Generating
social value
across the UK.
Pension Insurance CorporationGroup Limited
Solvency and Financial Condition Report 2022
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.
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 2022
01 Directors’ Responsibility Statement
02 Report of the Independent ExternalAuditor
07 Summary
13 A. Business and performance
13 A.1 Business
14 A.2 Performance of underwriting activity
16 A.3 Performance of investment activity
16 A.4 Performance of other activities
16 A.5 Any other information
17 B. System of governance
18 B.1 Governance Function
25 B.2 Fit and proper requirements
25 B.3 Risk management system including
theOwnRisk and Solvency Assessment
28 B.4 Internal control system
30 B.5 Internal audit function
31 B.6 Actuarial function
31 B.7 Outsourcing
32 B.8 Any other information
33 C. Risk profile
33 C.1 Market risk
34 C.2 Underwriting risk
35 C.3 Operational risk
35 C.4 Expense risk
35 C.5 Credit risk
36 C.6 Liquidity risk
36 C.7 Any other information
37 D. Valuation for solvency purposes
39 D.1 Assets
42 D.2 Technical provisions
50 D.3 Other liabilities
52 D.4 Alternative methods for valuation
52 D.5 Any other information
53 E. Capital management
53 E.1 Own Funds
56 E.2 SCR and MCR
57 E.3 Use of the duration- based equity risk
submodule in the calculation of the SCR
57 E.4 Difference between the standard
formulaand any internal model used
58 E.5 Non-compliance with the MCR and
significant non-compliance with the SCR
58 E.6 Any other information
59 Appendix A – Glossary of terms
61 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 202201
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 PRA Rules
andthe Solvency II Regulations.
We are satisfied that:
a) throughout the financial year in question, the insurer
andGroup has 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 has
continued so to comply subsequently and will continue
soto comply in future.
Signed on behalf of the Board of Directors
5 April 2023
Report of the Independent External Auditor
Opinion
Except as stated below, we have audited the following
documents prepared by the Pension Insurance Corporation
Group Limited (‘the Parent Company’) and Pension Insurance
Corporation (‘the Company’) as at 31 December 2022:
•
the ‘Valuation for solvency purposes’ and ‘Capital
Management’ sections of the Solvency and Financial
Condition Report of the Entities as at 31 December 2022,
(‘theNarrative Disclosures subject to audit’); and
•
group templates S02.01.02, S22.01.22, S23.01.22, S32.01.22
and Company templates S02.01.02, S12.01.02, S22.01.21,
S23.01.01, S28.01.01 (‘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 S05.01.02, S05.02.01, S.25.02.22, S.25.03.22;
•
company templates S05.01.02, S05.02.01, S.25.02.21,
S.25.03.21;
•
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;
•
the written acknowledgement by the Directors of
theEntities of their responsibilities, including for the
preparation of the relevant content of the Solvency
andFinancial Condition Report (‘the Responsibility
Statement’); and
•
information which pertains to an undertaking
thatisnotaSolvency II undertaking and has been
prepared inaccordance with PRA rules other than
thoseimplementing the Solvency II Directive or in
accordance with an EU instrument other than the
Solvency II regulations ‘the sectoral information’.
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 2022 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’ and other relevant disclosures
within the information subject to audit in the Relevant
Elements 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 compliance 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 Pension Insurance
Corporation Group Limited (‘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
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 202202
Report of the Independent External Auditor continued
Going concern
The Directors of the Parent Company 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 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
atleast a year from the date of approval of the Solvency
and Financial Condition Report (“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 analyzed how
those risks might affect the Group’s 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’s 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 and
Company’s investments arising from fluctuation 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 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’s
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
Entity’s assessment that there is not, a material uncertainty
related to events or conditions that, individually or collectively,
may cast significant doubt on the Entity 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 Entity or the Group will continue in operation.
Fraud and breaches of laws and regulations –
ability to detect
•
Identifying and responding to risks of material
misstatement due to fraud
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companies’ high-level policies and procedures to
prevent and detect fraud, 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;
•
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.
In order to address the risk of fraud specifically as it relates
to the technical provisions within the Solvency and Financial
Condition Report, we involved actuarial specialists to assist
in our challenge of management. We challenged management
in relation to the appropriateness of Best Estimate Liabilities
and the appropriateness of the rationale for any changes,
the consistency of the selected assumptions across different
aspects of the financial reporting process and in comparison,
to our understanding of various business areas.
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202203
Report of the Independent External Auditor continued
To address the pervasive risk as it relates to management
override, we 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 posted
by unauthorized users, approved by unauthorized approvers,
those posted and approved by the same user, those
including specific words based on our risk criteria, those
journals which were unbalanced, those with no descriptions
oruser IDs, those posted to seldom used accounts, unusual
journal entries posted to cash accounts. Identifying
journalentries and other adjustments to test based on risk
criteria and comparing the identified entries tosupporting
documentation. These included those posted by unauthorised
users, approved by unauthorised approvers, those posted
and approved by the same user, those including specific
words based on our risk criteria, those journals which were
unbalanced, those with no descriptions or user IDs, those
posted to seldom used accounts, unusual journal entries
posted to cash accounts; and
•
assessing significant accounting estimates for bias.
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
Solvency and Financial Condition Report from our general
commercial and sector experience, and through discussion
with management, and from inspection of the Group’s and
Company’s regulatory and legal correspondence and we
discussed with 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
Solvency and Financial Condition Report varies considerably.
Firstly, the Group and Company are subject to laws and
regulations that directly affect the Solvency and Financial
Condition Report including financial reporting legislation
(related to PRA and Solvency II regulations) , 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 and Company are subject to many
other laws and regulations where the consequences of
non-compliance could have a material effect on amounts or
disclosures in the Solvency and Financial Condition Report,
for instance through the imposition of fines or litigation. We
identified 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 & Climate Change Act
2008 and certain aspects of company legislation recognizing
the financial nature of the Group’s and Company’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 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 Solvency and Financial
Condition Report, 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 Solvency and Financial Condition Report,
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 these 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.
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202204
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.
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
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 the
Entities’ statutory financial statements for the year ended
31 December 2022. 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
5 April 2023
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202205
Report of the Independent External Auditor continued
Report of the Independent External Auditor continued
Relevant Elements of the Solvency and Financial Condition
Report that are not subject to audit comprise:
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
•
Row R0720: Technical provisions–Index-linked and
unit-linked – risk margin
•
The following elements of Group template S.22.01.22
•
Column C0030 – Impact of transitional measures on
technical provisions
•
Row R0010 – Technical provisions
•
Row R0090 – Solvency Capital Requirement
•
The following elements of Group template S.23.01.22
•
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
•
Elements of the Narrative Disclosures subject to audit
identified as ‘unaudited’
Solo
The relevant elements of the Solvency and Financial
Condition Report that are not subject to audit comprise:
•
The following elements of Solo 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
•
Row R0720: Technical provisions – Index-linked and
unit-linked – risk margin
•
The following elements of template S.12.01.02
•
Row R0100: Technical provisions calculated as a sum
ofBE and RM – Risk margin
•
Rows R0110 to R0130 – Amount of transitional measure
on technical provisions
•
The following elements of template S.17.01.02
•
Row R0280: Technical provisions calculated as a sum
ofBE and RM – Risk margin
•
Rows R0290 to R0310 – Amount of transitional measure
on technical provisions
•
The following elements of template S.22.01.21
•
Column C0030 – Impact of transitional measures
ontechnical provisions
•
Row R0010 – Technical provisions
•
Row R0090 – Solvency Capital Requirement
•
The following elements of template S.23.01.01
•
Row R0580: SCR
•
Row R0740: Adjustment for restricted own fund items
inrespect of matching adjustment portfolios and ring
fenced funds
•
The following elements of template S.28.01.01
•
Row R0310: SCR Elements of the Narrative Disclosures
subject to audit identified as ‘unaudited
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202206
The Solvency and Financial Condition Report (“SFCR”) is an annual report that is required to be produced under UK law,
aspart of the Solvency II regime. Any reference to SII Directive in this document is a reference to the UK version of that
regulation, unless otherwise stated.
This requirement to prepare the SFCR is set out in a direction made by the Prudential Regulatory Authority (“PRA”) on
6 November 2019. In April 2022, HM Treasury published a consultation on proposed changes to Solvency II regulation in the
UK.Proposed changes being consulted on include a reduction in the risk margin of around 60%-70% for long-term life insurers,
changes to the calibration of retained credit risk used to calculate the matching adjustment; an increase in flexibility to allow
insurers to invest in long-term assets such as infrastructure; and a reduction in the current reporting and administrative burden
on firms. Whilst the outcome remains uncertain, these changes could materially impact the future capital position of the Company.
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”).
The SFCR is a public document and is published on the Company’s website. It is also provided to the Company’s prudential
regulator, the PRA.
The content of the SFCR is prescribed by PRA regulation, and must contain the following sections:
SECTION DESCRIPTION OF CONTENT
Business and Performance Provides the basic information on the Group and Company,
and gives a summary of the business performance during
the year in question.
System of Governance Provides governance information on the Group and
Company including Board and Committee structure,
responsibilities, and details of the principal process.
Risk Profile Provides qualitative and quantitative information regarding
the risks that face the Group and Company, and how they
are managed.
Valuation for Solvency Purposes Provides values for the Group and Company’s assets and
liabilities in accordance with International Financial
Reporting Standards (“IFRS”) and Solvency II rules, gives
details on the assumptions used in the valuations, and
provides explanations on valuation differences between
IFRS and Solvency II.
Capital Management Provides detail on the regulatory capital (own funds) which
the Group and Company must hold in line with Solvency II
rules, and on the composition of such own funds.
PIC is authorised to write long-term insurance business by the PRA and regulated by the PRA and the Financial Conduct
Authority (the “FCA”).
Pension risk transfer products are used by pension funds to transfer to an insurance company the risks and liabilities
arisingfrom the benefit promises made to pension fund members. Insurance is also used as a means by which the
ultimateresponsibility to pay the benefit promises is transferred to the insurance company through the issuance of
anindividual annuity insurance policy to the pension fund member.
The Company originates new business through active engagement with, and marketing to, pension fund trustees and
theiradvisors, as well as to corporate sponsors of such funds.
PIC is the primary operating subsidiary of the Group.
Summary (unaudited)
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202207
A summary of the content of each SFCR section is provided below:
Business and performance
2022 was a year of extreme market volatility, characterised by rising interest rates and inflation and the prospect of
recession. Despite this, both the Group and Company have delivered strong results, increasing their Solvency II ratio,
PICGto226% and PIC to 225% (2021: 169% in PICG and 168% PIC). The Group profit before tax was £1,240 million for the
year(2021: £393 million) and PIC’s profit before tax was £1,241 million (2021: £394 million).
Statement of comprehensive income highlights – PICG
2022
£m
2021
£m
Gross premiums written 4,095 4,702
Net premium revenue earned 4,021 3,856
Investment return (including commissions earned) (12,396) 210
Total net revenue (8,375) 4,066
Net claims paid (1,881) (1,785)
Change in net insurance liabilities 11,833 (1,601)
Operating expenses (247) (198)
Finance costs (90) (89)
Total net expenses 9,615 (3,673)
Profit before tax 1,240 393
Statement of comprehensive income highlights – PIC
2022
£m
2021
£m
Gross premiums written 4,095 4,702
Net premium revenue earned 4,021 3,856
Investment return (including commissions earned) (12,396) 210
Total net revenue (8,375) 4,066
Net claims paid (1,881) (1,785)
Change in net insurance liabilities 11,833 (1,601)
Operating expenses (246) (198)
Finance costs (90) (88)
Total net expenses 9,616 (3,672)
Profit before tax 1,241 394
Premiums
Gross premiums were £4,095 million in the year across 21 transactions (2021: £4,702 million across 14 transactions). 2022 was
another strong year for new business, with the reduction in gross premium levels reflecting the impact of higher interest rates.
Net premiums earned represent the gross premiums written less premiums ceded to reinsurers. Premiums ceded to reinsurers
decreased mainly due to the comparative including the impact of asset backed reinsurance transactions, which did not
reoccur in the current year. In total, eight (2021: seven) new reinsurance contracts were concluded in 2022.
Investment return
Investment return comprises income received on fixed income securities, derivatives and investment property, and
unrealised and realised gains and losses on these investments.
The net movement in the fair value of assets, including realised and unrealised items, was a loss of £13,813 million compared
with a loss of £1,029 million in 2021. Total investment income increased to £1,416 million in 2022 (2021: £1,238 million). The 2022
net investment loss was largely driven by significant increases in interest rates during the year. Commission earned in the
year amounted £1 million (2021: £1 million).
It is important to note that because our assets and liabilities are broadly matched, the rise in interest rates has also
materially reduced our insurance liabilities, a change also reflected in the income statement.
Claims paid
Net claims paid comprises of gross claims paid, which are pension payments to our policyholders, less any payments
received from reinsurers. Net claims paid increased to £1,881 million (2021: £1,785 million), mainly reflecting the increase
inpensioner numbers due to new business.
Summary (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202208
Change in net insurance liabilities
Change in net insurance liabilities represents the change in the gross insurance liabilities less the movement in reinsuranceassets.
The change in net insurance liabilities mainly reflects the impact of market movements, principally the increase in interest
rates, partially offset by the net increase in the number of policies by 20,600 to 310,200 (2021: 289,600).
Operating expenses
The operating expenses in 2022 were £247 million for Group, and £246 million for PIC (2021: PICG £198 million, PIC £198 million).
This includes project spend of £58 million (2021: £38 million) reflecting a higher spend on business-wide initiatives. Excluding
these project costs, the remaining increase in spend mainly reflects higher maintenance and investment management costs
to support growth of the business.
Finance costs
Finance costs represent the interest payable on borrowings. Finance costs for PIC and PICG of £90 million (2021: PICG
£89 million, PIC £88 million) reflect the interest payable on the five (2021: five) subordinated debt securities issued.
The Restricted Tier 1 (“RT1”) debt issued in July 2019 has been accounted for as equity under IFRS and as such interest on
these notes is not included in finance costs and is instead recognised as dividends when paid. These dividends amount
to£33 million in 2022 (2021: £33 million).
Statement of financial position review – PICG
Statement of financial position extract
2022
£m
2021
£m
Financial investments 40,951 51,143
Derivative assets 22,451 15,018
Reinsurance assets 1,199 3,350
Gross insurance liabilities (33,029) (47,013)
Derivative liabilities (25,348) (16,997)
Borrowings (1,592) (1,590)
Other net assets 807 554
Total equity 5,439 4,465
Statement of financial position review – PIC
Statement of financial position extract
2022
£m
2021
£m
Financial investments 41,108 51,316
Derivative assets 22,451 15,018
Reinsurance assets 1,199 3,350
Gross insurance liabilities (33,029) (47,013)
Derivative liabilities (25,348) (16,997)
Borrowings (1,592) (1,590)
Other net assets 619 345
Total equity 5,408 4,429
At the end of 2022, the Group had total financial investments of £41.0 billion (PIC: £41.1 billion), compared with £51.1 billion
(PIC:£51.3 billion) at the end of 2021. Our investment strategy is to select assets that generate cash flows to match our
futureclaims payments in both timing and amount. Therefore, although the size of the portfolio has decreased primarily
dueto the impact of rising interest rates, the value of our insurance liabilities has also fallen, and they now stand at
£33.0 billion for PICG and PIC (2021: PICG and PIC £47.0 billion). Note that our hedging strategy is primarily designed to
stabiliseour solvency position and consequently there may be some short-term volatility in the IFRS result, particularly
givenrecent volatile economic conditions.
The credit quality of our investment portfolio is actively managed and remains strong, ensuring that the Group did not
experience any defaults for the tenth consecutive year. This demonstrates the resilience of our investment strategy, which
continues to prioritise the management of key risks to protect the pensions of our policyholders over the coming decades.
The decrease in the reinsurance assets during the year primarily reflects the lower levels of insurance liabilities due to interest
rate rises. In 2022, the Group reinsured longevity exposure on £2.8 billion of reserves (2021: £4.0 billion), and at 31 December
2022, 87% of the Group’s gross longevity related reserves had been reinsured (2021: 85%). The Group has14 reinsurance
counterparties (2021: 14), all of which have a credit rating of A- or above.
The Group uses derivatives to hedge certain market risks associated with both new and existing business. Gross derivative
assets and derivative liabilities have both increased during the year, leading to an increase in the net liability position of
£918 million (2021: movement of £425 million). The net increase is a result of market movements, in particular rising interest
rates. It should be noted that a significant proportion of our derivative asset contracts are collateralised through the use
ofacustodian, and as such present little credit risk in the event of a derivative counterparty default.
As a result of the above movements, total equity has increased by £974 million (PIC: £979 million) (2021: PICG: £298 million;
PIC£286 million).
Summary (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202209
Dividend
In recognition of the continued financial strength of the business, the Board has decided, for the first time, to propose
adividend to the Group’s shareholders £100m (2021: nil). The dividend is driven by financial performance in 2022 but
willbereflected in the Group’s results in 2023.
The Group’s dividend policy is to retain sufficient capital to invest in future growth opportunities of the UK PRT 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.
System of Governance
Summary (unaudited) continued
PICG
Board
Executive
Committee
Chief
Executive
Officer
Investment
and Origination
Committee
ESG 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 202210
System of Governance continued
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 operating which have prime day-to-day responsibility for the management of risks within the agreed
risk management framework. The “Second Line” consists of independent risk and compliance functions, who have responsibility
for setting, monitoring and oversight of the risk framework within which the First Line operates, and the Head of The Actuarial
Function. The “Third Line” comprises Internal Audit and External 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, Environmental, Social and Governance (“ESG”), Investment
and Origination, Nomination, Remuneration and Risk. The Investment and Origination Committee considers matters specific
to PIC. The five remaining committees consider matters specific to PIC and the Group, as per the delegations in their terms of
reference (further details are provided below). Members of the committees are appointed by the Board on recommendation
of the Nomination Committee in consultation with the committees’ chairs.
Audit Committee
The Committee works closely with the Risk Committee and has responsibility for ensuring the company fulfills its responsibilities
regarding financial reporting, the effectiveness of internal controls, the risk management systems and processes, compliance
matters, and the internal audit function and external audit process.
ESG Committee
In December 2021 the Group established an ESG Committee which meets quarterly to consider and oversee all ESG related
matters. The purpose of the Committee is 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 benefits of our policyholders.
Investment and Origination Committee
The Committee oversees the investment policy and investment strategy for PIC, ensuring that ESG is integrated into
decisionmaking and provides oversight of the operation of PIC’s investment portfolios. It also oversees PIC’s new
businessand reinsurance origination.
Nomination Committee
The Committee is responsible for reviewing the structure, size and composition of the Board and its committees and for
recommending changes to the Board and setting succession plans for executive and non-executive directors and senior
management within the Group.
Remuneration Committee
The Committee oversees the establishment and implementation of a remuneration policy for employees and directors,
designed to support the long-term business strategy and values of the Group as a whole, as well as promoting effective
riskmanagement and complying with applicable legal and regulatory requirements.
Risk Committee
The 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, in conjunction with the Audit Committee.
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. Major Model Changes were approved by the PRA in December 2017 relating to longevity
and inflation and in December 2020 relating to Equity Release Mortgages.
The Group’s total Solvency Capital Requirement (“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.
Summary (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202211
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:
2022
Group Company
Solvency
£m
IFRS
£m
Solvency
£m
IFRS
£m
Total Assets 65,461 65,642 65,429 65,607
Total Liabilities 59,582 60,203 59,596 60,199
Excess of Assets over Liabilities/Equity 5,879 5,439 5,833 5,408
2021
Group Company
Solvency
£m
IFRS
£m
Solvency
£m
IFRS
£m
Total Assets 69,676 70,293 69,626 70,242
Total Liabilities 64,555 65,828 64,555 65,813
Excess of Assets over Liabilities/Equity 5,121 4,465 5,071 4,429
Differences in the valuation of assets and liabilities between the two bases are driven by the following:
•
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 prudent margins in the projected liability cashflows (for example, via the expense and demographic assumptions)
which increase IFRS liabilities relative to the Solvency II best estimate liabilities;
•
differences in the valuation discount rate, used to discount the liability cashflows, which is prescribed for Solvency II
butdetermined by PIC for IFRS (and includes prudent margins);
•
valuation of subordinated debt liabilities, which are at amortised cost for IFRS purposes and are at fair value under
Solvency II; and
•
differences related to deferred tax assets and liabilities.
The valuation differences above are explained in greater detail in section D.
Capital Management
At 31 December 2022, PICG’s Solvency II ratio was 226% (PIC: 225%) (2021: PICG 169% and PIC: 168%) and it had surplus funds
of£4,037 million (PIC: £4,011 million) (31 December 2021: PICG: £2,731 million; PIC: £2,701 million) in excess of its SCR as calculated
by the internal model. The increase in the year was largely driven by favourable market movements and returns from the
in-force book, partly offset by the impact of writing new business. The result is net of a recalculation of the TMTP performed
at 30 June 2022.
The table below summarises the Group and Company’s capital and solvency position as at 31 December:
2022 Group Company
Own Funds (£m) 7, 236 7,210
SCR (£m) 3,199 3,19 9
Solvency II surplus (£m) 4,037 4,011
Solvency II ratio % 226% 225%
2021 Group Company
Own Funds (£m) 6,699 6,669
SCR (£m) 3,968 3,968
Solvency II surplus (£m) 2,731 2,701
Solvency II ratio % 169% 168%
Summary (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202212
A.1 Business
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 to an insurance
company the risks and liabilities arising from the benefit promises made to pension fund members. 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 simplified group structure chart, and a description of the Group as at 31 December 2022 is 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.
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. The Group is required to adopt IFRS 17 for its financial year beginning on 1 January 2023. The
standard provides a comprehensive approach for accounting for insurance contacts, including measurement, income
statement presentation and disclosure. It is expected to have a significant impact on the Group’s IFRS based metrics.
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.
As presented in the Summary, the Group made an IFRS profit before tax of £1,240 million in 2022 (2021: £393 million), and the
Company made an IFRS profit before tax of £1,241 million in 2022 (2021: £394 million).
The tables in sections A.2 to A.4 below present extracts from the Group’s and Company’s IFRS Statements of Comprehensive
Income, splitting the IFRS income and expense items between underwriting activity (section A.2), investment activity (sectionA.3)
and other activity (section A.4). Comparative information has been presented where available.
A. Business and Performance (unaudited)
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202213
A.2 Performance of underwriting activity
In addition to the statutory results presentation as outlined above, the Group also chooses to analyse its IFRS results on
analternative performance metric, ‘adjusted operating profit before tax’, which is a non-GAAP measure of long-term value
creation, a key outcome of the Group’s business model. It reflects the Group’s activities which are core to our business and
themanagement choices and decisions around those activities. These activities include the writing and management
ofpension insurance contracts (buyouts and buy-ins), the management of risk through reinsurance, and the day-to-day
investment and management of the insurance assets and liabilities. In essence, it gives stakeholders a more accurate view
ofthe expected long-term investment returns on the assets backing policyholder and shareholder funds, with an allowance
forthe corresponding expected movements in liabilities. This basis reflects the long-term trading activities of the Group
better than the IFRS reported profit before taxation.
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.05.01.02 inAppendix B
of this report.
Adjusted operating profit before tax
2022 2021
PICG
£m
PIC
£m
PICG
£m
PIC
£m
Expected return from operations 426 426 288 288
New business and reinsurance profit 228 228 167 167
Underlying profit 654 654 455 455
Change in valuation assumptions (6) (6) 315 315
Experience and other variances (79) (78) (77) (77)
Finance and project costs (181) (181) (160) (159)
Adjusted operating profit before tax 388 389 533 534
Investment related variances 819 819 (173) (173)
Add back: RT1 coupon (treated as a dividend for statutory purposes) 33 33 33 33
Profit before taxation 1,240 1,241 393 394
The Group’s adjusted operating profit before tax (“AOPBT”) was £388 million (PIC: £389 million), a decrease of 27% from 2021
(PIC: 27%).
Underlying profit
This item comprises the expected returns arising from the management of the Group’s assets and liabilities. This is derived
byusing assumptions about long-term returns on the underlying investment portfolio backing liabilities, and on the surplus
assets of the Group.
It also includes the impact on profit of writing new pension risk transfer contracts based on target asset mix assumptions
andthe impact of entering into new contracts of reinsurance.
Underlying profits have increased to £654 million (2021: £455 million). Included within this:
•
Expected return from operations reflects the expected returns arising from the management of the Group’s assets and
liabilities. This is derived by using assumptions about returns on the underlying investment portfolio backing liabilities, and
on the surplus assets of the Group. Expected returns of £426 million were above the prior year (2021: £288 million), mainly
driven by the increase in interest rates and higher levels of surplus assets.
•
New business and reinsurance profit represents the impact on profit of writing new pension risk transfer contracts based on
target asset mix assumptions, and the impact of entering into new contracts of reinsurance. New business and reinsurance
profit of £228 million was higher than 2021 (£167 million), resulting from the £4.1 billion of new business premiumswritten.
A. Business and Performance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202214
Changes in valuation assumptions
The Group’s focus remains on long-term profitability, which is achieved by setting prudent assumptions in respect of the
in-force liabilities and new business acquired during the year. Management regularly review these assumptions to ensure
thatthey reflect the characteristics of our book and wider market practice.
As part of management’s regular review of assumptions in 2022, several assumptions were updated that were broadly
neutral in aggregate (2021: £315 million profit).
In the year we have made changes to the way we model pension revaluation increases, which contributed to a release
ofreserves of £62 million.
For longevity, we adopted CMI_2021, which is the latest version of the Continuous Mortality Investigation’s (“CMI”) projections
model, to generate future mortality improvements. The impact of Covid-19 has also been removed from the derivation of
current mortality rates. These changes lowered management’s view of future average life expectancies, and consequently
generated a reduction in reserves of £60 million.
We increased our cash commutation take-up rate to reflect more recent economic conditions and PIC’s new longevity
assumptions. This generated a reserve release of £30 million.
Following an in-depth review in the year, we increased our reserves by £106 million to reflect Management’s latest view
ofmaintaining the cost of our Limited Price Index (“LPI”) inflation linked obligations.
Finally, we have updated our maintenance expense assumptions to reflect the latest expense budget and policy count
information. This increased reserves by £52 million. In addition, there were several other smaller assumption changes made
inthe year, including an update to our ERM valuation, reinsurance, investment expense and project costs assumptions.
In 2021, several assumptions were updated including those in respect of credit defaults, maintenance expenses, investment
management fees, inflation and the IFRS liquidity premium rate, which together resulted in a total reserve release of
£315 million.
Experience and other variances
Experience variances gave rise to a loss in the year of £79 million for PICG and £78 million for PIC (2021: PICG loss of £77 million;
PIC loss of £77 million). The loss in the current period largely reflects differences between assumptions used for pricing and
reserving on new business. In 2021, the loss largely related to experience variances on new business, actual claims experience
compared to expectation and the impacts of data updates from underlying policyholder information.
Finance and project costs
The interest costs of the subordinated Tier 2 debt capital issued by PIC and transaction costs increased slightly to £90 million
in 2022 (PICG: £90 million) from £88 million the previous year (PICG: £89 million).
Interest coupons paid on the RT1 Debt issued by PIC were £33 million (PICG: £33 million) and were unchanged from 2021
(PIC:£33 million, PICG:£33 million).
Project costs in 2022 were £58 million (PICG: £58 million) compared to 2021 costs of £38 million (PICG: £38 million) due to
higherspend on business-wide initiatives.
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 differences between the
short-term actual asset mix against the expected long-term asset mix on new business transactions.
We carefully manage our risk to market and other economic factors and enter into derivative hedging contracts to manage
these exposures in accordance with our risk appetite. Our 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. The impact of changes
in credit ratings and timing variances for asset purchases backing new business are also included here.
Investment related variances resulted in a gain of £819 million (2021: loss of £173 million), largely from favourable market
movements and management actions to optimise the risk profile of our portfolio. The year-on-year improvement was
mainlydriven by higher interest rates, rising inflation and wider credit spreads.
Other operational highlights
In total, in 2022, PIC was responsible for the current and future pension payments of 302,200 (2021: 282,900) policyholders,
including those with individual policies, and those for whom the trustees of the underlying pension schemes retain
ultimateresponsibility.
At 31 December 2022, 87% of the Group’s gross longevity related reserves had been reinsured (2021: 85%). 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 202215
A.3 Performance of investment activity
The investment performance (including commissions earned), as presented in the table below, is a reflection of income,
gains(realised and unrealised), losses and expenses arising from the investment portfolio owned by the Group.
Group and Company
Investment return: by Solvency II Asset Class
2022
£m
2021
£m
Government bonds (5,763) 59
Corporate bonds (3,914) (188)
Collective Investment undertakings 293 119
Cash and deposits 12 (2)
Collateralised securities (52) 1
Mortgages and loans (3,197 ) (220)
Derivative based instruments 224 440
Commissions earned 1 1
Investment Return (12,396) 210
Investment management expenses (57) (42)
Total (12,453) 168
Investment return comprises income received on fixed income securities, derivatives and investment property, and
unrealised and realised gains and losses on these investments. The above table allocates investment return across
theSIIasset classes.
It is important to note that because our assets and liabilities are broadly matched, the rise in interest rates has also
materially reduced our insurance liabilities, a change also reflected in the income statement.
A.4 Performance of other activities
Pension Insurance Corporation Group Limited
Group corporation tax charges, including those incurred by PIC, were £229 million during the year (2021: £82 million).
Pension Insurance Corporation plc
The Company incurred corporation tax charges of £229 million for the year ended 31 December 2022 (2021: £81 million).
A.5 Any other information
Economic uncertainty and market volatility
The global economic outlook has weakened further through 2022 due to high inflation and low growth rates. Central banks
globally are increasing interest rates to combat inflation, which is exacerbated by energy and food price shocks. Geopolitical
risks are high across the globe, and in particular the Russian invasion of Ukraine continues which has worsened Europe’s
energy security.
The financial impacts on PIC of these conditions can be both positive and negative. On the negative side, the current market
conditions have resulted in higher risk of credit downgrades and defaults, and heightened risk overall. We constantly monitor
market conditions and have risk appetite limits set for PIC’s exposure to market risks. PIC also holds capital to protect the
business against market movements, downgrades and defaults, and we continue to refine our methodology for calculating
the amount of capital to hold. On the positive side, rising yields improve the funding position of pension schemes, which
accelerates their ability to move to buyout, which in turn increases new business opportunities. Higher yields also improve
PIC’s solvency position.
Whilst the Liability Driven Investment (“LDI”) crisis in the pension market did impact PIC’s liquidity as a result of rapidly increasing
gilt yields and the decreasing value of GBP against USD, PIC remained within its liquidity and capital risk appetite limits.
Alongside managing the day-to-day market volatility, the risk management capabilities of the Group have been enhanced.
This includes significantly improving asset stress and scenario testing capabilities with the implementation of a new asset
stressing model and development to our Risk Appetite Framework.
Rounding convention
The SFCR is presented in pound sterling rounded to the nearest million which is consistent with the presentation in
theIFRSfinancial statements. The QRTs are presented in pound 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 202216
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
ESG 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 202217
B.1 Governance Function
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 2022, holds a 49.49% interest in PICG, one is nominated by Luxinva S.A., a wholly owned subsidiary of the
AbuDhabi Investment Authority, which holds a 18.42% interest in PICG, one is nominated by Blue Grass Holdings Limited,
aCVC entity, which holds a 17.37% interest in PICG, and one is nominated by MP 2019 K2 Aggregator, L.P., an HPS Investment
Partners entity, which holds a 10.23% 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 day to day
running of PIC.
PICG Board
Director Approved Function
Jon Aisbitt SMF 7 Group Entity Senior Insurance Manager Function
SMF 9 Chairman
SMF13 Chair of the Nomination Committee
Stepped down as SMF 7,9 and
13and retired from the Board
on1October 2022
David Weymouth SMF 7 Group Entity Senior Insurance Manager Function
SMF 9 Chairman
SMF 13 Chairman of the Nomination Committee
Board member from 1 October
2022 and approved by the PRA
on19 December 2022
Tracy Blackwell SMF 1 Chief Executive Function
SMF 7 Group Entity Senior Insurance Manager Function
Jake Blair SMF 7 Group Entity Senior Insurance Manager Function
Judith Eden SMF 12 Chair of Remuneration Committee
Tim Gallico SMF 7 Group Entity Senior Insurance Manager Function
Julia Goh Non-executive Director
Stuart King Non-executive Director
Arno Kitts Non-executive Director
Josua Malherbe SMF 7 Group Entity Senior Insurance Manager Function
Roger Marshall SMF 11 Chair of the Audit Committee
SMF 14 Senior Independent Director
Jérôme Mourgue D’Algue SMF 7 Group Entity Senior Insurance Manager Function
Mark Stephen Non-executive Director
Wilhelm Van Zyl SMF 7 Group Entity Senior Insurance Manager Function
Pension Insurance Corporation plc
PIC is governed by its Board consisting of 14 directors, 12 of whom are non-executive. Eight of PIC’s directors are independent,
including the Chairman.
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., an HPS Investment Partners entity.
Pension Insurance Corporation plc is a wholly owned subsidiary of 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 to set 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 in more detail their responsibilities.
B. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202218
PIC Board
Director Approved Function
Jon Aisbitt SMF 7 Group Entity Senior Insurance Manager Function
SMF 9 Chairman
SMF13 Chair of the Nomination Committee
Stepped down as SMF 7,9 and
13and retired from the Board
on31 October 2022
David Weymouth SMF 7 Group Entity Senior Insurance Manager Function
SMF 9 Chairman
SMF 13 Chair of the Nomination Committee
Board member from 1 October
2022 and approved by the PRA
on19 December 2022
Tracy Blackwell SMF 1 Chief Executive Function
SMF 7 Group Entity Senior Insurance Manager Function
Sally Bridgeland SMF 10 Chair of the Risk Committee
Jake Blair SMF 7 Group Entity Senior Insurance Manager Function
Judith Eden SMF 12 Chair of the Remuneration Committee
Julia Goh Non-executive Director
Stuart King Non-executive Director
Arno Kitts Non-executive Director
Roger Marshall SMF 11 Chair of the Audit Committee
SMF 14 Senior Independent Director
Jérôme Mourgue D’Algue SMF 7 Group Entity Senior Insurance Manager Function
Peter Rutland SMF 7 Group Entity Senior Insurance Manager Function
Mark Stephen Non-executive Director
Wilhelm Van Zyl SMF 7 Group Entity Senior Insurance Manager Function
Dom Veney SMF 2 Chief Finance Function
Audit Committee
The Board has established the Committee in fulfilling its responsibilities regarding financial reporting, the effectiveness
ofinternal controls 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 to the Committee the responsibility for overseeing the following key areas:
Financial reporting
Monitoring and, where necessary, challenging 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suggested basis including prudential margins for the technical provisions under IFRS.
Reviewing and, where necessary, challenging all material information presented in the Annual Report and Accounts before
these are approved by the Board.
Providing oversight of progress towards implementation of IFRS 17 and the financial impact on the Group’s reporting.
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
Overseeing and assessing the framework, effectiveness and adequacy of the Group’s systems of internal control, including
key financial, operational and compliance controls. The Committee meets regularly with management, the Chief Risk Officer,
the General Counsel and the Head of Internal Audit to ensure management take action to address any issues arising from
this review.
Overseeing the validation process of the regulatory balance sheet and jointly with the Risk Committee making appropriate
recommendations to the Board.
Liaising closely with the Risk Committee, ensuring that there are steps to identify and mitigate any significant risk to theGroup.
B. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202219
Compliance, Financial Crime and Whistleblowing
Reviewing 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.
Reviewing the adequacy of the Group’s whistleblowing policies and procedures ensuring that such arrangements allow
proportionate and independent investigation of such matters and appropriate follow up action.
Reviewing the Group’s procedures for detecting fraud, systems and controls for prevention of bribery and market abuse.
Internal and External Audit
Overseeing and monitoring 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 Head of Internal Audit.
Managing the relationship with the External Auditor, monitoring and reviewing its independence, objectivity and performance,
and leading the tender process or Senior Statutory Auditor change.
Considering and making 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.
Reviewing the policy on non-audit services carried out by the External Auditor.
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, in conjunction with the Audit Committee.
The Board has delegated to the Committee the responsibility for overseeing the following key areas:
Risk Strategy, Appetite and Policy
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 to the Board the design and implementation of Risk Management Frameworks
and measurement strategies for the Company. It also reviews the risk appetite and tolerances and recommends these
totheBoard for approval.
Risk Oversight and Monitoring
The Risk Committee keeps under review the Company’s overall risk identification, assessment and management process
that inform the Board’s decision making. The Committee is responsible for oversight of the Internal Model and for 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. It further provides advice, oversight and challenge
necessary to embed and maintain a supportive risk culture throughout the Company.
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.
Risk Function and the Chief Risk Officer
The Risk Committee considers and approves the Risk Function and Acturial Function Mandate and reviews and assesses
performance of the Chief Risk Officer. It works with the Nomination Committee on making recommendations to the Board
with regard to the appointment and removal of the Chief Risk Officer.
Investment and Origination Committee
The Investment and Origination Committee oversees the management of all aspects of investment policy and strategy for
PIC and provides oversight of the operation of PIC’s investment portfolios within established strategy and risks frameworks.
The Committee plays a key role in PIC’s governance of pricing by providing oversight of portfolio pricing for large deals.
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 at least annually the pricing assumptions and approves the pricing authority for management.
B. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202220
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 of the Executive Committee, and make recommendations
totheBoard with regard to any changes.
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, the Executive Directors, Executive Committee and other material risk takers.
Environmental, Social and Governance Committee
The role of the Environmental, Social and Governance Committee is to provide oversight in respect to the Group’s
ESGstrategy and activities, to embed the monitoring of ESG activities, ensuring compliance with legal and regulatory
requirements and industry standards, and ensuring all stakeholders receive appropriate information about the Group’s
ESGactivities.
Executive Committee
The Executive Committee consists of the CEO, CFO and senior management of the Company. Its role is to propose strategy
tothe Board and, once approved, implement 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.
Executive Committee
Chief Executive Officer (“CEO”)
Chief Financial Officer (“CFO”)
Chief Risk Officer (“CRO”)
Chief Operating Officer
General Counsel
Chief Origination Officer
Interim Chief People Officer
Chief Investment Officer
Head of Internal Audit*
Chief Technology Officer
Chief Strategy Officer
* From 1 February 2023, the Head of Internal Audit role ceased to be a formal ExCo member. Also from 1 February 2023, the Chief Internal
Audit Officer, a new role, became a standing attendee.
Material changes to the governance structure over the reporting period
Pension Insurance Corporation Group Limited
The following changes were made to the Board of Directors of PICG between 1 January 2022 and the date of this report:
•
David Weymouth appointed on 1 October 2022
•
Jon Aisbitt retired on 1 October 2022
Pension Insurance Corporation plc
The following changes were made to the Board of Directors of PIC between 1 January 2022 and the date of this report:
•
David Weymouth appointed on 1 October 2022
•
Jon Aisbitt retired on 31 October 2022
Remuneration Policies and Practices
Governance of remuneration
The PIC Remuneration Committee (“RemCo”) is a Board level committee. The RemCo consists of four non-executive directors
and two shareholder nominated directors. The RemCo is governed by its Terms of Reference, which sets out its duties and,
which are reviewed regularly.
The RemCo has responsibility for setting the remuneration policy of the Company and for its implementation and regular
review. Reports on Committee activity are provided to the Board as appropriate.
The RemCo is also responsible for individual remuneration arrangements and outcomes for the Company’s Chairman,
ChiefExecutive, Executive Directors, Executive Management and material risk takers. To minimise the risk of any conflicts
ofinterest, no individual is involved in decisions regarding their own remuneration.
B. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202221
In its oversight of the remuneration structures, the RemCo takes full account of strategic objectives and stakeholder views,
aswell as the interests of the customer/policyholder. The alignment of risk and reward is a prominent consideration, and
theRemCo seeks input from the CRO, Chair of the Board Risk Committee (“BRC”), and the Chair of the Audit Committee
inthe design of remuneration policies and in determining collective and individual reward outcomes.
The RemCo also has responsibility for compliance with all relevant legal and regulatory requirements on remuneration,
including Solvency II which came into force on 1 January 2016. The RemCo 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 2022 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 and 28 days annual leave.
Pension All employees who meet the minimum criteria are automatically enrolled in the Stakeholder 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 Stakeholder 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.
B. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202222
Annual
bonus
The annual bonus plan provides participants with an opportunity to receive a cash amount, subject to
performance measured in respect of the relevant financial year. All eligible employees may be invited
toparticipate in the plan.
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.
For Solvency II Identified Staff, individual bonus payments are determined by the Remuneration Committee
based on a review of both financial and strategic measures and assessment of individual performance over
the year, including a review of individual performance by the CRO.
Performance is assessed against both financial and non-financial criteria. Financial performance is
reviewed against a basket of financial metrics agreed at the beginning of the year. Non-financial criteria
couldconsider metrics such as compliance with risk appetite, compliance breaches, customer service
measures and conduct, and findings of Risk, Compliance and Internal Audit reviews.
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 Risk Committee and
the CRO on company-wide risk management performance over year, including an assessment of whether
the business has acted within risk appetite in pursuing the strategic goals and financial targets. The variable
incentive pool and/or individual awards may be adjusted downwards to reflect poor risk management
performance.
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.
The bonus opportunity is expressed as a percentage of salary and depends on an individual’s role and
responsibilities. The annual bonus comprises a cash element and an award of nil-cost options. While the
cash element of the bonus is paid upfront, for Solvency II Identified Staff at least 40% of variable pay is in
the form of nil-cost options which are subject to deferral over a three-year period predominantly using the
Deferred Bonus Share Plan (“DBSP”), as detailed below.
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 DBSP, bonuses comprise of 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.
The RemCo has the ability to reduce or extinguish the level of any award, or require amounts to be
reclaimed from individuals. This may be the case in the event of:
•
significant financial losses or material misstatement of the accounts for the Company or any group company;
•
material failure of risk management for any period that the Committee reasonably considers is relevant;
•
discovery of a material error in relation to the assessment of annual performance on which an award
was based; and/or
•
reasonable evidence of any act or omission by the participant which in the opinion of the Committee:
•
has contributed to material losses or serious reputational damage to the Company or any business
area;or
•
has amounted to serious misconduct, fraud or misstatement (whether by exaggeration of financial
performance or mismarking the valuation of any asset or otherwise).
•
for any period that the Remuneration Committee determines is relevant; and/or in relation to an Award
granted on or after 1 January 2022, and to the extent not already covered by the above provisions:
•
a material corporate failure in any Group Member or a relevant business unit; or
•
the discovery of a material error in relation to the information or assumptions on which the Award
wasgranted or vests.
B. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202223
Long-term
Incentive
Plan
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 ExCo 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).
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, followed by a post-vesting holding period of up
tothree years 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BRC and Chair of the Audit Committee for an assessment of risk and compliance within established risk appetite
limitsas stated and approved by the BRC.
•
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 the table above.
•
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.
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.
2022
£m
2021
£m
Short-term employee benefits 9 9
Share-based payments 4 5
Total 13 14
Other related party transactions
On 8 June 2021, PIC subscribed to €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 period amounted to
£2 million (2021: £1 million) and the carrying value of the investment at 31 December 2022 was £97 million (2021: £126 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 distributions of £33 million (2021: net capital contributions of £12 million) and investment income
amounted to £14 million (2021: £7 million). As at 31 December 2022 the carrying value of the investments was £166 million
(2021: £176 million).
During the year, the Group invested £22 million into joint ventures. The Group has a majority stake in the joint venture and
isrequired to provide its unanimous consent with other joint partners on all key relevant activities that influence returns.
Transactions with shareholders
Pension Insurance Corporation plc
There were no transactions with its shareholder during 2022 (2021: £nil).
Pension Insurance Corporation Group Limited
There were no transactions with shareholders during 2022 (2021: £nil).
B. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202224
B.2 Fit and proper requirements
PIC has in place procedures to 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.
In respect of each role, PIC compiles a detailed job description including the role’s competencies and required qualifications.
Potential recruits are interviewed by people experienced in these areas and confirmation is obtained from external agencies
that they have the qualifications claimed. References from previous employers are taken up if available.
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 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 certified on 1 April 2022.
A list of the approved persons of the Company is held on the Financial Services Register website, maintained by the
FinancialConduct Authority, and is available from the following link.
https://register.fca.org.uk/s/firm?id=001b000000MfdHKAAZ
B.3 Risk management system including the Own Risk and Solvency Assessment
B.3.1 Risk Appetite Framework
The Risk Appetite Framework is a key aspect of 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 and it outlines the roles
andresponsibilities of those who implement and monitor the Company’s risk appetite.
B. System of Governance (unaudited) continued
Business
Strategy
Risk Strategy
The Board’s strategy for
taking risk, covering the
typesof risks we seek
tominimise/avoid
Primary risk appetitemetrics
Measurable limits to ensure
that PIC achieves the aims
set out in the Risk Appetite
Statements – monitored by
theBoard Risk Committee
and reported to the
PIC Board
Risk appetite strategy
Statements to support the
risk strategydescribing the
amount and typeof risk
thatPIC is willing to take
interms of key risk drivers
Risk preferences
Granular breakdown of
preference forspecific
riskstowhich PIC
isexposedtoinpursuit of
itslong-termbusiness goals
Secondary risk
appetitemetrics
More granular triggers
andconstraints tosupport
the primary risk appetite
metrics – monitored by the
ManagementRisk Committee
andreported to the Board
Risk Committee
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202225
B.3.2 Risk strategy and preferences
PIC’s risk preferences define the Board’s appetite towards taking different types of risks which the Company may be
exposed to in pursuit of its strategic objectives. Risks are categorised as those the Company actively seeks, those the
Company accepts and those the Company seeks to minimise.
Risk preferences are set for each Level 1 and Level 2 risk category by referring to the Risk Preference Principles articulated
bythe Board as part of the Company’s risk strategy.
These principles are:
We should actively seek risks that:
•
are aligned with our business strategy and with stakeholder expectations;
•
we believe are adequately rewarded; and
•
are within the capabilities and capacity of our people, processes and technology to manage.
We should accept and take measured amounts of risks that:
•
are an acceptable consequence of pursuing our business strategy; and
•
are within the capabilities and capacity of our people, processes and technology to manage.
We should minimise risks which:
•
are not aligned with our business strategy or to stakeholder expectations; or
•
are beyond the capabilities and capacity of our people, processes and technology to manage.
B.3.3 Risk Management System
PIC’s Risk Management System outlines how risks are identified, assessed, controlled and managed. Risk assessment
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. System of Governance (unaudited) continued
Identify
Report Assess
Monitor Manage
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202226
B.3.4 Risk appetite
PIC’s Risk Appetite Framework is closely aligned with its business strategy. This is defined for the medium-term (typically three
to five years) and reviewed annually. The Company has developed primary and secondary risk appetite metrics which are
designed to align with supporting the safe delivery of the business strategy objectives. Where it is considered an appropriate
control of a risk, target, threshold triggers and/or limits are set for each of the risks within PIC’s taxonomy appetite metrics.
Ifone of the risk appetite metrics passes through a trigger or limit, it necessitates escalation and appropriate action.
B.3.5 Own Risk and Solvency Assessment
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 Solvency Capital Requirement 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 at a future date over the planning horizon, 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 programme and discussed in risk and solvency reports such as the Own Risk and
Solvency Assessment (“ORSA”).
The ORSA assessment provides an ongoing process to identify, assess, monitor and manage the risks to PIC’s business plan
and solvency over both the near term and the five-year business planning horizon.
The ORSA activities include:
•
assessment of the Company’s current and projected risks;
•
assessment of risk mitigation, including capital and liquidity buffers;
•
stress and scenario testing, including reverse stress testing; and
•
strategic planning and financial projections.
These are summarised in the annual ORSA report which is reviewed and approved annually by the Board.
The ORSA is a forward-looking assessment of the business’ capital requirements considering the specific risk profile from
targeting the strategy. The ORSA alongside PIC’s approved Internal Model are the key tools in the business determining its
own solvency needs. They both take account of PIC’s risk profile with the final ORSA report documenting the interaction
between capital management activities and the risk management system.
B.3.6 Capital Buffer
In addition to managing the profile of its assets to meet the Company’s objectives to ensure it can meet its obligations
topolicyholders and providers of capital in a timely manner, the Board determines its own view of the amount of capital
itbelieves the business needs to hold.
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,
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.
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;
B. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202227
•
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.
There have been no material changes to the Company’s Internal Model governance over 2022.
B.4 Internal control system
In line with the Internal Controls system, the Board takes responsibility for ensuring the implementation of a comprehensive
framework of controls across the Company, 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 to provide an
appropriate control environment that supports the key processes for which the committee is responsible for oversight.
These processes and procedures encapsulate specific principles of the Internal Control Framework which are exercised
inthe operation of the Company’s day to day activities:
•
Staff recruitment, appraisal and training
•
Segregation of duties
•
Authorisation of transactions
•
Retention of records
•
Physical safeguards
•
Performance reviews
•
Information Security
•
Fraud detection
•
Reporting
•
Re-performance
•
Incident management
PIC’s internal control framework is designed to provide reasonable assurance that the Company’s activities are focused
onensuring the Company’s 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. They consist of a number of control activities which are deemed appropriate
tothe business and the principles of these are documented below:
CONTROL
ACTIVITY
PRINCIPLES
Existence: Only valid or authorised transactions are processed and appropriate assets and liabilities recorded.
This includes appropriate reconciliation of records held by external parties to expected outcomes.
Occurrence: Transactions are correctly processed and recorded in the period to which they relate on a timely basis.
This includes controls over outsourcing arrangements such as confirmation that controls have occurred
and suitable records have been maintained.
Completeness: All valid transactions are processed without omissions. Checks are made to confirm completeness
oftransactions, including payments to pensioners each month.
Monitoring is undertaken to confirm agreed service standards are met.
Records for assets maintained by outsourced custodians are checked to ensure completeness
andaccuracy.
Control attestations are completed by Executive Management at least annually to confirm
conformance with key policies.
B. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202228
CONTROL
ACTIVITY
PRINCIPLES
Valuation: The value of each transaction and balance in the Company’s accounts is calculated using an appropriate
methodology and is computationally accurate. Policies and procedures are documented and approved
including the Investment valuation policy, which is reviewed by external auditors.
Reviews are undertaken of the application of relevant policies.
Models are subject to appropriate change control, assumptions are documented and appropriate
approvals are undertaken prior to new business commitments.
Security: The Company’s assets and data are held in a secure environment with adequate safeguards over
misuse and misappropriation.
Relevant policies are documented and communicated to all staff, with clear record of their obligations
to protect assets.
Security of information, and in particular data relating to policy-holders, is subject to scrutiny and
review, with information security matters highlighted and communicated to executive management,
the Board and relevant committees.
Physical assets are recorded and subject to regular checks.
Physical access to the Company’s premises and assets is restricted, with regular testing of access
controls, monitoring and exceptions reporting.
Rights and
Obligations:
Assets and liabilities are properly recorded and valued. Assets represent the rights of the company,
andliabilities its obligations, at a given date.
Presentation &
Disclosure:
Components of financial statements (or other reporting) shall be properly classified (by type or account)
and described appropriately.
An audit trail is kept from financial statements to internal management reports.
Competence: Staff employed by the Company have the skills appropriate to their role and responsibilities, and
aresupported by a suitable training programme to augment their skills as necessary; this includes
documented job descriptions, agreed development plans and support for continuing
professionaldevelopment.
Monitoring and assessment of “fit and proper” requirements, including critical finance functions,
undertaken in line with the Company’s Fit and Proper Persons policy.
Regulation: The Company’s affairs are conducted at all times in compliance with the rules of its regulatory bodies.
Established Compliance function supported by staff training and regular monitoring of key parameters
by which compliance is measured (e.g. treating customers fairly, breach reporting etc).
Risk: The Company identifies and considers the operational and financial risks it runs in the course
ofmanaging its business and identifies and implements appropriate mitigating procedures.
The Board sets a Risk Framework for the Company, which includes Risk Appetite and tolerance limits.
Board Risk, Risk Management and Operational Risk Committees meet on a regular basis.
Oversight is provided by the relevant Board and Management Risk Committees to assess how risks
arebeing managed and any areas that internal controls are not operating as expected. Meetings
areminuted and action points followed up by Chief Risk Officer and Operational Risk Manager.
Operational
resilience:
Operational resilience defines PIC’s ability to prevent, adapt, respond to, recover and learn from
operational disruptions. PIC’s business continuity and disaster recovery plans are key elements of PIC’s
approach to achieve operational resilience. The plans are produced, maintained and regularly tested,
with periodic update and review, including monitoring by the Business Continuity Review Group.
B. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202229
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
The primary role of Internal Audit 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, designed to add value
andimprove PIC’s operations.
Internal Audit helps PIC achieve its purpose of paying the pensions of our policyholders by assessing whether all significant
risks are identified and appropriately reported by management and the Risk function to the Board and Executive Management;
assessing whether they are adequately managed; and by challenging the Executive Management to improve the effectiveness
of governance, risk management, internal controls and the control culture.
Internal Audit is responsible for reviewing and reporting on:
•
audits of the controls mitigating the key risks in all areas of the business, prioritised according to risk;
•
major business change initiatives; and
•
risk management and internal control processes.
Internal Audit submit, at least annually, a risk-based internal audit plan to Senior Management and the Audit Committee
forreview and approval. The annual planning process consists of review and update of the audit universe, review of current
and emerging risks, discussions with senior management, risk-based prioritisation and agreeing the approach, timing and
resource to be allocated to the audits. The impact of resource limitations and significant interim changes are communicated
promptly to Senior Management and the Audit Committee and the Board, through periodic activity reports.
Internal Audit’s activities encompass, but are not limited to, the examination and evaluation of the adequacy and effectiveness
of the organisation’s governance, risk management and internal control processes in relation to the organisation’s defined goals
and objectives. The scope includes:
•
internal governance – design and operating effectiveness of the internal governance, structures and processes, to confirm
they are in line with the objectives, risk appetite and values of the organisation. This includes:
•
review of policies and of the design and operating effectiveness of processes;
•
the risk and control culture, including:
– the design and operation of the Risk Management, Compliance and Finance functions;
– effectiveness and efficiency:
– of operations and employment of resources, and
– management of risks relating to capital and liquidity, IT, assets, operations, people, finance and actuarial; and
•
management and oversight of third parties and outsourcers;
•
management Information – Reliability, integrity and effectiveness of management information and reporting, used
bytheBoard and Executive Management for strategic and operational decision making;
•
risks of poor customer treatment, giving rise to conduct or reputational risk; and
•
key corporate events including significant business process changes, new products, services, outsourcing decisions
andacquisitions/divestments, as well as review and reporting on significant control failures and assisting investigation
ofsignificant suspected fraudulent activities.
Internal Audit aims to comply with the Institute of Internal Auditors (“IIA”) International Standards for the Professional
Practiceof Internal Auditing, their Code of Ethics and their guidance for Effective Internal Audit in the Financial Services
Sector. Internal Audit is also required to comply with the PIC’s Employee Handbook, the PIC policies and its core values at
alltimes. Internal Audit maintains a quality assurance and improvement programme that covers all aspects of the internal
auditactivity.
To provide for independence, Internal Audit reports functionally to the Chair of the Audit Committee and administratively
tothe Chief Executive Officer. Financial independence, essential to the effectiveness of internal auditing, is provided by the
Audit Committee approving the annual budget to allow Internal Audit to meet the requirements of the Internal Audit Policy
and Charter.
B. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202230
The scope of Internal Audit is unrestricted. Internal Audit is functionally independent and objective from the activities audited
and the day-to-day internal control processes of the organisation. They are able to conduct an assignment on their own
initiative, with free and unfettered access to people and information, in respect of any relevant department, establishment
or function of the organisation, including the actions of outsourced activities.
Internal Audit is represented on, or has full access to minutes and presentations to, all of the major committees, so as to keep
abreast of the Company’s strategic direction, developments and risk/control breakdowns.
In addition to internal audit reports of activity and regular updates to committees and the Board, Internal Audit provides
anannual written assessment of the adequacy and effectiveness of PIC’s risk management, internal control, culture and
governance processes and systems.
Internal Audit co-ordinates activity with other assurance functions as part of an “Integrated Assurance Approach”, to align
audit and assurance work where relevant to optimise assurance provided across the business and minimise duplication of
work. This includes co-ordinating assurance plans, providing input to integrated assurance and being informed by the work
and results of the other assurance functions, external assurance and consulting service providers.
B.6 Actuarial function
The Company’s Actuarial Function is led by the Actuarial Function Holder (“AFH”). The current AFH is a senior qualified
actuary who is employed by the Company and supported by other actuaries. The AFH reports to the Company’s Chief
RiskOfficer and has direct access to the Board, Audit and Risk Committees.
The AFH and his actuarial team are not directly involved in the production of Technical Provisions and have no direct
involvement in decisions relating to underwriting or reinsurance. The AFH team operates independently from the 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 maintains regular close oversight of these activities through regular and ad hoc interactions with these teams,
asnecessary. In particular, the AFH and the Company’s Chief Actuary hold monthly meetings at which each month
end’svaluation results and profit/loss analysis are discussed along with the projected short-term financial position
oftheCompany, as well as other regular information received from other areas of the business.
In this way, the AFH is able to discharge the Actuarial Function’s responsibilities relating to the co-ordination of the calculation
of technical provisions, providing an opinion on underwriting policy and 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
PIC has a number of outsource providers, noting always that it maintains 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.
When choosing a material outsource provider, PIC’s policy requires it to ensure the following issues are considered and
documented in the legal arrangements between it and its chosen outsourcer:
•
Ability, capacity, and authorisation
•
Financial Resources
•
Staff
•
Change management and future proofing
•
Control Framework
•
Conflicts
•
Rights and Obligations
•
Sub Outsourcers
•
Data Protection
•
Operational Risks
•
Authorisation
•
Contingency Plans
•
Exit plans
•
Cost
B. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202231
PIC also maintains sufficiently qualified staff to monitor the provision of these services and to carry out checks against
theabove areas 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 to that, 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 who 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.
The Group’s service company, PSC, provides all staff and certain services to PIC under the terms of a services agreement.
Theprovision of these services is overseen by the Board. PSC charges to PIC during 2022 totalled £210 million
(2021: £176 million).
The following key functions and activities have been outsourced:
•
Policyholder, payroll and administration services to Capita Employee Benefits Limited
•
Custodian and investment accounting to JP Morgan
•
Custodian and Trade Management to Northern Trust
•
Asset management to JP Morgan, Schroders, Wellington Management International, TwentyFour Asset Management
andMacquarie
•
IT support to Content+Cloud
•
Actuarial support services to Barnett Waddingham LLP and XPS Pensions Consulting Limited.
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 202232
The Solvency Capital Requirement for both PICG and PIC was £3,199 million as at 31 December 2022 (31 December
2021: £3,968 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:
•
Market risk (including credit risk) (see C.1 and C.5)
•
Insurance risk (see C.2)
•
Operational risk (see C.3)
•
Expense risk (see C.4)
•
Counterparty default risk (see C.5)
This can be expressed graphically, as shown below (pre-diversification):
2021
Market risk (including credit risk)
64%
Counterparty default risk
3%
Insurance risk
21%
Expense risk
6%
Operational risk
6%
2022
Market risk (including credit risk)
74%
Counterparty default risk
2%
Insurance risk
11%
Expense risk
6%
Operational risk
7%
The various components of the Risk profile are discussed in further detail in sections C.1 to C.6.
The prudent person principle is embedded within the Company’s investment strategy. In accordance with the principle,
theCompany only invests in assets and instruments:
•
where the risks can be properly identified, measured, monitored, managed, controlled and reported;
•
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; and
•
that are in the best interest of policyholders and beneficiaries.
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
The Company is exposed to market risk as a consequence of fluctuations in values or returns on assets 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.
C.1.2 Market risk management and mitigation
The Company uses derivative financial instruments to reduce market risk. Interest rate and inflation swaps are entered
intoto improve the matching of asset and liability cashflows and to ensure that risk driver sensitivities are aligned across
thematurity spectrum. Currency forwards and swaps are entered into to reduce currency risk on financial assets invested
innon-sterling-based debt securities. The 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.
C. Risk Profile (unaudited)
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202233
The Company accepts property risks directly through investment in equity release mortgages and real estate assets.
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. 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.
Capital is held to further protect the Company against crystallisation of market risks. Stress testing of the Solvency II solvency
position is conducted to ensure a suitable solvency buffer is maintained. The impact of certain scenarios on the reported
Solvency II ratio is shown below for a range of market and non-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.
2022 2021
As Reported 225% 168%
100 bps increase in interest rates
1
16.1% 12.9%
100 bps reduction in interest rates
1
(12.3)% (23.1)%
100 bps increase in credit spreads
1
20.1% 9.4%
100 bps reduction in credit spreads
1
(5.5)% (19.1)%
10% increase in house price index 0.0% n/a
10% decrease in house price index 0.0% n/a
20% credit downgrade
2
(14.2)% (7.9)%
5% reduction in base mortality
3
(4.0)% (7.1)%
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 22.7 years to 23.1 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, 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.
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 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 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.2.2 Quota share 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.2.3 Unreinsured longevity
One aspect of deriving overall best estimate longevity assumptions is to establish the “current” or “initial” rates of mortality.
These assumptions 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 202234
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.
Whilst longevity risk is the fundamental risk relating to its insurance liability portfolio, the Company also considers the
following risks:
C.2.4 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.2.5 Exposure to changes in financial market conditions
The Company prepares information based upon a range of possible market conditions in order to assess the potential
impacts on the balance sheet and the management actions available to help mitigate this. During 2022, this has included
scenarios assessing the potential macro-economic impacts on PIC’s solvency and liquidity position arising from the cost of
living crisis to ensure adequate controls are in place to mitigate the potential balance sheet impacts of market movements
under a range of adverse scenarios.
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 an operational risk committee, the
maintenance of a central risk register, the Risk and Control Self-Assessment process, and an independent internal audit
review. The risk of internal fraud is managed througha number of processes including the screening of staff at recruitment,
regular compliance training, segregation ofduties and whistle-blowing policies.
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.
Emergency and business continuity plans have also been established to counter adverse occurrences.
There is an annual operational risk scenario review process in place to examine potential risk impacts caused by both internal
and external events. 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.
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. Risk Profile (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202235
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
The Company manages exposure to liquidity risk by modelling and monitoring projected future cashflows for the portfolio.
Projected cashflows are assessed for all new policy liabilities taken on as part of the new business origination process
toidentify the expected profile of future payments, and appropriate assets are then identified which provide matching
cashflows at an acceptable price. The Company accepts some liquidity risk in relation to the lack of marketability of
assetsas a buy-and-hold strategy is applied for assets that are cashflow matched to annuity liabilities.
The Company places minimum requirements for the level of cash held relative to upcoming planned liability payments (Cash
Coverage Ratio) and the level of high-quality liquid assets held relative to collateral requirements in certain adverse market
shocks (Liquidity Coverage Ratio). Within the Liquidity framework, stress testing is conducted to ensure there are sufficient
liquid assets at all times to meet potential demands from market movements under extreme scenarios.
Unlike other risks in this section, holding capital is not an effective mitigant against liquidity risk and instead the Company
holds a stressed amount of liquidity, as explained above.
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.7 Any other information
Other than climate change risk detailed below, PIC does not believe there are any other additional risks to which it is
exposedwhich need to be reported within the SFCR.
C.7.1 Climate change risk
Climate change presents a number of significant risks across our stakeholder group, including loss of value due to asset
impairment or shifts in supply and demand as climate related risks and opportunities are increasingly taken into account.
The negative impacts could also include operational disruption and reputational consequences arising from any failure in
evidencing our long-term climate actions. These could lead to reduced asset values, increased cost of capital and reduced
new business volumes.
We are continually assessing how our business may be impacted by climate change risk. Importantly, we have developed
ourrisk management approach to identify, manage and report climate related risks to our ESG Committee (Board level),
andultimately our Board. For our systems and processes, we include adaptation or operational disruption caused by
physical and transition risk associated with climate change in our risk analysis and have actively started engaging with
ourexternal providers. For the assets we invest in, we accept that some transition risk is inherent in doing business and
aimtominimise the physical risk in our portfolio.
PIC produces a Taskforce for Climate-related Financial Disclosures report, which outlines our approach to managing
climatechange across four key areas: strategy, metrics and targets, risk management and governance.
C. Risk Profile (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202236
Balance Sheet: PICG
2022
31 December 2022
Section
reference
Solvency II
value
(£m)
Adjustment
(£m)
Statutory
Accounts
Value
(£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 57,6 44 (47) 57,597
Loans and mortgages D.1.2.6 5,627 (200) 5,427
Reinsurance recoverables D.1 .2.7 1,140 59 1,199
Other assets D.1 .2.8 105 5 110
Deferred tax asset D.1 .2.8 6 (1) 5
Receivables D.1.2 .9 14 193 207
Cash and cash equivalents D.1 .2.10 905 192 1,097
Own shares held directly D.1 .2.11 20 (20) –
Total Assets S.02.01 65,461 181 65,642
Technical provisions D. 2.1 32,516 513 33,029
Derivative liabilities D. 3.1 25,348 – 25,348
Insurance and other payables D.3.2 188 16 204
Deferred tax liability D.3.3 142 (142) –
Subordinated debt instruments D.3.4 1,388 234 1,622
Total Liabilities S.02.01 59,582 621 60,203
Excess of Assets over Liabilities/Equity 5,879 (440) 5,439
2021
31 December 2021
Section
reference
Solvency II
value
(£m)
Adjustment
(£m)
Statutory
Accounts
Value
(£m)
Property, plant and equipment D.1.2.1 17 1 18
Investment property D.1.2.2 – 173 173
Holdings in related undertakings D.1.2.2 162 (162) –
Bonds D.1.2.3 40,045 – 40,045
Collective Investments undertakings D.1 .2.4 3,296 – 3,296
Derivative assets D.1 .2.5 15,018 – 15,018
Total Investments 58,538 12 58,550
Loans and mortgages D.1.2.6 7,451 (216) 7,235
Reinsurance recoverables D.1 .2.7 2,735 615 3,350
Other assets D.1 .2.8 98 6 104
Deferred tax asset D.1 .2.8 5 (1) 4
Receivables D.1.2 .9 18 10 28
Cash and cash equivalents D.1 .2.10 812 210 1,022
Own shares held directly D.1 .2.11 19 (19) –
Total Assets S.02.01 69,676 617 70,293
Technical provisions D. 2.1 45,552 1,461 47,013
Derivative liabilities D. 3.1 16,997 – 16,997
Insurance and other payables D.3.2 183 15 198
Deferred tax liability D.3.3 215 (214) 1
Subordinated debt instruments D.3.4 1,608 11 1,619
Total Liabilities S.02.01 64,555 1,273 65,828
Excess of Assets over Liabilities/Equity 5,121 (656) 4,465
D. Valuation for Solvency Purposes
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202237
Balance Sheet: PIC
2022
31 December 2022
Section
Reference
Solvency II
value
(£m)
Adjustment
(£m)
Statutory
Accounts
Value
(£m)
Holdings in related undertakings D.1.2.2 308 (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 59 1,199
Other assets D.1 .2.8 105 – 105
Deferred tax asset D.1 .2.8 – – –
Receivables D.1 .2.9 15 123 138
Cash and cash equivalents D.1 .2.10 902 – 902
Total Assets S.02.01 65,429 178 65,607
Technical provisions D. 2.1 32,516 513 33,029
Derivative liabilities D. 3.1 25,348 – 25,348
Insurance and other payables D.3.2 202 (2) 200
Deferred tax liability D.3.3 142 (142) –
Subordinated debt instruments D.3.4 1,388 234 1,622
Total Liabilities S.02.01 59,596 603 60,199
Excess of Assets over Liabilities/Equity 5,833 (425) 5,408
2021
31 December 2021
Section
Reference
Solvency II
value
(£m)
Adjustment
(£m)
Statutory
Accounts
Value
(£m)
Holdings in related undertakings D.1.2.2 162 – 162
Bonds D.1.2 .3 40,045 – 40,045
Collective Investments undertakings D.1 .2.4 3,296 – 3,296
Derivative assets D.1 .2.5 15,018 – 15,018
Total Investments 58,521 – 58,521
Loans and mortgages D.1.2.6 7,451 – 7,451
Reinsurance recoverables D.1 .2.7 2,735 615 3,350
Other assets D.1 .2.8 98 – 98
Deferred tax asset D.1 .2.8 – – –
Receivables D.1.2 .9 16 1 17
Cash and cash equivalents D.1 .2.10 805 – 805
Total Assets S.02.01 69,626 616 70,242
Technical provisions D. 2.1 45,552 1,461 47,013
Derivative liabilities D. 3.1 16,997 – 16,997
Insurance and other payables D.3.2 183 – 183
Deferred tax liability D.3.3 215 (214) 1
Subordinated debt instruments D.3.4 1,608 11 1,619
Total Liabilities S.02.01 64,555 1,258 65,813
Excess of Assets over Liabilities/Equity 5,071 (642) 4,429
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202238
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 presentational and valuation differences between the Solvency II and IFRS balance sheets are analysed below.
D.1.1 Asset recognition and derecognition (PIC and PICG)
The basis for recognition and derecognition of financial instruments is as follows:
A financial instrument is recognised if the Company becomes a party to the contractual provisions of the instrument.
Financial assets are derecognised if the Company’s contractual rights to the cash flows from the financial assets expire,
orifeither the Company 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 Company’s obligations specified in the contract expire
or are discharged or cancelled.
D.1.2 Asset valuation basis
The general valuation basis applied to each material class of investments is as follows:
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 Company 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 are 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.
In addition to right of use assets, the Group recognises £1 million on a statutory basis in relation to intangible assets
(2021: £1 million). Intangible assets are not permissible assets under Solvency II, giving rise to a valuation difference
betweenthe SII basis and the IFRS statutory accounts.
Non-financial assets that are measured at amortised cost are reviewed for impairment whenever events or changes
incircumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for
theamount by which the asset’s carrying amount exceeds its recoverable.
PICG
(£m)
2022
PIC
(£m)
2022
PICG
(£m)
2021
PIC
(£m)
2021
Solvency II value 4 – 17 –
Valuation differences 1 – 1 –
Statutory Accounts value 5 – 18 –
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202239
D.1.2.2 Investment Property / Holdings in related undertakings
The Group’s holdings in investment properties relate primarily to retail and residential properties. All properties are located
inthe United Kingdom and are held via Group 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.
Investments in properties not for occupation by the Group are carried at fair value. In the early period of construction of
aninvestment property, where fair value is not reliably measurable, the investment property is measured at construction
cost until fair value becomes reliably measurable.
Refer to D.4 for more details.
PICG
(£m)
2022
PIC
(£m)
2022
PICG
(£m)
2021
PIC
(£m)
2021
Solvency II value of holdings in related undertakings 308 308 162 162
Consolidation differences (60) – 11 –
Valuation differences (4) (4) – –
Statutory Accounts value of Investment properties (PICG)/Holdings in
related undertakings (PIC) 244 304 173 162
The consolidation difference of £(60) million (2021: £11 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 £(4) million (2021: £nil) arises due to intragroup 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 the 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 the Company’s investments in collateralised securities are measured at fair value, determined by reference
to their listed 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 net asset valuations.
PICG
(£m)
2022
PIC
(£m)
2022
PICG
(£m)
2021
PIC
(£m)
2021
Solvency II value of collective investment undertakings 4,017 4,017 3,296 3,296
Consolidation differences 16 – – –
Statutory Accounts value 4,033 4,017 3,296 3,296
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 £16 million (2021: £nil) in the above table.
D.1.2.5 Derivatives
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 202240
D.1.2.6 Loans and mortgages
This asset class contains mortgage backed securities and private investments.
The fair value of mortgage backed assets is determined by reference to their listed market price.
The fair value of private investments is 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.
PICG
(£m)
2022
PIC
(£m)
2022
PICG
(£m)
2021
PIC
(£m)
2021
Solvency II value 5,627 5,627 7,451 7,451
Consolidation differences (200) – (216) –
Statutory Accounts value 5,427 5,627 7,235 7,451
The consolidation differences within the Group of £(200) million (2021: £(216) million) in the above table relate to loans to holdings
in related undertakings that are eliminated under IFRS consolidation methodology.
D.1.2.7 Reinsurance recoverables
As this asset is directly related to the regulatory technical provisions, the valuation is discussed in the technical provisions
section D.2.
PICG & PIC
(£m)
2022
PICG & PIC
(£m)
2021
Solvency II value 1,140 2,735
Valuation differences 59 615
Statutory Accounts value 1,199 3,350
There are a number of differences in the approaches used between IFRS and Solvency II in calculating technical provisions/
liabilities and the associated reinsurance recoverables/assets. The primary differences relate to the use of best estimate
assumptions under SII compared to a prudent margin approach under IFRS, the inclusion of a Risk Margin under Solvency II
regulations and differences in the valuation rate of interest applied.
D.1.2.8 Other assets and Deferred tax asset
Deferred tax is provided on temporary differences between the carrying amount of asset and liabilities for financial
reporting purposes, and the amounts used for taxation purposes.
PICG
(£m)
2022
PIC
(£m)
2022
PICG
(£m)
2021
PIC
(£m)
2021
Solvency II value 111 105 103 98
Valuation differences 4 – 5 –
Statutory Accounts value 115 105 108 98
The valuation differences in the above table are in relation to prepayments and deferred tax.
This includes a valuation difference of £5 million (2021: £6 million) in relation to the removal of Group service company
prepayments which are reported in IFRS but not included under Solvency II.
Deferred tax valuation differences for Group were £(1) million and £nil for PIC (2021: (£1) million for PICG and £nil PIC).
Theyarerelated to the prepayments in PSC which are not permissible for Solvency II.
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202241
D.1.2.9 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,
with the exception of future premium balances, which are recognised within the best estimate liabilities as detailed below.
PICG
(£m)
2022
PIC
(£m)
2022
PICG
(£m)
2021
PIC
(£m)
2021
Solvency II value 14 15 18 16
Consolidation differences 70 – 9 –
Valuation differences 123 123 1 1
Statutory Accounts value 207 138 28 17
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 £70 million (2021: £9 million) in the above table.
A valuation difference of £123 million (2021: £1 million) arises in the Group and the Company with regard to regulatory
adjustments to future premium balances, which are excluded from the SII receivables figure because they are already
allowed for within the best estimate liabilities.
D.1.2.10 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.
PICG
(£m)
2022
PIC
(£m)
2022
PICG
(£m)
2021
PIC
(£m)
2021
Solvency II value 905 902 812 805
Consolidation differences 192 – 210 –
Statutory Accounts value 1,097 902 1,022 805
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 £192 million (2021: £210 million) in the above table.
D.1.2.11 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.
PICG
(£m)
2022
PIC
(£m)
2022
PICG
(£m)
2021
PIC
(£m)
2021
Solvency II value 20 – 19 –
Valuation differences (20) – (19) –
Statutory Accounts value – – – –
D.2 Technical provisions
PIC writes only 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 “buy-out” 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, with
in some cases a reversionary annuity paid to spouses or other dependants on the death of the mainmember.
Annuities in deferment and in payment can be level, subject to fixed increases or increases linked to inflation, or a mixture of
the three. In many cases, the increases applied are also subject to defined caps and floors, so-called 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 bulk of the options are 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.
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202242
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 2022 on the
regulatory solvency basis. The equivalent figures for 31 December 2021 are also shown.
Technical provisions, Solvency II basis
PICG & PIC
(£m)
2022
PICG & PIC
(£m)
2021
Best estimate liabilities
•
Liabilities gross of reinsurance 31,824 44,283
•
Value of reinsurance recoverables (1,140) (2,735)
•
Net-of-reinsurance liabilities 30,684 41,548
Risk margin (RM) 900 2,026
Transitional measures deduction (“TMTP”) (208) (757)
Total net technical provisions 31,376 42,817
Add back value of reinsurance recoverables 1,140 2,735
Total gross technical provisions 32,516 45,552
Technical provisions (before reduction due to the TMTP) 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 2022 were £32,516 million (2021: £45,552 million).
There are no additional technical provisions maintained by the Group outside PIC.
PICG & PIC
(£m)
2022
PICG & PIC
(£m)
2021
Solvency II value 32,516 45,552
Valuation differences 513 1,461
Statutory Accounts value 33,029 47,013
There are a number of differences in the approaches used in calculating the IFRS 4 and Solvency II technical provisions/
liabilities. The primary differences relate to the use of best estimate assumptions under SII compared to a prudent margin
approach under IFRS 4, the inclusion of a risk margin (net of TMTP) under Solvency II regulations and differences in the
valuation rate of interest applied.
These items are covered in more depth in the 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 cashflows 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 202243
Mortality and demographic assumptions:
The base mortality assumptions as at 31 December 2022 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 2021 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 zero,
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
hedgeable risks had been eliminated.
The risk margin is calculated by estimating the solvency capital requirement in respect of non-hedgeable risks (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 the prescribed rate of 6.0% per annum on each future year’s estimated reference SCR,
with the results discounted at the basic risk-free rate.
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, in particular LPI and the basis risk between RPI and CPI, and operational risk. 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 202244
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. PIC applies a TMTP deduction which is consistent with the requirements of Article 308d
ofthe Solvency II Directive, is expected to amortise linearly to zero over a 16-year period starting from 1 January 2016. Since
the start of Solvency II, there have been five recalculations of the TMTP, three due to the biennial recalculation requirement
(as at 31 December 2017, 31 December 2019, and 31 December 2021), 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 outgo required to
managethe business in force. 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 cashflows.
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 2022, all of the business in force (aside from an immaterial 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
99.9% of the modelled business held within the matching adjustment fund and valued using the matching adjustment. A small
percentage of the liabilities, amounting to 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 cashflows to sterling, and to transform
floating rate cashflows 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.
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.
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202245
The assets in the MA Fund used in the matching adjustment calculation can be summarised as follows:
MA Fund assets
PICG & PIC
(£m)
2022
PICG & PIC
(£m)
2021
Investments in related undertakings – 70
Government bonds 11,515 16,842
Corporate bonds 16,809 20,998
Derivative assets 5,099 6,044
Loans and mortgages 5,289 7,030
Collateralised securities 219 273
Collective investment undertakings 929 685
Cash and cash equivalents 571 464
Total assets 40,431 52,406
Less Derivative liabilities (8,316) (9,914)
Net value of assets 32,115 42,492
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 2022, all of the test results
were within the required limits.
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.
31 December 2022
Impact of matching adjustment (£m)
Including
matching
adjustment
Excluding
matching
adjustment
Impact of not
applying
matching
adjustment
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 3,199 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)
31 December 2021
Impact of matching adjustment (£m)
Including
matching
adjustment
Excluding
matching
adjustment
Impact of not
applying
matching
adjustment
Technical Provisions (gross of reinsurance) 45,552 52,224 6,672
Basic Own Funds 6,669 1,666 (5,003)
Eligible Own Funds to meet SCR 6,669 1,666 (5,003)
SCR 3,968 10,274 6,306
Excess assets over SCR 2,701 (8,608) (11,309)
Eligible Own Funds to meet MCR 5,259 (885) (6,144)
MCR 992 2,568 1,576
Excess assets over MCR 4,267 (3,453) ( 7,720)
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202246
D.2.4 Use of volatility adjustment
In December 2015, PIC was granted permission by the PRA to apply a volatility adjustment (“VA”) in relation to the value
ofitsinsurance liabilities.
As detailed in section D.2.3 above, as at 31 December 2022, less than 0.1% (2021: 0.01%) of the total net modelled liabilities
were held outside the MA Fund. These were not eligible for valuation using the volatility adjustment.
The impact of not applying the volatility adjustment to the liabilities is therefore nil as at 31 December 2022 (nil as at
31 December 2021).
31 December 2022
Impact of volatility adjustment (£m)
Including
volatility
adjustment
Excluding
volatility
adjustment
Impact of not
applying VA
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 3,199 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 –
31 December 2021
Impact of volatility adjustment (£m)
Including
volatility
adjustment
Excluding
volatility
adjustment
Impact of not
applying VA
Technical Provisions (gross of reinsurance) 45,552 45,552 –
Basic Own Funds 6,669 6,669 –
Eligible Own Funds to meet SCR 6,669 6,669 –
SCR 3,968 3,968 –
Excess assets over SCR 2,701 2,701 –
Eligible Own Funds to meet MCR 5,259 5,259 –
MCR 992 992 –
Excess assets over MCR 4,267 4,267 –
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202247
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 (TMTP). 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 five occasions, most recently as at 30 June 2022. Allowing for both amortisation and re-calculation, the TMTP
asat 31 December 2022 is £208 million (2021: £757 million).
The impact of not applying the TMTP would have been as follows. Under this scenario, the MA is assumed to continue toapply.
31 December 2022
Impact of TMTP (£m)
Including
TMTP
Excluding
TMTP
Impact of
excluding
TMTP
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 3,199 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%)
31 December 2021
Impact of TMTP (£m)
Including
TMTP
Excluding
TMTP
Impact of
excluding
TMTP
Technical Provisions (gross of reinsurance) 45,552 46,309 757
Basic Own Funds 6,669 6,101 (568)
Eligible Own Funds available to meet SCR 6,669 6,101 (568)
SCR 3,968 4,157 189
Excess assets 2,701 1,944 (757)
Solvency II ratio based on SCR 168% 147% (21%)
Eligible Own Funds available to meet MCR 5,259 4,701 (558)
MCR 992 1,039 47
Excess assets 4,267 3,662 (605)
Solvency II ratio based on MCR 530% 452% (78%)
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 2022, approximately 87% (as measured by best estimate liabilities) of the longevity risk was
reinsured(2021: 85%).
PIC has entered into two types of reinsurance arrangements:
•
Longevity swap arrangements, whereby PIC pays to the reinsurer a fixed, agreed stream of annuity benefit cashflows,
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 asset, excluding the fees payable
tothereinsurers, was £(756) million as at 31 December 2022 (2021: £(647) million).
•
Quota share reinsurance arrangements, whereby in return for an up-front single premium PIC will receive from the
reinsurera percentage share of a defined sub-set 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 asset was £1,908 million
asat31 December 2022 (2021: £3,415 million).
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202248
The value of the amounts recoverable from reinsurance is calculated using the same projection model and assumptions
(other than the discount rate) as are used for the gross best estimate liabilities, by projecting forward 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 £21 million (2021: £47 million),
which is calculated by applying (for each reinsurer) an assumed probability of default to an estimated loss given default,
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 £10 million (2021: £14 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 £1,140 million (2021: £2,735 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.
During 2022, alongside other minor updates, PIC revised its assumptions for base mortality and future mortality improvement
assumptions, expenses and cash commutation take-up rates. It also updated the modelling of LPI inflation and implemented
other modelling enhancements.
In addition, the valuation assumptions were updated to reflect current expectations of future interest rates and inflation
rates, and to reflect the changes to the prescribed fundamental spread assumptions underlying the derivation of the
matching adjustment.
D.2.8 Valuation methods and assumptions for the financial statements
Apart from the valuation discount rate, the methods and assumptions used to value the technical provisions for the
purposes of the financial statements are derived from the same best estimate assumptions as are used in the valuation
forsolvency purposes. Prudential margins are added to these assumptions and these margins are broadly consistent
withthose applied under the regulatory regime which preceded the introduction of Solvency II. PIC’s practice at the time
wastouse the same margins in the calculation of its technical provisions for the purposes of the financial statements as
inregulatory reporting. PIC is satisfied that the basis used continues to meet the relevant requirements of IFRS and that
themargins used remain appropriate.
As the impact of applying these prudential margins is to change the cashflow profile of the liabilities, it is not possible simply
touse the same matching asset profile as is used for the best estimate liabilities. Instead, PIC notionally hypothecates a
basket of assets for backing the liabilities based on the assets in the MA Fund and a selection of other assets held by the
Company, and calculates the valuation rate of interest using a “portfolio IRR” approach which considers the yield for the
whole basket. Using this approach, PIC is able to take into account both the level of the risk-adjusted yields on the assets
andthe terms over which the returns would be received.
PIC’s approach to determining the credit default adjustment for the IFRS valuation rate of interest is to use a fixed basis
points default allowance by asset, based on historic levels of default and downgrade with prudent margins.
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202249
The impact of applying the prudential margins is summarised in the following table, which shows the transition from the
OwnFunds under Solvency II to the IFRS net assets presented in the Company’s financial statements. The equivalent figures
as at 31 December 2021 are shown for comparison.
Reconciliation between Solvency II and IFRS technical provisions
PICG & PIC
(£m)
2022
PICG & PIC
(£m)
2021
Solvency II technical provisions (gross of reinsurance) 32,516 45,552
Less:
– Value of reinsurance recoverables on SII basis (1,140) (2,735)
Solvency II technical provisions (net of reinsurance) 31,376 42,817
Less:
– Risk margin (900) (2,026)
– Transitional measures deduction 208 757
Solvency II best estimate liability (net of reinsurance) 30,684 41,548
Add:
– Classification difference of deferred premiums 124 –
– Impact of valuation discount rate margins 449 836
– Impact of other IFRS valuation margins 573 1,279
IFRS technical provisions (net of reinsurance) 31,830 43,663
Add:
– Value of reinsurance recoverables on IFRS basis 1,199 3,350
IFRS technical provisions (gross of reinsurance) 33,029 47,013
D.3 Other liabilities
Other liabilities at 31 December reflect derivative liabilities, deferred tax and accounting accruals and creditors.
Other than as 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 and have consequently been classified as Level
2 assets within the fair value hierarchy.
The value of overall derivative assets and liabilities is the same under IFRS as under Solvency II.
D.3.2 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 the next year. Given 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 subsequently
is 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.
PICG
(£m)
2022
PIC
(£m)
2022
PICG
(£m)
2021
PIC
(£m)
2021
Solvency II value 188 202 183 183
Consolidation differences 18 – 15 –
Valuation differences (2) (2) – –
Statutory Accounts value 204 200 198 183
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 £18 million (2021: £15 million) in the above table.
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202250
D.3.3 Deferred tax liability
A deferred tax asset or liability is recognised to the extent that there is a temporary difference between the Company’s
taxbase balance sheet (which is IFRS) and the balance sheet for Solvency II purposes. At 31 December 2022, this resulted
inadeferred tax liability of £142 million (2021: £215 million), primarily arising from adjustments to Technical Provisions and
RiskMargin arising from the application of Solvency II regulations.
The remaining deferred tax liability relates to the January 2013 change in the taxation regime for insurance companies,
thebenefit of the differences between IFRS retained earnings and taxable profits as at 31 December 2012 reversed over
aperiod of ten years. Consequently, ten years later, the Group no longer has a deferred tax liability at 31 December 2022
(2021: £1 million) as there is no longer a timing difference (2021: £4 million).
PICG & PIC
(£m)
2022
PICG & PIC
(£m)
2021
Solvency II value 142 215
Valuation differences (142) (214)
Statutory Accounts value – 1
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: for the purposes
of regulatory accounting, whilst 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.
PICG & PIC
(£m)
2022
PICG & PIC
(£m)
2021
Solvency II value 1,388 1,608
Valuation differences 234 11
Statutory Accounts value 1,622 1,619
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 cashflow at the prevailing risk-free rate, increased
by 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 option 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 2022 this value was £11 million (2021: £11 million).
D.3.5 Leases and contingent liabilities
PIC does not have any material liabilities in respect of leases, or contingent liabilities.
At 31 December 2022, the Group recognised a right-of-use asset of £4 million (2021: £17 million) and a corresponding lease
liability of £9 million (2021: £20 million).
PICG does not have any material 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 202251
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, except for the accrued
interest, which is allocated to the individual security under Solvency II, but shown as its own separate category under IFRS.
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.
Property (other than for own use) – PICG £244 million; PIC £244 million (2021: PICG £173 million, PIC
£173million)
Investment properties are held indirectly through investment entities and included in the Solvency II balance sheet within
Holdings in related undertakings QRT 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 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.
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.
Unlisted bonds (direct investment) – £6,557 million PIC and PICG (2021: £9,021 million PIC and PICG)
Under both IFRS and Solvency II, unlisted bonds are valued 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.
Equity release mortgages – £1,055 million PIC and PICG (2021: £1,125 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.
Own shares held directly – PICG £20 million (2021: £19 million)
This is determined using a modelled valuation of the PICG 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 202252
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/
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 Group.
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. Whilst above our risk appetite and within our solvency
tolerances no formal action is required. However, if our 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 employs solvency monitoring
techniques and measurements which are run at a minimum weekly, or more often where required. Management is 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.
E.1.2 Amount of basic own funds at the reporting date
Further information available at S.23.01.
The amount of Own Funds of the Group and Company at the end of the reporting period was:
2022 (£m)
Group Company
Tier 1 Tier 2 Tier 3 Total Tier 1 Tier 2 Tier 3 Total
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
2021 (£m)
Group Company
Tier 1 Tier 2 Tier 3 Total Tier 1 Tier 2 Tier 3 Total
Ordinary share capital 2 – – 2 1,226 – – 1,226
Share premium account 873 – – 873 524 – – 524
Reconciliation reserve 3,772 – – 3,772 2,867 – – 2,867
Restricted Tier 1 debt 444 – – 444 444 – – 444
Subordinated liabilities – 1,608 – 1,608 – 1,608 – 1,608
Amount of basic own funds available
and eligible to cover SCR 5,091 1,608 – 6,699 5,061 1,608 – 6,669
Eligibility deduction in Tier 2 own funds – (1,410) – (1,410) – (1,410) – (1,410)
Amount of basic own funds eligible
tocover MCR 5,091 198 – 5,289 5,061 198 – 5,259
As at 31 December 2022, the ratio of eligible Own Funds to Solvency Capital Requirement of PICG was 226% (2021: 169%)
andof PIC was 225% (2021: 168%).
E. Capital Management
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202253
There are no items of ancillary Own Funds at 31 December 2022 (2021: nil).
No restrictions have been made to the amounts of basic own funds which can be used to cover the Company’s
SCRrequirement.
In 2019, PIC issued £450m of 7.375% Reset Perpetual Restricted Tier 1 Contingent Convertible Notes. 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.
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 £160 million (2021: £198 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.1.3 Reconciliation of opening and closing own funds
E.1.3.1 Reconciliation of opening and closing own funds: PICG
2022 £m
Tier 1 Tier 2
Total
Share
Capital
Share
Premium
Reconciliation
Reserve
Tier 1
Restricted
Capital
Subordinated
Debt
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
2021 £m
Tier 1 Tier 2
TotalShare Capital
Share
Premium
Reconciliation
Reserve
Tier 1
Restricted
Capital
Subordinated
Debt
At start of year 2 870 3,706 444 1,704 6,726
Movements in year – 3 66 – (96) (27)
At end of year 2 873 3,772 444 1,608 6,699
There was no additional share capital raised during the year (2021: no additional share capital raised during the year).
There was no subordinated debt raised during the year (2021: no subordinated debt raised during the year).
Further analysis of the reconciliation reserve is set out in E1.6.
E.1.3.2 Reconciliation of opening and closing own funds: PIC
2022 £m
Tier 1 Tier 2
Total
Share
Capital
Share
Premium
Reconciliation
Reserve
Tier 1
Restricted
Capital
Subordinated
Debt
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 7,21 0
2021 £m
Tier 1 Tier 2
Total
Share
Capital
Share
Premium
Reconciliation
Reserve
Tier 1
Restricted
Capital
Subordinated
Debt
At start of year 1,226 524 2,812 444 1,704 6,710
Movements in year – – 55 – (96) (41)
At end of year 1,226 524 2,867 444 1,608 6,669
E. Capital Management continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202254
E.1.4 Restrictions to own funds and capital tiering
As noted above in E.1.2, no restrictions have been made to the amount of basic own funds available to cover the Company’s
SCR as a result of the limits on eligible Tier 2 and Tier 3 capital, and on restricted Tier 1 capital.
The Company’s and the Group’s RT1 capital consists of £450 million debt issued by PIC on 25 July 2019. The notes are perpetual
with a fixed coupon of 7.375% paid semi-annually in arrears, beginning on 25 January 2020. The interest rate is reset on
25 July2029 and every five years thereafter.
The issue is treated as equity capital under IFRS reporting. The interest payments are only recognised in equity upon
payment as dividends. Under Solvency II, the notes are classified as Restricted Tier 1 own funds. Foreseeable coupon
payments are deducted in calculating the eligible Own Funds amount.
The Company’s and the Group’s Tier 2 capital consists of:
Issue Date
Issue Amount
£m
% of
Par Value
Coupon
%
Redemption
date
Solvency
II Value
2022
£m
2021
£m
03/07/14 300 9 9.107 6.5 03/07/24 302 320
23/11/16 250 98.916 8.0 23/11/26 228 253
20/09/18 350 99.693 5.625 20/09/30 308 367
07/05/20 300 99.554 4.625 07/05/31 246 293
21/10/20 400 9 9.129 3.625 21/10/32 304 375
Total Tier 2 capital 1,388 1,608
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.
Changes arising from a decrease in the risk-free rate have led to a decrease in the value of the subordinated debt of
£220 million (2021: £18 million).
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:
(£m)
Group Company
2022 2021 2022 2021
Equity per IFRS financial statements 5,439 4,465 5,408 4,429
Add: Reclassification of Subordinated debt as Tier 2 capital for regulatory
purposes, included at regulatory value 1,388 1,608 1,388 1,608
* Deferred Tax (liability)/asset arising from Subordinated debt revaluation (59) (3) (59) (3)
* Adjustment of subordinated debt value between IFRS and
regulatoryvalue 234 11 234 11
* Adjustment for RT1 accrued interest (11) (11) (11) (11)
* Decrease in technical provisions under regulatory rules 513 1,461 513 1,461
* Increase in deferred tax liability under regulatory rules (83) (211) (83) (211)
* Decrease in reinsurance recoverable and other assets under
regulatoryrules (185) (621) (180) (615)
Own Funds per regulatory requirements 7,236 6,699 7,210 6,669
Items marked with a ‘*’ above form part of the regulatory Reconciliation Reserve (see E.1.6 below), which totals £4,529 million
for PICG (2021: £3,772 million) and 3,628 million for PIC (2021: £2,867 million) at 31 December 2022.
There are no restrictions on the availability and transferability of Own Funds within the Company or Group.
E. Capital Management continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202255
E.1.6 Constituents of reconciliation reserve
The reconciliation reserve at 31 December is formed of the following elements:
2022
£m Group Company
IFRS retained earnings per financial statements 3,031 3,154
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 ‘*’ above) 409 414
Treasury Shares per financial statements (20) –
Reconciliation reserve at 31 December 2022 4,529 3,628
2021
£m Group Company
IFRS retained earnings per financial statements 2,055 2,1 75
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 ‘*’ above) 626 632
Treasury Shares per financial statements (19) –
Reconciliation reserve at 31 December 2021 3,772 2,867
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 Solvency Capital Requirement 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 2022, PICG’s and PIC’s Solvency Capital Requirement amounted to £3,199 million (2021: £3,968 million),
andits Minimum Capital Requirement amounted to £800 million (2021: £992 million), being 25% of SCR.
The principal movements in these items arise from:
•
a run-off of required capital for the in-force insurance business;
•
a general increase in the volume of business in force, due to new insurance contracts written during 2022;
•
the impact of changes in economic conditions over the year, in particular an increase in interest rates which materially
reduced capital requirements (particularly insurance risk capital) and a widening of credit spreads;
•
the impact of changes in the investment mix used by the Company to support its insurance liabilities; and
•
the impact of assumption changes in relation to correlations between risks and other smaller items.
PIC uses an internal model agreed with the PRA to calculate its Solvency Capital Requirement. It does not apply the standard
formula in the business.
The split of the Solvency Capital Requirement by risk category as at 31 December 2022 is as follows:
Summary of SCR (£m) 2022 2021
Risk capital before diversification:
•
Market risk 3,340 3,821
•
Counterparty credit risk 93 172
•
Insurance risk 484 1,280
•
Expense risk 272 349
•
Operational risk 313 378
Total before diversification 4,502 6,000
Diversification benefit (935) (1,746)
Loss absorbing capacity of deferred tax (“LACDT”) (368) (286)
Total diversified SCR after LACDT 3,1 99 3,968
E. Capital Management continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202256
E.2.1.1 Loss absorbing capacity of deferred tax
The total SCR for the Company has been adjusted for LACDT. At 31 December 2022 the amount of the adjustment was
£368 million(2021: £286 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 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 end 2021 and 2022 was that the MCR equals 25% of the SCR.
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.
E.4 Difference between the Standard Formula and any Internal Model used (unaudited)
E.4.1 Use of the Internal Model
The Internal Model is 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 Risk. PIC uses its Internal Model within the key business processes outlined below:
Key business processes Responsible oversight committee
Strategy and business planning (including ORSA) Board
Origination of new business and ceding of reinsurance Investment and Origination Committee
Risk management Board 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 period as set out in Article 101(3) of the Solvency II, namely the Value-at-Risk
ofbasic own funds subject to a confidence level of 99.5% over a one-year period.
Similar to the Standard Formula, PIC’s Internal Model uses a modular approach covering the following risks:
•
Market
•
Insurance
•
Counterparty
•
Expense
•
Operational
Each risk module is further divided into sub-risks relevant to PIC’s exposures and a variety of methods are used to calculate
the associated capital requirement, ranging from statistical analysis of historic data (e.g. market risk) to expert judgements
determined by panels of experts (e.g. insurance risk). Each method is appropriate to the risk in question. The sub-risks and
riskmodules are then aggregated allowing for diversification and non-linearity between the risks, with an overall adjustment
for the LACDT.
E. Capital Management continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202257
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. Internal data includes policyholder
dataandPIC’s own historic company experience. External data is used to support the calibration of market, insurance
andcounterparty default risk. For market risk the main external providers of data are organisations such as Moody’s, Merrill
Lynch and Bloomberg who provide the majority of historical market data to support the calibration of the Solvency Capital
Requirement. The counterparty default risk module also uses Moody’s historical data. For insurance risk the primary external
data source is the Office for National Statistics which provides national population data and data on the number of deaths.
All data sources are reviewed internally for completeness, appropriateness and accuracy prior to use in the Internal Model.
E.4.4 Comparison of the Company’s Internal Model with the Standard Formula (unaudited)
The following table compares the Solvency Capital Requirement calculated on the Standard Formula basis and using the
Company’s Internal Model.
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 3,199 3,896
Internal
Model with
matching
adjustment
FY2021
£m
Standard
Formula with
matching
adjustment
FY2021
£m
Market risk 3,821 4,525
Insurance Risk 1,280 639
Operational Risk 378 197
Expense Risk 349 310
Counterparty credit Risk 172 75
Benefit of diversification (1,746) (730)
Loss absorbing capacity of deferred tax (286) (341)
Solvency Capital Requirement 3,968 4,675
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 to 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 Minimum Capital Requirement and the Solvency Capital
Requirement throughout 2022 and up to the date of approval of this report.
E.6 Any other information (unaudited)
There is no other material information to disclose regarding Capital Management.
E. Capital Management continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202258
Appendix A – Glossary of terms
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.
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.
IFRS
International Financial Reporting Standards, also known as International Accounting Standards. The accounting framework
used by the Group and Company in their statutory accounts.
LACDT
Loss absorbing capacity of deferred tax. A reduction to the capital requirements to allow for tax losses that may arise
asaresult of a shock event.
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 Prices Index (or Consumer Prices Index) and 5%, although the
percentage limit can vary.
Matching Adjustment
The matching adjustment is an upward adjustment to the risk-free rate where insurers hold certain long-term assets with
cashflows 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.
ORSA
Own Risk and Solvency Assessment. 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 insurers overall solvency needs are met at all times.
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.
QRT
Quantitative Reporting Templates. Quarterly and Annual solvency returns submitted to the national regulator.
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
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 a 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.
SCR
Solvency Capital Requirement 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.
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202259
SFCR
A public disclosure report which is required to be published annually by all insurers and will contain detailed quantitative
andqualitative elements.
SONIA
The Sterling Overnight Index Average (SONIA), is the effective overnight interest rate paid by banks for unsecured transactions
in the British sterling market. It is used for overnight funding for trades that occur in off-hours and represents the depth of
overnight business in the marketplace.
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 best estimate liability, risk margin and the TMTP.
TMTP
Transitional Measures on Technical Provisions. 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 adjustments
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 202260
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 by line of business
S.05.02 Premiums, claims and expenses by country
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.05.02 Premiums, claims and expenses by country
S.22.01 Impact of long-term guarantees measures and TMTP’s
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 pound sterling rounded to the nearest million which is consistent with the presentation in the IFRS
financial statements. The QRTs are presented in pound sterling rounded to the pound. Rounding differences of +/- one unit
can occur.
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202261
S.02.01
Pension Insurance Corporation plc
Balance sheet
2022
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) 57,640,369,658
R0080 Property (other than for own use) -0
R0090 Holdings in related undertakings, including participations 308,307,217
R0100 Equities 0
R0110 Equities – listed 0
R0120 Equities – unlisted 0
R0130 Bonds 30,864,000,928
R0140 Government Bonds 13,391,169,906
R0150 Corporate Bonds 17,210,087,670
R0160 Structured notes 0
R0170 Collateralised securities 262,743,352
R0180 Collective Investments Undertakings 4,016,588,887
R0190 Derivatives 22,451,472,626
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 5,627,210,302
R0240 Loans on policies 0
R0250 Loans and mortgages to individuals 0
R0260 Other loans and mortgages 5,627,210,302
R0270 Reinsurance recoverables from: 1,139,767,733
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 1,139,767,733
R0320 Health similar to life 0
R0330 Life excluding health and index-linked and unit-linked 1,139,767,733
R0340 Life index-linked and unit-linked 0
R0350 Deposits to cedants 0
R0360 Insurance and intermediaries receivables 0
R0370 Reinsurance receivables 2,834,705
R0380 Receivables (trade, not insurance) 10,749,870
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 902,296,175
R0420 Any other assets, not elsewhere shown 105,390,768
R0500 Total assets 65,428,619,210
Appendix B continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202262
Appendix B continued
S.02.01 (continued)
Pension Insurance Corporation plc
Balance sheet
2022
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) 32,515,626,223
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) 32,515,626,223
R0660 Technical provisions calculated as a whole 0
R0670 Best Estimate 31,824,402,475
R0680 Risk margin 691,223,748
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 142,147,344
R0790 Derivatives 25,347,799,800
R0800 Debts owed to credit institutions 0
R0810 Financial liabilities other than debts owed to credit institutions 0
R0820 Insurance & intermediaries payables 890,656
R0830 Reinsurance payables 24,738,642
R0840 Payables (trade, not insurance) 176,517,379
R0850 Subordinated liabilities 1,387,849,884
R0860 Subordinated liabilities not in Basic Own Funds 0
R0870 Subordinated liabilities in Basic Own Funds 1,387,849,884
R0880 Any other liabilities, not elsewhere shown 0
R0900 Total liabilities 59,595,569,928
R1000 Excess of assets over liabilities 5,833,049,282
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202263
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 4,095,214,212 4,095,214,212
R1420 Reinsurers' share 74,476,706 74,476,706
R1500 Net 4,020,737,506 4,020,737,506
Premiums earned
R1510 Gross 4,095,214,212 4,095,214,212
R1520 Reinsurers' share 74,476,706 74,476,706
R1600 Net 4,020,737,506 4,020,737,506
Claims incurred
R1610 Gross 1,918,639,305 1,918,639,305
R1620 Reinsurers' share 38,479,217 38,479,217
R1700 Net 1,880,160,088 1,880,160,088
Changes in other technical provisions
R1710 Gross -13,984,173,625 -13,984,173,625
R1720 Reinsurers' share -2,150,697,687 -2,150,697,687
R1800 Net -11,833,475,938 -11,833,475,938
R1900 Expenses incurred 246,384,197 246,384,197
R2500 Other expenses
R2600 Total expenses 246,384,197
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202264
Appendix B continued
S.05.02
Pension Insurance Corporation plc
Premiums, claims and expenses by country
C0150 C0160 C0170 C0180 C0190 C0200 C0210
Top 5 countries (by amount of gross premiums written)
– life obligations
R1400
Total Top 5 and
home country
Life
Home Country
C0220 C0230 C0240 C0250 C0260 C0270 C0280
Premiums written
R1410 Gross 4,095,214,212 4,095,214,212
R1420 Reinsurers' share 74,476,706 74,476,706
R1500 Net 4,020,737,506 4,020,737,506
Premiums earned 0
R1510 Gross 4,095,214,212 4,095,214,212
R1520 Reinsurers' share 74,476,706 74,476,706
R1600 Net 4,020,737,506 4,020,737,506
Claims incurred 0
R1610 Gross 1,918,639,305 1,918,639,305
R1620 Reinsurers' share 38,479,217 38,479,217
R1700 Net 1,880,160,088 1,880,160,088
Changes in other
technical provisions 0
R1710 Gross -13,984,173,625 -13,984,173,625
R1720 Reinsurers' share -2,150,697,687 -2,150,697,687
R1800 Net -11,833,475,938 -11,833,475,938
R1900 Expenses incurred 246,384,197 246,384,197
R2500 Other expenses
R2600 Total expenses 246,384,197
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202265
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 31,824,402,475 31,824,402,475
R0080
Total Recoverables from reinsurance/
SPV and Finite Re after the adjustment
for expected losses due to
counterparty default 1,139,767,733 1,139,767,733
R0090
Best estimate minus recoverables from
reinsurance/SPV and Finite Re – total 30,684,634,743 0 30,684,634,743
R0100 Risk Margin 898,628,431 898,628,431
Amount of the transitional
onTechnicalProvisions
R0110
Technical Provisions
calculatedasawhole 0
R0120 Best estimate 0
R0130 Risk margin -207,404,683 -207,404,683
R0200 Technical provisions – total 32,515,626,223 32,515,626,223
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202266
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 32,515,626,223 207,404,683 0 0 6,244,663,125
R0020 Basic own funds 7,209,783,626 -155,553,512 0 0 -4,682,614,776
R0050
Eligible own funds to meet
SolvencyCapital Requirement 7,209,783,626 -155,553,512 0 0 -5,043,493,531
R0090 Solvency Capital Requirement 3,199,060,996 51,851,171 0 0 4,171,766,780
R0100
Eligible own funds to meet
MinimumCapital Requirement 5,981,886,792 -152,960,954 0 0 -5,948,307,034
R0110 Minimum Capital Requirement 799,765,249 12,962,793 0 0 1,042,941,695
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202267
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 3,627,722,194 3,627,722,194
R0140 Subordinated liabilities 1,387,849,884 0 1,387,849,884 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 7,209,783,626 5,377,532,538 444,401,204 1,387,849,884 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 7,209,783,626 5,377,532,538 444,401,204 1,387,849,884 0
R0510 Total available own funds to meet the MCR 7,209,783,626 5,377,532,538 444,401,204 1,387,849,884
R0540 Total eligible own funds to meet the SCR 7,209,783,626 5,377,532,538 444,401,204 1,387,849,884 0
R0550 Total eligible own funds to meet the MCR 5,981,886,792 5,377,532,538 444,401,204 159,953,050
R0580 SCR 3,199,060,996
R0600 MCR 799,765,249
R0620 Ratio of Eligible own funds to SCR 225.37%
R0640 Ratio of Eligible own funds to MCR 747.96%
Reconciliation reserve C0060
R0700 Excess of assets over liabilities 5,833,049,282
R0710 Own shares (held directly and indirectly) 0
R0720 Foreseeable dividends, distributions and charges 11,115,539
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 3,627,722,194
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202268
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 427,784,464
3 10600I Property Risk 17,492
4 10700I Spread risk – if matching adjustment impact not identified 3,207,295,728
5 10900I Currency risk 38,865,435
6 11010I Other market risk – inflation risk 91,704,884
7 11020I Other market risk – implied volatility risk 239,998,299
8 11030I Other market risk – RPI/CPI basis risk 46,174,371
9 11090I Other market risk – funds risk 876,431,191
10 19900I Diversification within market risk -1,588,209,668
11 20120I Type 1 counterparty risk – external reinsurance 62,594,652
12 20190I Type 1 counterparty risk – asset counterparty 30,073,579
13 30210I Longevity risk – longevity mis-estimation 116,326,415
14 30220I Longevity risk – longevity trend 429,795,951
15 30290I Longevity risk – other longevity risks 260,848,276
16 30299I Longevity risk – longevity diversification -322,960,845
17 30600I Expense risk 400,965,385
18 39900I Life underwriting risk diversification -128,915,478
19 70100I Operational risk 313,198,116
20 80300I Loss-absorbing capacity of deferred tax -367,748,743
Calculation of Solvency Capital Requirement C0100
R0110 Total undiversified components 4,134,239,503
R0060 Diversification -935,178,508
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 3,199,060,996
R0210 Capital add-ons already set 0
R0220 Solvency capital requirement 3,199,060,996
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 -367,748,743
R0410 Total amount of Notional Solvency Capital Requirements for remaining part 1,377,255,166
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 1,821,805,829
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 -367,748,743
R0650 Amount/estimate of LAC DT justified by reversion of deferred tax liabilities -138,442,166
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 -229,306,577
R0680 Amount/estimate of LAC DT justified by carry back, future years 0
R0690 Amount/estimate of Maximum LAC DT -367,748,743
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202269
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 C0010
R0010 MCR
NL
Result 0
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 C0040
R0200 MCRL Result 644,377,330
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 30,684,634,743
R0250 Total capital at risk for all life (re)insurance obligations
Overall MCR calculation C0070 C0070
R0300 Linear MCR 644,377,330
R0310 SCR 3,199,060,996
R0320 MCR cap 1,439,577,448
R0330 MCR floor 799,765,249
R0340 Combined MCR 799,765,249
R0350 Absolute floor of the MCR 3,444,600
R0400 Minimum Capital Requirement 799,765,249
Appendix B continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202270
Appendix B continued
S.02.01
Pension Insurance Corporation Group Limited
Balance sheet
Solvency
II value
C0010
Assets
R0010 Goodwill 0
R0020 Deferred acquisition costs 0
R0030 Intangible assets 0
R0040 Deferred tax assets 6,129,668
R0050 Pension benefit surplus 0
R0060 Property, plant & equipment held for own use 3,886,302
R0070 Investments (other than assets held for index-linked and unit-linked contracts) 57,640,433,781
R0080 Property (other than for own use) 0
R0090 Holdings in related undertakings, including participations 308,371,341
R0100 Equities 0
R0110 Equities – listed 0
R0120 Equities – unlisted 0
R0130 Bonds 30,864,000,928
R0140 Government Bonds 13,391,169,906
R0150 Corporate Bonds 17,210,087,670
R0160 Structured notes 0
R0170 Collateralised securities 262,743,352
R0180 Collective Investments Undertakings 4,016,588,887
R0190 Derivatives 22,451,472,626
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 5,627,210,302
R0240 Loans on policies 0
R0250 Loans and mortgages to individuals 0
R0260 Other loans and mortgages 5,627,210,302
R0270 Reinsurance recoverables from: 1,139,767,733
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 1,139,767,733
R0320 Health similar to life 0
R0330 Life excluding health and index-linked and unit-linked 1,139,767,733
R0340 Life index-linked and unit-linked 0
R0350 Deposits to cedants 0
R0360 Insurance and intermediaries receivables 0
R0370 Reinsurance receivables 2,834,705
R0380 Receivables (trade, not insurance) 10,819,649
R0390 Own shares (held directly) 20,200,945
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 905,219,923
R0420 Any other assets, not elsewhere shown 104,834,095
R0500 Total assets 65,461,337,102
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202271
Appendix B continued
S.02.01 (continued)
Pension Insurance Corporation Group Limited
Balance sheet
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) 32,515,626,223
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) 32,515,626,223
R0660 Technical provisions calculated as a whole 0
R0670 Best Estimate 31,824,402,475
R0680 Risk margin 691,223,748
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 142,147,344
R0790 Derivatives 25,347,799,800
R0800 Debts owed to credit institutions 0
R0810 Financial liabilities other than debts owed to credit institutions 0
R0820 Insurance & intermediaries payables 890,656
R0830 Reinsurance payables 24,738,642
R0840 Payables (trade, not insurance) 162,653,778
R0850 Subordinated liabilities 1,387,849,884
R0860 Subordinated liabilities not in Basic Own Funds 0
R0870 Subordinated liabilities in Basic Own Funds 1,387,849,884
R0880 Any other liabilities, not elsewhere shown 0
R0900 Total liabilities 59,581,706,327
R1000 Excess of assets over liabilities 5,879,630,774
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202272
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 4,095,214,212 4,095,214,212
R1420 Reinsurers' share 74,476,706 74,476,706
R1500 Net 4,020,737,506 4,020,737,506
Premiums earned
R1510 Gross 4,095,214,212 4,095,214,212
R1520 Reinsurers' share 74,476,706 74,476,706
R1600 Net 4,020,737,506 4,020,737,506
Claims incurred
R1610 Gross 1,918,639,305 1,918,639,305
R1620 Reinsurers' share 38,479,217 38,479,217
R1700 Net 1,880,160,088 1,880,160,088
Changes in other technical provisions
R1710 Gross -13,984,173,625 -13,984,173,625
R1720 Reinsurers' share -2,150,697,687 -2,150,697,687
R1800 Net -11,833,475,938 -11,833,475,938
R1900 Expenses incurred 248,130,512 248,130,512
R2500 Other expenses
R2600 Total expenses 248,130,512
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202273
Appendix B continued
S.05.02
Pension Insurance Corporation Group Limited
Premiums, claims and expenses by country
C0150 C0160 C0170 C0180 C0190 C0200 C0210
Top 5 countries (by amount of gross premiums written)
– life obligations
R1400 Home Country
Total Top 5 and home
country
Life C0220 C0230 C0240 C0250 C0260 C0270 C0280
Premiums written
R1410 Gross 4,095,214,212 4,095,214,212
R1420 Reinsurers' share 74,476,706 74,476,706
R1500 Net 4,020,737,506 4,020,737,506
Premiums earned
R1510 Gross 4,095,214,212 4,095,214,212
R1520 Reinsurers' share 74,476,706 74,476,706
R1600 Net 4,020,737,506 4,020,737,506
Claims incurred
R1610 Gross 1,918,639,305 1,918,639,305
R1620 Reinsurers' share 38,479,217 38,479,217
R1700 Net 1,880,160,088 1,880,160,088
Changes in other
technical provisions
R1710 Gross -13,984,173,625 -13,984,173,625
R1720 Reinsurers' share -2,150,697,687 -2,150,697,687
R1800 Net -11,833,475,938 -11,833,475,938
R1900 Expenses incurred 248,130,512 248,130,512
R2500 Other expenses
R2600 Total expenses 248,130,512
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202274
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 32,515,626,223 207,404,683 0 0 6,244,663,125
R0020 Basic own funds 7,236,164,174 -155,553,512 0 0 -4,682,614,776
R0050
Eligible own funds to meet
SolvencyCapital Requirement 7,236,164,174 -155,553,512 0 0 -5,043,493,531
R0090 Solvency Capital Requirement 3,199,060,996 51,851,171 0 0 4,171,766,780
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202275
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 4,528,542,132 4,528,542,132
R0140 Subordinated liabilities 1,387,849,884 0 1,387,849,884 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
Deductions
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
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 7,236,164,174 5,403,913,086 444,401,204 1,387,849,884 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
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
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202276
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
R0430 Non regulated entities carrying out financial activities 0
R0440 Total own funds of other financial sectors 0 0 0 0 0
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 ) 7,236,164,174 5,403,913,086 444,401,204 1,387,849,884 0
R0530 Total available own funds to meet the minimum consolidated group SCR 7,236,164,174 5,403,913,086 444,401,204 1,387,849,884
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 ) 7,236,164,174 5,403,913,086 444,401,204 1,387,849,884 0
R0570 Total eligible own funds to meet the minimum consolidated group SCR 6,008,267,340 5,403,913,086 444,401,204 159,953,050
R0590 Consolidated Group SCR 3,199,060,996
R0610 Minimum consolidated Group SCR 799,765,249
R0630 Ratio of Eligible own funds to the consolidated Group SCR (excluding other financial sectors and the undertakings included via D&A ) 226.20%
R0650 Ratio of Eligible own funds to Minimum Consolidated Group SCR 751.25%
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 ) 7,236,164,174 5,403,913,086 444,401,204 1,387,849,884
R0670 SCR for entities included with D&A method
R0680 Group SCR 3,199,060,996
R0690 Ratio of Eligible own funds to SCR including other financial sectors' own funds and capital requirements 226.20%
Reconciliation reserve C0060
R0700 Excess of assets over liabilities 5,879,630,774
R0710 Own shares (held directly and indirectly) 20,200,945
R0720 Foreseeable dividends, distributions and charges 11,115,539
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 4,528,542,132
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 202277
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 427,784,464
3 10600I Property Risk 17,492
4 10700I Spread risk – if matching adjustment impact not identified 3,207,295,728
5 10900I Currency risk 38,865,435
6 11010I Other market risk – inflation risk 91,704,884
7 11020I Other market risk – implied volatility risk 239,998,299
8 11030I Other market risk – RPI/CPI basis risk 46,174,371
9 11090I Other market risk – funds risk 876,431,191
10 19900I Diversification within market risk -1,588,209,668
11 20120I Type 1 counterparty risk – external reinsurance 62,594,652
12 20190I Type 1 counterparty risk – asset counterparty 30,073,579
13 30210I Longevity risk – longevity mis-estimation 116,326,415
14 30220I Longevity risk – longevity trend 429,795,951
15 30290I Longevity risk – other longevity risks 260,848,276
16 30299I Longevity risk – longevity diversification -322,960,845
17 30600I Expense risk 400,965,385
18 39900I Life underwriting risk diversification -128,915,478
19 70100I Operational risk 313,198,116
20 80300I Loss-absorbing capacity of deferred tax -367,748,743
Calculation of Solvency Capital Requirement
C0100
R0110 Total undiversified components 4,134,239,503
R0060 Diversification -935,178,508
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 3,199,060,996
R0210 Capital add-ons already set 0
R0220 Solvency capital requirement 3,199,060,996
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 -367,748,743
R0410 Total amount of Notional Solvency Capital Requirements for remaining part 1,377,255,166
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 1,821,805,829
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 799,765,249
Information on other entities
R0500 Capital requirement for other financial sectors (Non-insurance capital requirements) 0
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 0
R0550 Capital requirement for residual undertakings 0
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202278
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 100.00% 100.00% 100.00% 1 – Dominant 100.00% 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 100.00% 100.00% 100.00% 1 – Dominant 100.00% 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 100.00% 100.00% 100.00% 1 – Dominant 100.00% 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 0.00% 0.00% 0.00% 1 – Dominant 0.00% 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 100.00% 100.00% 100.00% 1 – Dominant 100.00% 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 or
guarantee
2 – Non-mutual The
Prudential
Regulation
Authority
100.00% 100.00% 100.00% 1 – Dominant 100.00% 1 – Included
in the scope
1 – Method 1:
Full
consolidation
GB PICBOWBCKGP 2 – Specific
code
PIC Bowback
GP Limited
99 – Other 0 2 – Non-mutual 100.00% 100.00% 100.00% 1 – Dominant 100.00% 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 100.00% 100.00% 100.00% 1 – Dominant 100.00% 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 100.00% 100.00% 100.00% 1 – Dominant 100.00% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB PICBOWBCKUT 2 – Specific
code
PIC Bowback
Unit Trust
99 – Other 0 2 – Non-mutual 100.00% 100.00% 100.00% 1 – Dominant 100.00% 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 100.00% 100.00% 100.00% 1 – Dominant 100.00% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
Appendix B continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202279
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 PICNEWVICGP 2 – Specific
code
PIC New
Victoria GP
Limited
99 – Other 0 2 – Non-mutual 100.00% 100.00% 100.00% 1 – Dominant 100.00% 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 100.00% 100.00% 100.00% 1 – Dominant 100.00% 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 100.00% 100.00% 100.00% 1 – Dominant 100.00% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB PICNEWVICUT 2 – Specific
code
PIC New
Victoria Unit
Trust
99 – Other 0 2 – Non-mutual 100.00% 100.00% 100.00% 1 – Dominant 100.00% 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 100.00% 100.00% 100.00% 1 – Dominant 100.00% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB PICOENOM 2 – Specific
code
PIC One
Eastside
Nominee
Limited
99 – Other 0 2 – Non-mutual 100.00% 100.00% 100.00% 1 – Dominant 100.00% 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 100.00% 100.00% 100.00% 1 – Dominant 100.00% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB PICOEUT 2 – Specific
code
PIC One
Eastside Unit
Trust
99 – Other 0 2 – Non-mutual 100.00% 100.00% 100.00% 1 – Dominant 100.00% 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 100.00% 100.00% 100.00% 1 – Dominant 100.00% 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 100.00% 100.00% 100.00% 1 – Dominant 100.00% 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 100.00% 100.00% 100.00% 1 – Dominant 100.00% 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 100.00% 100.00% 100.00% 1 – Dominant 100.00% 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 100.00% 100.00% 100.00% 1 – Dominant 100.00% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB PICWILTRNUT 2 – Specific
code
PIC Wiltern
Unit Trust
99 – Other 0 2 – Non-mutual 100.00% 100.00% 100.00% 1 – Dominant 100.00% 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
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202280
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 BSFGPUT 2 – Specific
code
BSF Unit Trust 99 – Other 0 2 – Non-mutual 100.00% 100.00% 100.00% 1 – Dominant 100.00% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB CVTGPUT 2 – Specific
code
CVT Unit
Trust
99 – Other 0 2 – Non-mutual 100.00% 100.00% 100.00% 1 – Dominant 100.00% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB GLSGPUT 2 – Specific
code
GLS Unit Trust 99 – Other 0 2 – Non-mutual 100.00% 100.00% 100.00% 1 – Dominant 100.00% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB PLEGPUT 2 – Specific
code
PLE Unit Trust 99 – Other 0 2 – Non-mutual 100.00% 100.00% 100.00% 1 – Dominant 100.00% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB STHGPUT 2 – Specific
code
STH Unit Trust 99 – Other 0 2 – Non-mutual 100.00% 100.00% 100.00% 1 – Dominant 100.00% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB TBWGPUT 2 – Specific
code
TBW Unit
Trust
99 – Other 0 2 – Non-mutual 100.00% 100.00% 100.00% 1 – Dominant 100.00% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB TNTGPUT 2 – Specific
code
TNT Unit Trust 99 – Other 0 2 – Non-mutual 100.00% 100.00% 100.00% 1 – Dominant 100.00% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB WORGPUT 2 – Specific
code
WOR Unit
Trust
99 – Other 0 2 – Non-mutual 100.00% 100.00% 100.00% 1 – Dominant 100.00% 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 49.00% 100.00% 49.00% 2 – Significant 49.00% 1 – Included
in the scope
3 – Method 1:
Adjusted
equity
method
GB M31AVDIX8NY21MAUQF46GB00006 2 – Specific
code
Senior Living
Investment
Partners
Limited
Partnership
99 – Other 0 2 – Non-mutual 99.00% 100.00% 99.00% 1 – Dominant 99.00% 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
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202281
Pension Insurance Corporation Group Limited
14 Cornhill, London EC3V 3ND
www.pensioncorporation.com