
Limited
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB PICNEWVICPART 2
– Specific
code
PIC New
Victoria
Limited
Partnership
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GG PICNEWVICUT 2
– Specific
code
PIC New
Victoria Unit
Trust
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB PICOEGP 2
– Specific
code
PIC One
Eastside GP
Limited
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
S.32.01 (continued)
Pension Insurance Corporation Group Limited
Undertakings in the scope of the Group
Appendix B continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202376
Criteria of influence
Inclusion in the scope
of Group supervision
Group
solvency
calculation
Country
C0010
Identification
code of the
undertaking
C0020
Type of
codeofthe
identification
ofthe
undertaking
C0030
Legal name of
theundertaking
C0040
Type of undertaking
C0050
Legal form
C0060
Category (mutual/
non-mutual)
C0070
Supervisory
authority
C0080
% capital
share
C0180
% used for the
establishment
ofconsolidated
accounts
C0190
% voting
rights
C0200
Other
criteria
C0210
Level of
influence
C0220
Proportional
share used
for Group
solvency
calculation
C0230
Yes/No
C0240
Date of
decision if
Article 214
isapplied
C0250
Method used
and under
method 1,
treatment of the
undertaking
C0260
GB PICOENOM 2
– Specific
code
PIC One
Eastside
Nominee
Limited
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB PICOEPART 2
– Specific
code
PIC One
Eastside
Limited
Partnership
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GG PICOEUT 2
– Specific
code
PIC One
Eastside Unit
Trust
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB PICPROPGP 2
– Specific
code
PIC
Properties GP
Limited
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB PICPROPPART 2
– Specific
code
PIC
Properties
Limited
Partnership
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB PICWILTRNGP 2
– Specific
code
PIC Wiltern
GP Limited
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB PICWILTRNNOM 2
– Specific
code
PIC Wiltern
Nominee
Limited
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB PICWILTRNPART 2
– Specific
code
PIC Wiltern
Limited
Partnership
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GG PICWILTRNUT 2
– Specific
code
PIC Wiltern
Unit Trust
99 – Other 0 2 – Non-mutual 100% 100% 100% 1 – Dominant 100% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
S.32.01 (continued)
Pension Insurance Corporation Group Limited
Undertakings in the scope of the Group
Appendix B continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202377
Pension Insurance Corporation Group Limited
14 Cornhill, London EC3V 3ND
www.pensioncorporation.com