Creating
long-term
social value.
Pension Insurance CorporationGroup Limited
Solvency and Financial Condition Report 2021
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.
We aim to balance the interests of all
our stakeholders – policyholders,
employees, shareholders, regulators
and others – with excellence in
customer service at the heart of
what we do.
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 2021
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
17 A.5 Any other information
18 B. System of governance
19 B.1 Governance Function
25 B.2 Fit and proper requirements
26 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
32 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
51 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 202101
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
7
April 2022
Report of the Independent External Auditor
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202102
Opinion
Except as stated below, we have audited the following
documents prepared by the Group and the Company as at
31 December 2021:
•
The ‘Valuation for solvency purposes’ and ‘Capital
Management’ sections of the Solvency and Financial
Condition Report of the Group and the Company as at
31 December 2021, (‘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 Group 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
Group Solvency and Financial Condition Report set out
about above which are, or 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 Group 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, S19.01.21,
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 their
responsibilities, including for the preparation of the Group
Solvency and Financial Condition Report (‘the
Responsibility Statement’);
•
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 Group 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 Group Solvency and Financial
Condition Report of both Pension Insurance Corporation
Group Limited and Pension Insurance Corporation plc as at
31 December 2021 is prepared, in all material respects, in
accordance with the financial reporting provisions of the
PRA Rules and Solvency II regulations on which they are
based, as modified by relevant supervisory modifications,
and as supplemented by supervisory approvals and
determinations.
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
Group Solvency and Financial Condition Report section of
our report. We are independent of the Group and the
Company in accordance with the ethical requirements that
are relevant to our audit of the Group Solvency and Financial
Condition Report in the UK, including the FRC’s Ethical
Standard as applied to public interest entities, and we have
fulfilled our other ethical responsibilities in accordance with
these requirements. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a
basis for our opinion.
Emphasis of Matter – special purpose basis
ofaccounting
We draw attention to the ‘Valuation for solvency purposes’
and ‘Capital Management’ sections of the Group Solvency
and Financial Condition Report, which describe the basis of
accounting. The Group 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 Group 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 Group 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 (‘the Group’) 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 Group Solvency and Financial
Condition Report
Report of the Independent External Auditor continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202103
Going concern
The Directors have prepared the Group Solvency and
Financial Condition Report on the going concern basis as
they do not intend to liquidate the Company or the Group or
to cease their operations, and as they have concluded that
the Company’s and the Group’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 their ability to continue as a going concern for at
least a year from the date of approval of the Group 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 analysed 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 trend in the economic environment;
•
The impact on regulatory capital solvency margins and
liquidity of movements in foreign exchange or interest
rates.
We also considered less predictable but realistic second
order impacts such as failure of counterparties / reinsurers
who have transactions with the Group / Company that
could negatively impact on the financial position.
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’ use of the going concern
basis of accounting in the preparation of the Solvency and
Financial Condition Report is appropriate; and
•
We have not identified, and concur with the directors’
assessment that there is not, a material uncertainty
related to events or conditions that, individually or
collectively, may cast significant doubt on the company’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 Company or Group will continue in
operation.
Fraud and breaches of laws and regulations –
ability to detect
To identify risks of material misstatement due to fraud
(“fraud risks”) we assessed events or conditions that could
indicate an incentive or pressure to commit fraud or provide
an opportunity to commit fraud.
Our risk assessment procedures included:
•
Enquiring of directors, 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.
•
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 solvency 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 given the
opportunity for management to manipulate assumptions
due to the subjectivity involved and given the long-term
nature of these assumptions which are more difficult to
corroborate.
On this audit we do not believe there is a fraud risk related to
revenue recognition because there is no management
judgment or estimation involved in recording the revenue
streams and the amounts are contractually derived.
In order to address the risk of fraud specifically as it relates
to the technical provisions within the Group Solvency and
Financial Condition Reporting, we involved actuarial
specialists to assist in our challenge of management. We
challenged management in relation to the appropriateness
of technical provisions 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.
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 senior management, those including specific
words based on our risk criteria, those journals which were
unbalanced, those posted to unusual accounts, those
posted at the end of the period and/or post-closing entries
with little or no description and unusual journal entries
posted to either cash or borrowings.
•
Evaluating the business purpose of non-recurring transactions.
•
Assessing significant accounting estimates for bias.
No other matters related to actual or suspected fraud, for
which disclosure is not necessary, were identified.
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202104
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
Group 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 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
Group Solvency and Financial Condition Report varies
considerably.
Firstly, the Group and Company are subject to laws and
regulations that directly affect the Group Solvency and
Financial Condition Report including financial reporting
legislation (including related companies legislation),
distributable profits legislation, and taxation legislation and
we assessed the extent of compliance with these laws and
regulations as part of our procedures on the related financial
statement items.
Secondly, the Group 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 Group 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: liquidity 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.
No other matters related to actual or suspected to breaches
of laws or regulations, for which disclosure is not necessary,
were identified.
Context of the ability of the audit to detect fraud or breaches
of law or regulation
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some
material misstatements in the financial statements, even
though we have properly planned and performed our audit
in accordance with auditing standards. For example, the
further removed non-compliance with laws and regulations
is from the events and transactions reflected in the financial
statements, the less likely the inherently limited procedures
required by auditing standards would identify it.
In addition, as with any audit, there remained a higher risk of
non-detection of fraud, as 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 are responsible for the Other Information.
Our opinion on the Relevant Elements of the Group 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 Group 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 Relevant
Elements of the Group 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 Relevant Elements of the
Group 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 for the Group
Solvency and Financial Condition Report
The Directors are responsible for the preparation of the
Group Solvency and Financial Condition Report in
accordance with the financial reporting provisions of the
PRA rules and Solvency II regulations which have been
modified by the modifications, and supplemented by the
approvals and determinations made by the PRA under
section 138A of FSMA, the PRA Rules and Solvency II
regulations on which they are based.
The Directors are also responsible for such internal control as
they determine is necessary to enable the preparation of a
Group Solvency and Financial Condition Report that is free
from material misstatement, whether due to fraud or error;
assessing the company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going
concern; and using the going concern basis of accounting
unless they either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the
Relevant Elements of the Group Solvency and
Financial Condition Report
It is our responsibility to form an independent opinion as to
whether the Relevant Elements of the Group Solvency and
Financial Condition Report are prepared, in all material
respects, with financial reporting provisions of the PRA Rules
and Solvency II regulations on which it they 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 Relevant Elements of the Group Solvency and
Financial Condition Report are 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 Relevant Elements of the Group Solvency and Financial
Condition Report.
Report of the Independent External Auditor continued
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 its Group 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 and outputs from the Model, or whether
the Model is being applied in accordance with the
Company’s 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
Pension Insurance Group Limited and Pension Insurance
Corporation Plc’s statutory financial statements. 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.
The purpose of our audit work and to whom we
owe our responsibilities
This report of the external auditor is made solely to the
company’s directors, as its governing body, 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 Company’s 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 company, 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
Company’s 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 company through its governing body, for our
audit, for this report, or for the opinions we have formed.
Philip Smart for and on behalf of KPMG LLP
15 Canada Square
London
E14 5GL
7 April 2022
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202105
Report of the Independent External Auditor continued
Report of the Independent External Auditor continued
Appendix – relevant elements of the Group Solvency and
Financial Condition Report that are not subject to audit
Group internal model
The relevant elements of the Group Solvency and Financial
Condition Report that are not subject to audit comprise:
•
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 internal model
The relevant elements of the Group Solvency and Financial
Condition Report that are not subject to audit comprise:
•
The following elements of 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 202106
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. References to the Solvency II Directive should be taken as referring to the transposition of that
Directive into UK legislation which have been retained for convenience and comparability with instances of the SFCR from
prior years.
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”). This requirement is set out in a
direction made by the Prudential Regulatory Authority (“PRA”) on 6 November 2019. This direction is in force until 30 June 2022.
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 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 takes a leading role in developing and informing the pensions market through pension trustee training events.
PIC publishes regular papers on the pensions market and information on how to address certain key issues for the
commercial and the public sector, such as managing pension costs and risk inherent in pension schemes. It has an active
thought leadership programme in dealing with government, corporate sponsors and pension trustees and working with them
on pension solutions in the public and private sectors.
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.
A summary of the content of each SFCR section is provided below:
Business and performance
The Group and Company continued to trade profitably during 2021 despite turbulent market conditions and the uncertainty
caused mainly by the ongoing Covid-19 pandemic. The Group has shown resilience and remains financially strong and
profitable with a Solvency II ratio of 169% in PICG and 168% in PIC (2020: 158% in PICG and 157% PIC). The Group profit before
tax was £393 million for the year (2020: £276 million) and PIC’s profit before tax was £394 million (2020: £276 million).
Summary (unaudited)
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202107
Statement of comprehensive income highlights – PICG
2021
£m
2020
£m
Gross premiums written 4,702 5,649
Net premium revenue earned 3,856 5,132
Investment return (including commissions earned) 210 4,091
Total revenue 4,066 9,223
Net claims paid (1,785) (1,683)
Change in net insurance liabilities (1,601) (6,997)
Operating expenses (198) (194)
Finance costs (89) (73)
Total claims and expenses (3,673) (8,947)
Profit before tax 393 276
Statement of comprehensive income highlights – PIC
2021
£m
2020
£m
Gross premiums written 4,702 5,649
Net premium revenue earned 3,856 5,132
Investment return (including commissions earned) 210 4,091
Total revenue 4,066 9,223
Net claims paid (1,785) (1,683)
Change in net insurance liabilities (1,601) (6,997)
Operating expenses (198) (195)
Finance costs (88) (72)
Total claims and expenses (3,672) (8,947)
Profit before tax 394 276
Premiums
A combination of lower market activity in the first half of the year and our adherence to our policy of only writing business
which meets long-term value targets, led to a reduction in gross premiums written to £4,702 million from £5,649 million in 2020.
The Group completed fourteen new business transactions during the year (2020: seven), including the largest single
transaction ofthe year, the £2.2 billion Metal Box buyout. We continue to be selective in underwriting those risks where we
expect to generate an adequate return within our risk appetite.
Net premiums earned represent the gross premiums written less premiums ceded to reinsurers. Premiums ceded to
reinsurersincreased due to the completion of asset backed reinsurance transactions covering approximately £750 million
(2020: £385 million) of liabilities. In total, seven (2020: eight) new reinsurance contracts were concluded in 2021.
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.
Interest income on fixed securities increased to £1,054 million in 2021 from £1,027 million in 2020, reflecting the growth in the
investment portfolio during the year.
The net movement in the fair value of assets, including realised and unrealised items, was a loss of £1,029 million compared
with a gain of £3,110 million in 2020. This comprises realised gains of £307 million (2020: £634 million) and unrealised losses of
£1,336 million (2020: gain of £2,476 million).
The unrealised losses recognised in 2021 are primarily due to higher risk-free rates.
Other investment return and commissions amounted to £185 million (2020: loss of £46 million) primarily representing gains on
derivative contracts.
It is important to note that fair value gains and losses included in investment return in the income statement are largely offset
by changes in insurance liabilities, also in the income statement. Therefore, there is minimal impact on profit before tax.
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 from £1,683 million in 2020 to £1,785 million in 2021, reflecting the
increasednumber of customers.
Summary (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202108
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 increase in the number of policies by 17,200 to 289,600 partially
offset by market movements, principally the increase in risk-free rates seen in the year, and the impact of assumption
changes.
Operating expenses
The operating expenses of both PIC and PICG were £198 million in 2021 (2020: PIC £195 million, PICG £194 million). This includes
project spend of £38 million (2020: £45 million) primarily to support the forthcoming introduction of the new IFRS 17 accounting
standard, as well as spend on new asset and capital models. Excluding these project costs, the remaining increase in spend
mainly reflects an increase in equity release mortgage origination fees.
Finance costs
Finance costs represent the interest payable on borrowings and finance lease costs. The expense in PIC of £88 million in 2021
(2020: £72 million) represents the interest payable on the five (2020: five) subordinated debt securities issued. This increase
was due to the full year effect of the two Tier 2 debt issues made in 2020. The expense in PICG of £89 million (2020: £73 million)
includes an additional £1 million (2020: £1 million) in respect of finance lease costs. 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.
Statement of financial position review – PICG
Statement of financial position extract
2021
£m
2020
£m
Financial investments 51,143 49,648
Reinsurance assets 3,350 2,773
Derivative assets 15,018 21,936
Gross insurance liabilities (47,013) (44,835)
Derivative liabilities (16,997) (24,340)
Borrowings (1,590) (1,589)
Other net assets 554 574
Total equity 4,465 4 ,167
Statement of financial position review – PIC
Statement of financial position extract
2021
£m
2020
£m
Financial investments 51,316 49,742
Reinsurance assets 3,350 2,773
Derivative assets 15,018 21,936
Gross insurance liabilities (47,013) (44,835)
Derivative liabilities (16,997) (24,340)
Borrowings (1,590) (1,589)
Other net assets 345 456
Total equity 4,429 4,143
At the end of 2021, the Group had total financial investments of £51.1 billion (PIC: £51.3 billion), compared with £49.6 billion
(PIC:£49.7 billion) at the end of 2020. The assets in which the Group invests are carefully chosen in order to match the
policyholder obligations that they are designed to pay. The Group’s investment strategy is to select assets that generate
cash flows to match our future claims payments in both timing and amount. This means that the value of assets and
liabilities should move broadly in tandem as factors such as interest and inflation rates change.
The credit quality of our investment portfolio continues to remain strong which has ensured that the Group did not
experience any defaults in 2021 (2020: none) and that downgrades to sub-investment grade credit were less than
0.1%(2020: 0.4%) of the credit portfolio (including private investments but excluding gilts).
The increase in reinsurance assets during the year primarily reflects the asset backed reinsurance arrangements completed
during the year. In 2021, the Group reinsured longevity exposure on £4.0 billion of reserves (2020: £6.6 billion), andat
31 December 2021, 85% of the Group’s gross longevity related reserves had been reinsured (2020: 84%). The Group has14
reinsurance counterparties (2020: 14), all of which have a credit rating of A or above.
The increase in insurance liabilities in 2021 reflects the addition of new business liabilities partly offset by movements in
economic factors during the year coupled with claims paid and the impact of changes in assumptions.
Gross derivative assets and derivative liabilities have both decreased during the year, by £6.9 billion and £7.3 billion
respectively. The net increase in the year across all derivative assets and liabilities was £425 million. The Group uses
derivatives to hedge out certain market risks, in particular inflation, interest rates and currency risks associated with both
new and existing business. The decrease in the gross derivative asset and liability balances is as a result of market
Summary (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202109
movements partially offset by new business written in the year. It should be noted that all derivative contracts are fully
collateralised using a custodian, and as such present little credit risk in the event of a derivative counterpartydefault.
System of Governance
PIC’s governance structure is in line with the “three lines of defence” model which is operated by the Group. 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’ chairmen.
Summary (unaudited) continued
Nomination
Committee
Audit
Committee
Risk
Committee
Investment and
Origination
Committee
Remuneration
Committee
ESG
Committee
Executive
Committee
Management
and Operating
Committees
PICG Board
PIC Board
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202110
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.
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:
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
2020
Group Company
Solvency
£m
IFRS
£m
Solvency
£m
IFRS
£m
Total Assets 74,338 75,080 74,288 75,045
Total Liabilities 69,278 70,913 69,270 70,902
Excess of Assets over Liabilities/Equity 5,060 4,167 5,018 4,143
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);
Summary (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202111
•
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 2021, PICG’s Solvency II ratio was 169% (PIC: 168%) (2020: PICG 158% and PIC: 157%) and it had surplus funds of
£2,731 million (PIC: £2,701 million) (31 December 2020: PICG: £2,465 million; PIC: £2,449 million) in excess of its SCR as calculated
by the internal model. Despite the impact of adverse market conditions and significant new business volumes written in 2021,
a combination of effective underwriting, reinsurance and capital management ensured that the Solvency II ratio remained
robust.
The table below summarises the Group and Company’s capital and solvency position as at 31 December:
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%
2020 Group Company
Own Funds (£m) 6,726 6,710
SCR (£m) 4,261 4,261
Solvency II surplus (£m) 2,465 2,449
Solvency II ratio % 158% 157%
Summary (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202112
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 2021 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 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 and those parts of the Companies Act
2006 applicable to companies reporting under IFRS. 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 £393 million in 2021 (2020: £276 million), and the
Company made an IFRS profit before tax of £394 million in 2021 (2020: £276 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 202113
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
2021 2020 (restated)
PICG
£m
PIC
£m
PICG
£m
PIC
£m
Expected return from operations 288 288 274 274
New business and reinsurance profit 167 167 187 187
Underlying profit 455 455 461 461
Change in valuation assumptions 315 315 292 292
Experience and other variances (77) (77) (253) (253)
Finance and project costs (160) (159) (151) (151)
Adjusted operating profit before tax 533 534 349 349
Investment related variances (173) (173) (106) (106)
Add back: RT1 coupon (treated as a dividend for statutory purposes) 33 33 33 33
Profit before taxation 393 394 276 276
During 2021, the definition of adjusted operating profit before tax was amended to take account of three refinements
tothemethodology:
1. New business profit has been redefined to align the reported new business profitability with the assumptions used in
thepricing of new business. Any variance between pricing and current valuation assumptions is then recognised as an
experience variance outside of underlying profit that will reverse over time. There is no change to adjusted operating
profit before tax.
2. Reinsurance profit has been restated to recognise short term timing differences, and their reversal, within experience
variances. This is consistent with underlying profit being an ‘expected’ profit measure. There is no change to adjusted
operating profit before tax.
3. The cost of the RT1 interest has been recognised within finance costs. This is to align the reporting across all bases and
reflects the way management and rating agencies view these financing costs. The treatment for the statutory IFRS
statement of comprehensive income remains unchanged, i.e. the RT1 interest is treated as a dividend, and therefore
theRT1 interest is added back before profit before tax in the alternative profit metric.
The 2020 comparatives have been restated accordingly.
The Group’s adjusted operating profit before tax was £533 million (PIC: £534 million), an increase of 53% from 2020 (PIC: 53%).
This was primarily due to management actions and assumption changes and a lower adverse experience variance. More
detail on the main components of adjusted operating profit is set out below.
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 profit of £455 million in 2021 was broadly in line with 2020 (2020: £461 million). Within this figure, expected return
from operations of £288 million was higher than last year (2020: £274 million) mainly reflecting a higher assumed longer-term
rate of return due to the increase in interest rates seen in the year, partially offset by lower credit spreads in 2021.
A. Business and Performance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202114
New business and reinsurance profit of £167 million was lower than 2020 (£187 million). Within this result, new business profits
were higher than last year, despite lower volumes, reflecting a favourable business mix. This was offset by a reduced benefit
from reinsurance on the in-force book.
Reinsurance transactions in 2021 covered £4.0 billion of liabilities compared to £6.6 billion of liabilities reinsured in 2020.
Changes in valuation assumptions
The Group sets 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 review of assumptions in 2021, the Group updated several assumptions including those in respect
of credit defaults, maintenance expenses, investment management fees, inflation and the IFRS liquidity premium rate.
Thisresulted in a profit of £315 million.
To ensure that our default and downgrade expectations are appropriate, we undertake a regular update of our long-term
expectations based on data provided by rating agencies. The update for 2021 resulted in a release of £116 million, which
reflects the lesser likelihood of downgrades in our investment portfolio, and has been impacted by various actions taken
bythe business in recent years. The credit default reserve was £2.7 billion as at 31 December 2021 (31 December
2020: £2.9 billion).
During the year, after reviewing our contractual custodian fees, the assumption for investment management fees was
updated resulting in a release of reserves of £104 million.
Following the Retail Price Index (“RPI”) reform announced by the Chancellor in November 2020 which proposes to align RPI to
the Consumer Prices Index including owner occupiers’ housing costs (“CPIH”) after 2030, we took the opportunity to update
our longer-term inflation assumptions and refine our inflation modelling to take account of both Consumer Price Index (“CPI”)
and RPI volatility. This resulted in an increase in IFRS surplus of £70 million.
In addition, there were several other assumption changes made in the year which included an update to the reinvestment/
disinvestment rate used for the IFRS liquidity premium calculation and an update to the maintenance expense assumption
incorporating the latest expense budgets and following a review and update of expense allocations. In 2020, total reserve
releases of £292 million were in respect to changes in assumptions for longevity and expenses.
Experience variances and other costs
Experience variances, which reflect the difference between the assumptions used for pricing within the new business line
and those used for reserving, actual claims experience in the period compared to the expected amounts and the impacts
ofdata updates on underlying policyholder information, gave rise to a loss of £77 million in 2021 (2020: loss of £253 million).
In 2020, the negative experience variance was primarily due to differences between the maintenance expense assumption
used in pricing compared to those used in the valuation basis. This gave rise to a negative experience variance of £158 million
which was largely offset in the year by a reserve release within changes in valuation assumptions. In addition, data updates
resulted in a loss of £46 million.
Finance and Other Costs
The interest costs of the subordinated Tier 2 debt capital issued by PIC, rose to £88 million in 2021 (PICG: £88 million) from
£73 million the previous year (PICG: £73 million). This increase was due to the full year effect of the two Tier 2 debt issues
made in 2020.
Interest coupons paid on the RT1 Debt issued by PIC were £33 million (PICG: £33 million) and were unchanged from 2020
(PICG:£33 million).
Project costs in 2021 were £38 million (PICG: £38 million) compared to 2020 costs of £45 million (PICG: £45 million).
Investment related variances
Investment related variances gave rise to a loss of £173 million in the year (2020: loss of £106 million).
As noted above, adjusted operating profit before tax is based on expected long-term investment returns which are
calculated using management assumptions of the returns on the assets backing policyholder and shareholder funds with an
allowance for the corresponding expected movements in liabilities. The long-term rates of return earned on excess assets
are derived with reference to the expected longer-term yield of the underlying assets. Profit before tax includes the actual
investment returns earned in the period on assets backing insurance liabilities and surplus assets. Actual investment returns
in the year, on a mark to market basis, will differ from the expected longer-term returns due to short-term impacts from
market movements. The difference between the actual and the expected long-term rates of return, coupled with the impact
of changes in economic assumptions on liabilities and the difference between the short-term actual asset mix and the
expected long-term asset mix on new business transactions during the year are included within investment related
variances, outside of adjusted operating profit before tax.
A. Business and Performance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202115
The Group carefully manages its exposure to market and other economic risks in order that we are able to fulfil our purpose
over the long-term. As such the Group’s hedging strategy is primarily designed to protect the solvency balance sheet. This is
achieved by entering into derivative hedging contracts in accordance with our risk framework. However, due to the differing
requirements of the Solvency II and IFRS reporting metrics, there is a mismatch between the Solvency II and the IFRS balance
sheet hedging strategies. This mismatch, and the resulting volatility, is included within the investment related variance line.
The impact of downgrades and management actions which were taken to improve the resilience of the balance sheet are
also both included here.
In 2021, the adverse investment variance of £173 million was primarily due to significant economic volatility in the year, in
particular rising GBP risk free rates and credit spread movements partially offset by higher inflation.
Other operational highlights
In total, in 2021, PIC was responsible for the current and future pension payments of 282,900 (2020: 271,500) individuals,
including those with individual policies, and those for whom the trustees of the underlying pension schemes retain ultimate
responsibility.
At 31 December 2021, 85% of PIC’s total longevity exposure on a regulatory solvency basis was reinsured to third party,
investment grade reinsurer counterparties (2020: 84%).
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
2021
£m
2020
£m
Government bonds 59 1,995
Corporate bonds (188) 1,865
Collective Investment undertakings 119 44
Cash and deposits (2) 1
Collateralised securities 1 27
Mortgages and loans (220) 652
Derivative based instruments 440 (494)
Commissions earned 1 1
Investment Return 210 4,091
Investment management expenses (42) (29)
Total 168 4,062
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 fair value gains and losses included in investment return in the income statement are largely offset
by changes in insurance liabilities, also in the income statement. Therefore, there is minimal impact on profit before tax.
A.4 Performance of other activities
Pension Insurance Corporation Group Limited
Group corporation tax charges, including those incurred by PIC, were £82 million during the year (2020: £54 million).
Pension Insurance Corporation plc
The Company incurred corporation tax charges of £81 million for the year ended 31 December 2021 (2020: £53 million).
A. Business and Performance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202116
A.5 Any other information
Economic uncertainty and market volatility
We expect the trend of uncertainty and volatility in the financial markets to continue into 2022. The clear need for the global
economies to address climate change is also driving global economic uncertainty. The outlook for UK economic growth
remains uncertain, with ongoing pressure driven by the Covid-19 pandemic, our developing trade relationship with the EU
post-Brexit, and expected higher inflation driven by energy prices and supply constraints.
A similar picture exists at a global level where a range of risk drivers continue to sow uncertainty including further Covid
related restrictions, geopolitical risks from protectionist measures, social unrest, the Ukraine conflict, and advanced
economies’ governments’ inability to deliver a significant fiscal stimulus to revive economic growth.
During 2021, we have been cautious in our credit portfolio, focused on consolidating the portfolio into secure assets should
markets become more volatile. We also have extremely limited direct exposure to the crisis in Ukraine, with circa £3 million
from a legacy private equity investment, with a focus on Russia, held in our shareholder assets. We are confident in the
resilience of our portfolio and the situation remains under careful review. In addition, PIC carries out close management of its
balance sheet, and actively hedges its balance sheet against adverse movements in financial markets. PIC monitors areas of
potential pricing bubbles that may see market corrections in order to limit exposures where appropriate. The business holds
a significant amount of risk-based capital to protect against market movements.
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 202117
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.
Nomination
Committee
Audit
Committee
Risk
Committee
Investment and
Origination
Committee
Remuneration
Committee
ESG
Committee
Executive
Committee
Management
and Operating
Committees
PICG Board
PIC Board
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202118
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 2021, holds a 49.37% interest in PICG, one is nominated by Luxinva S.A., a wholly owned subsidiary of the
AbuDhabi Investment Authority, which holds a 18.15% 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
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 Appointed 7 June 2021
Judith Eden Non-executive Director
Tim Gallico SMF 7 Group Entity Senior Insurance Manager Function
Julia Goh Non-executive Director Appointed 1 October 2021
Stuart King Non-executive Director
Arno Kitts Non-executive Director
Josua Malherbe SMF 7 Group Entity Senior Insurance Manager Function
Roger Marshall 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. Seven of PIC’s directors are
independent, including the Chairman.
Of the non-executive Board members, two are appointed by Reinet PC Investments (Jersey) Limited which as at
31 December 2021, indirectly holds a 49.37% interest in PIC, one is appointed by Luxinva S.A., a wholly owned subsidiary of
theAbu Dhabi Investment Authority, which indirectly holds a 18.15% interest in PIC, one is appointed by Blue Grass Holdings
Limited, a CVC entity, which indirectly holds a 17.37% interest in PIC, and one is nominated by MP 2019 K2 Aggregator, L.P.,
anHPS Investment Partners entity, which holds a 10.23% interest in PIC. 
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 202119
PIC Board
Director Approved Function
Jon Aisbitt SMF 7 Group Entity Senior Insurance Manager Function
SMF 9 Chairman
SMF13 Chair of the Nomination Committee
Tracy Blackwell SMF 1 Chief Executive Function
SMF 7 Group Entity Senior Insurance Manager Function
Sally Bridgeland SMF 10 Chair of the Risk Committee Board member from 28 January
2021, Chair of Risk Committee
from 11 March 2021
Jake Blair SMF 7 Group Entity Senior Insurance Manager Function Appointed 7 June 2021
Judith Eden SMF 12 Chair of the Remuneration Committee
Julia Goh Non-executive Director Appointed 1 October 2021
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
Steve Sarjant SMF 10 Chair of the Risk Committee Stepped down as SMF 10 on
10 March 2021. Retired from the
Board on 31 March 2021
Rob Sewell SMF 2 Chief Finance Function Stepped down as SMF 2 and
retired from the Board on
9 December 2021
Mark Stephen Non-executive Director
Wilhelm Van Zyl SMF 7 Group Entity Senior Insurance Manager Function
Dom Veney SMF 2 Chief Finance Function Appointed 10 December 2021
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 202120
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 proposed
bythe Chief Risk Officer.
Risk Function and the Chief Risk Officer
The Risk Committee considers and approves the Risk Function mandate and reviews and assesses performance of the Chief
Risk Officer. It works with the Nomination and Remuneration Committee’s 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 202121
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
Chief Financial Officer (“CFO”)
Chief Risk Officer (“CRO”)
Chief Operating Officer
General Counsel
Chief Origination Officer
Chief People Officer
Chief Investment Officer
Head of Internal Audit
Chief Technology Officer
Head of Corporate Development and Strategy
Chief Transformation Officer
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 2021 and the date of this report:
•
Jake Blair was appointed on 7 June 2021
•
Julia Goh was appointed on 1 October 2021
Pension Insurance Corporation plc
The following changes were made to the Board of Directors of PIC between 1 January 2021 and the date of this report:
•
Sally Bridgeland was appointed on 28 January 2021
•
Steve Sarjant retired on 31 March 2021
•
Jake Blair was appointed on 7 June 2021
•
Julia Goh was appointed on 1 October 2021
•
Rob Sewell retired on 9 December 2021
•
Dom Veney was appointed on 10 December 2021
Remuneration Policies and Practices
Governance of remuneration
The PIC Remuneration Committee (“RemCo”) is a sub-committee of the Board. The RemCo fully consists of non-executive
directors and 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 202122
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 2021 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, and that of the Company.
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 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 202123
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 CRO, with input from the Chair of the Board Risk Committee and the Chair of the Audit Committee,
assesses the performance of the year against the Group’s risk appetite and behaviours and attitude to risk
and compliance. If the performance has been achieved by exceeding the risk appetite of the Group, as
stated and approved by the Board and the Board Risk Committee, the bonus pool and/or individual
outcomes may be adjusted downwards, potentially to zero.
Performance against all the above measures is assessed by the Remuneration Committee in the round.
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 annual bonuses is
in the form of nil-cost options which are subject to deferral over a three-year period 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 202124
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 to generate long-term
shareholder value.
LTIP awards vest over a three-year period, subject to the achievement of performance conditions. Awards
to ExCo members would also have 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.
2021
£m
2020
£m
Short-term employee benefits 9 9
Share-based payments 5 4
Total 14 13
Total loans to directors and key personnel in respect of share plans were fully repaid in the year. The balance of loans
outstanding at 31 December 2020 were £7 million.
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 £1 million and the carrying value of the investment at 31 December 2021 was £126 million.
Transactions with shareholders
Pension Insurance Corporation plc
There were no transactions with shareholders during 2021 (2020: £750 million equity raised).
Pension Insurance Corporation Group Limited
There were no transactions with shareholders during 2021 (2020: £750 million equity raised).
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.
B. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202125
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 21 June 2021.
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/ShPo_FirmDetailsPage?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 and limits 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 limits 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 202126
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; and
•
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.
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”). PIC also
tracks and monitors a range of emerging and developing risks that may impact its business model and strategy in order 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 202127
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. A target, threshold trigger and limit are
set for each of the risk 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
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.
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;
•
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 2021.
B. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202128
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; and
•
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.
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.
B. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202129
CONTROL
ACTIVITY
PRINCIPLES
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.
Financial statements, embedded value reports and certain Quantitative Reporting Templates as
outlined in the Report of the External Independent Auditor are reviewed by external auditors.
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.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;
•
risk management and internal control processes.
B. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202130
Internal Audit is responsible for developing a risk-based internal audit plan at least annually to Senior Management and the
Audit Committee for review and approval. The annual planning process includes 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 scope of Internal Audit activities encompasses, but is 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:
•
Governance, policies and processes, to confirm they are in line with the objectives, risk appetite and values of the organisation.
This includes review of the risk and control culture and management and oversight of third parties andoutsourcers;
•
Design and operation of the Risk Management framework. This includes risks relating to capital and liquidity, IT, assets,
operations, people, finance and actuarial;
•
Reliability, integrity and effectiveness of management information and reporting, used by the Board and Executive
Management for strategic and operational decision making;
•
An assessment of the adequacy and effectiveness of the Risk Management, Compliance and Finance functions.
Effectiveness and efficiency of operations and employment of resources;
•
Risks of poor customer treatment, giving rise to conduct or reputational risk;
•
Review and reporting on significant control failures and assisting investigation of significant suspected fraudulent activities; and
•
Key corporate events including new products, services, outsourcing decisions and acquisitions/divestments.
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.
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. System of Governance (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202131
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
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.
All proposals for outsourcing, or 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 2021 totalled £176 million (2020: £185 million).
The following key functions and activities have been outsourced:
•
Policyholder, payroll and administration services to Capita Employee Benefits Limited, Barnett Waddingham LLP and
Equiniti (Paymaster 1836 Ltd)
•
Some HR services to CBHC
•
Payroll services to MoorePay
•
Custodian and investment accounting to JP Morgan
•
Custodian and Trade Management to Northern Trust
•
Asset management to Henderson Global Investors, 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 202132
The Solvency Capital Requirement for both PICG and PIC was £3,968 million as at 31 December 2021 (31 December
2020: £4,261 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:
2021 2020
Market risk
(including credit risk) 64%
Counterparty default risk 3%
Insurance risk 21%
Expense risk 6%
Operational risk 6%
Market risk
(including credit risk) 63%
Counterparty default risk 3%
Insurance risk 24%
Expense risk 4%
Operational risk 6%
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 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.
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.
C. Risk Profile (unaudited)
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202133
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. 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.
2021 2020
As Reported 168% 157%
100 bps increase in interest rates
1
12.9% 3.9%
100 bps reduction in interest rates
1
(23.1)% (12.6)%
100 bps increase in credit spreads
1
9.4% (1.0)%
100 bps reduction in credit spreads
1
(19.1)% (14.8)%
20% credit downgrade
2
(7.9)% (11.1)%
5% reduction in base mortality
3
(7.1)% (6.7)%
All sensitivities allow for a transitional measure for technical provisions recalculation.
Notes:
1 For the interest rate and credit spread sensitivities, due to the nature and size of the impact, the recalculation of the TMTP results
inadifferent test biting and causes 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 traded 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 will depend upon the market levels of spreads at the balance sheet date.
3 Equivalent to a 0.4-year increase in life expectancy from 22.9 years to 23.3 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:
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 a 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.
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.
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.2.3 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. Risk Profile (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202134
C.2.4 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
impact on the balance sheet and the management actions available to help mitigate this. During 2021, this has included
scenarios assessing the potential macro-economic impacts on PIC’s solvency and liquidity position arising from the Covid-19
pandemic 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 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.
These plans came into action in 2020 as a pandemic risk event crystallised in the form of Covid-19. This required the
Company to take a number of actions internally and with its outsourcing partners in accordance with its business continuity
plans in order to maintain services to stakeholders, protect its staff and comply with national and regional measures. These
measures ensured the Company was able to operate throughout 2021 with no loss of service and within its risk appetite.
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 a strict internal budgeting and monitoring process
andthrough careful oversight of external investment managers and other outsourced service providers.
C.5 Credit risk
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 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.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 to prevent or minimise losses.
C. Risk Profile (unaudited) continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202135
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 derivative 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
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 as a result of climate change factors, 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 the above risks. Importantly, we have developed our risk
management approach to identify, manage and report climate related risks to our ESG Board sub-committee, 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 seek to manage the level of transition risk and minimise the physical risk.
2022 is the first year PIC has produced 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 202136
Balance Sheet: PICG
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
2020
31 December 2020
Section
reference
Solvency II
value
(£m)
Adjustment
(£m)
Statutory
Accounts
Value
(£m)
Property, plant and equipment D.1 .2 .1 20 1 21
Investment property D.1.2.2 – 91 91
Holdings in related undertakings D.1.2.2 87 (87) –
Bonds D.1.2.3 41,577 – 41,577
Collective Investments undertakings D.1 .2 .4 2,528 – 2,528
Derivative assets D.1 .2 .5 21,936 – 21,936
Total Investments 6 6,14 8 5 6 6 ,153
Loans and mortgages D.1.2.6 5,555 (94) 5,461
Reinsurance recoverables D.1 .2 .7 2,003 770 2,773
Other assets D.1 .2 .8 102 5 107
Deferred tax asset D.1 .2 .8 20 (17) 3
Receivables D.1.2.9 20 5 25
Cash and cash equivalents D.1 .2 .10 465 93 558
Own shares held directly D.1 .2 .11 25 (25) –
Total Assets S.02.01 74,338 742 75,080
Technical provisions D. 2.1 42,892 1,943 44,835
Derivative liabilities D.3.1 24,340 – 24,340
Insurance and other payables D.3.2 115 3 118
Deferred tax liability D.3.3 227 (225) 2
Subordinated debt instruments D.3.4 1,704 (86) 1,618
Total Liabilities S.02.01 69,278 1,635 70,913
Excess of Assets over Liabilities/Equity 5,060 (893) 4,167
D. Valuation for Solvency Purposes
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202137
Balance Sheet: PIC
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
2020
31 December 2020
Section
Reference
Solvency II
value
(£m)
Adjustment
(£m)
Statutory
Accounts
Value
(£m)
Holdings in related undertakings D.1.2.2 87 – 87
Bonds D.1. 2.3 41,577 – 41,577
Collective Investments undertakings D.1 .2 .4 2,528 – 2,528
Derivative assets D.1 .2 .5 21,936 – 21,936
Total Investments 6 6,128 – 6 6 ,128
Loans and mortgages D.1.2.6 5,555 – 5,555
Reinsurance recoverables D.1 .2 .7 2,003 770 2,773
Other assets D.1 .2 .8 102 – 102
Deferred tax asset D.1 .2 .8 17 (17) –
Receivables D.1.2.9 21 4 25
Cash and cash equivalents D.1 .2 .10 462 – 462
Total Assets S.02.01 74,288 757 75,045
Technical provisions D. 2.1 42,892 1,943 44,835
Derivative liabilities D.3.1 24,340 – 24,340
Insurance and other payables D.3.2 107 – 107
Deferred tax liability D.3.3 227 (225) 2
Subordinated debt instruments D.3.4 1,704 (86) 1,618
Total Liabilities S.02.01 69,270 1,632 70,902
Excess of Assets over Liabilities/Equity 5,018 (875) 4,143
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202138
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
Where undertakings are fully consolidated, all of the consolidated entities’ intra-group balances and transactions are
eliminated in full.
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 a 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
(2020: £1 million). These 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)
2021
PIC
(£m)
2021
PICG
(£m)
2020
PIC
(£m)
2020
Solvency II value 17 – 20 –
Consolidation differences – – – –
Valuation differences 1 – 1 –
Statutory Accounts value 18 – 21 –
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202139
D.1.2.2 Investment Property / Holdings in related undertakings
The Group’s holdings in investment properties relate primarily to retail and residential properties held via Guernsey registered
property unit trusts (“GPUTs”). All properties are located in the United Kingdom. Both PIC and PICG recognise these GPUTs as
holdings in related undertakings on the SII Balance Sheet. PIC also recognises these GPUTs as holdings in related undertakings
on its IFRS balance sheet, whereas PICG consolidates the GPUT 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)
2021
PIC
(£m)
2021
PICG
(£m)
2020
PIC
(£m)
2020
Solvency II value of holdings in related undertakings 162 162 87 87
Consolidation differences 11 – 4 –
Valuation differences – – – –
Statutory Accounts value of Investment properties (PICG) / Holdings in
related undertakings (PIC) 173 162 91 87
The consolidation difference of £11 million (2020: £4 million) relates to the other net liabilities of the investment property
entities that are presented under other lines in the statutory accounts.
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.
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 202140
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)
2021
PIC
(£m)
2021
PICG
(£m)
2020
PIC
(£m)
2020
Solvency II value 7,451 7,451 5,555 5,555
Consolidation differences (216) – (94) –
Valuation differences – – – –
Statutory Accounts value 7, 235 7,451 5,461 5,555
The consolidation difference within the Group of £(216) million (2020: £(94) million) in the above table relates to loans to
holdings in related undertakings that are eliminated under the 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)
2021
PICG & PIC
(£m)
2020
Solvency II value 2,735 2,003
Consolidation differences – –
Valuation differences 615 770
Statutory Accounts value 3,350 2,773
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)
2021
PIC
(£m)
2021
PICG
(£m)
2020
PIC
(£m)
2020
Solvency II value 103 98 122 119
Consolidation differences – – – –
Valuation differences 5 – (12) (17)
Statutory Accounts value 108 98 110 102
The valuation differences in the above table are in relation to prepayments and deferred tax.
This includes a valuation difference of £6 million (2020: £5 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 (2020: (£17) million for PICG and PIC). In 2021
these are related to the prepayments in PSC which are not permissible for Solvency II. In 2020 these related to differences in
the subordinated debt valuation methodology between IFRS and SII, as detailed in D.3.4.
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202141
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)
2021
PIC
(£m)
2021
PICG
(£m)
2020
PIC
(£m)
2020
Solvency II value 18 16 20 21
Consolidation differences 9 – 1 –
Valuation differences 1 1 4 4
Statutory Accounts value 28 17 25 25
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 £9 million (2020: £1 million) in the above table.
A valuation difference of £1 million (2020: £4 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)
2021
PIC
(£m)
2021
PICG
(£m)
2020
PIC
(£m)
2020
Solvency II value 812 805 465 462
Consolidation differences 210 – 93 –
Valuation differences – – – –
Statutory Accounts value 1,022 805 558 462
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 £210 million (2020: £93 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)
2021
PIC
(£m)
2021
PICG
(£m)
2020
PIC
(£m)
2020
Solvency II value 19 – 25 –
Consolidation differences – – – –
Valuation differences (19) – (25) –
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 “buyout” policies, where the policyholder is an individual.
All the Company’s insurance liabilities represent contracts that provide immediate annuities for current pensioners and
deferred annuities for members who have not yet reached pensionable age. Annuities are payable for the life of the
policyholder, 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 202142
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 2021 on the
regulatory solvency basis. The equivalent figures for 31 December 2020 are also shown.
Technical provisions, Solvency II basis (£m)
31 December
2021
31 December
2020
Best estimate liabilities
•
Liabilities gross of reinsurance 44,283 41,539
•
Value of reinsurance recoverables (2,735) (2,003)
•
Net-of-reinsurance liabilities 41,548 39,536
Risk margin (RM) 2,026 2,425
Transitional measures deduction (“TMTP”) (757) (1,072)
Total net technical provisions 42,817 40,889
Add back value of reinsurance recoverables 2,735 2,003
Total gross technical provisions 45,552 42,892
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 2021 were £45,552 million (2020: £42,892 million).
There are no additional technical provisions maintained by the Group outside PIC.
PICG & PIC
(£m)
2021
PICG & PIC
(£m)
2020
Solvency II value 45,552 42,892
Consolidation differences – –
Valuation differences 1,461 1,943
Statutory Accounts value 47,013 44,835
There are a number of differences in the approaches used in calculating the IFRS 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, the inclusion of a Risk Margin 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 SONIA 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 202143
Mortality and demographic assumptions:
The base mortality assumptions as at 31 December 2021 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.
The assumption for future improvements to mortality is modelled using the CMI 2019 model with some adjustment. The
long-term improvement rate is assumed to taper from 1.75% p.a. at age 85 to zero at age 110 for both men and women.
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 inflation are based on a curve derived from market prices of inflation-
linked swap contracts. Assumptions for expected Consumer Price Index 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 internal costs of maintaining the existing insurance contracts, the 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 are factored into the calculation of liabilities by adding appropriate allowances, and include an
estimate of the impact of future inflation where this is applicable. No allowances are included for 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 of the
reference undertaking in each future year over the period in which the in-force business runs off. A cost-of-capital
calculation is then performed using a prescribed rate 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 reference undertaking’s SCR are longevity 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 between RPI and CPI, and operational risk. Longevity 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.
Transitional measures deduction on technical provisions (unaudited):
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 four recalculations of the TMTP, three due to the biennial recalculation requirement (at 31 December 2017,
31 December 2019, and 31 December 2021), and one (at 31 December 2020) due to the particular economic circumstances
arising over 2020.
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202144
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 relate to RPI 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. In October 2020, PIC made a further application to the PRA in respect of its use of the matching
adjustment. This application, which included a number of refinements to the approach, was approved by the PRA in
December 2020.
As at 31 December 2021, all of the business in force (aside from an immaterial amount of Euro-denominated liabilities) was
eligible for use with the matching adjustment, and 99.99% of the business was held within the matching adjustment fund
andvalued using the matching adjustment. A small percentage of the modelled liabilities, amounting to 0.01%of the total net
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 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 then 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 202145
The assets in the MA Fund used in the matching adjustment calculation can be summarised as follows:
MA Fund assets
31 December
2021
31 December
2020
Investments in related undertakings 70 62
Government bonds 16,842 16,838
Corporate bonds 20,998 21,382
Derivative assets 6,044 6,741
Loans and mortgages 7,030 5,367
Collateralised securities 273 289
Collective investment undertakings 685 334
Cash and cash equivalents 464 402
Total assets 52,406 51,415
Less Derivative liabilities (9,914) (11,339)
Net value of assets 42,492 40,076
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)(i)(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 2021, 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 at 31 December 2020) 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 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)
31 December 2020
Impact of matching adjustment (£m)
Including
matching
adjustment
Excluding
matching
adjustment
Impact of not
applying
matching
adjustment
Technical Provisions (gross of reinsurance) 42,892 49,497 6,605
Basic Own Funds 6,710 1,362 (5,348)
Eligible Own Funds to meet SCR 6,710 1,362 (5,348)
SCR 4,261 10,359 6,098
Excess assets over SCR 2,449 (8,997) (11,446)
Eligible Own Funds to meet MCR 5,219 (867) (6,086)
MCR 1,065 2,590 1,525
Excess assets over MCR 4,15 4 (3,457) (7,611)
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202146
D.2.4 Use of volatility adjustment
In December 2015, PIC was granted permission by the PRA to apply a volatility adjustment in relation to the value of its
insurance liabilities.
As detailed in section D.2.3 above, as at 31 December 2021, all of the business in force (aside from an immaterial amount of
Euro-denominated liabilities) was eligible for use with the matching adjustment. A small percentage of the liabilities,
amounting to less than 0.01% of the total net liabilities was 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 2021 (nil at
31 December 2020).
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 –
31 December 2020
Impact of volatility adjustment (£m)
Including
volatility
adjustment
Excluding
volatility
adjustment
Impact of not
applying VA
Technical Provisions (gross of reinsurance) 42,892 42,892 –
Basic Own Funds 6,710 6,710 –
Eligible Own Funds to meet SCR 6,710 6,710 –
SCR 4,261 4,261 –
Excess assets over SCR 2,449 2,449 –
Eligible Own Funds to meet MCR 5,219 5,219 –
MCR 1,065 1,065 –
Excess assets over MCR 4,15 4 4,15 4 –
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202147
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 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 four occasions, most
recently at 31 December 2021 in line with the regulatory biennial recalculation requirement. Allowing for both amortisation
and re-calculation, the TMTP as at 31 December 2021 is £757 million (2020: £1,072 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 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%
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%
31 December 2020
Impact of TMTP (£m)
Including
TMTP
Excluding
TMTP
Impact of
excluding
TMTP
Technical Provisions (gross of reinsurance) 42,892 43,964 1,072
Basic Own Funds 6,710 5,842 (868)
Eligible Own Funds available to meet SCR 6,710 5,842 (868)
SCR 4,261 4,465 204
Excess assets 2,449 1,377 (1,072)
Solvency II ratio based on SCR 157% 131%
Eligible Own Funds available to meet MCR 5,219 4,360 (859)
MCR 1,065 1,116 51
Excess assets 4,1 54 3,244 (910)
Solvency II ratio based on MCR 490% 391%
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 2021, approximately 85% (as measured by best estimate liabilities) of the longevity risk was
reinsured(2020: 84%).
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 £(647) million as at 31 December 2021 (2020: £(772) 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 £3,415 million
asat31 December 2021 (2020: £2,790 million).
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202148
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 at 31 December 2021 was 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 £47 million (2020: £31 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 £14 million (2020: £16 million) in respect of a small tranche of annuities where PIC
has undertaken inwards reinsurance.
Therefore, the total value of the reinsurance recoverables asset is £2,735 million (2020: £2,003 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 2021, PIC revised its assumptions for: expenses and expense inflation; the long-term corporation tax rate; and the
transition of the Solvency II risk-free rate from LIBOR to SONIA. It also updated the LPI/CPI inflation assumptions to reflect the
recent HM Treasury review of RPI, and the longevity trend and baseline insurance risk calibrations and correlations.
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.
In aggregate, the assumption changes increased Solvency II Own Funds by £69 million.
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 determine 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 202149
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 2020 are shown for comparison.
Reconciliation between Solvency II and IFRS technical provisions (£m)
31 December
2021
31 December
2020
Solvency II technical provisions (gross of reinsurance) 45,552 42,892
Less:
- Value of reinsurance recoverables on SII basis (2,735) (2,003)
Solvency II technical provisions (net of reinsurance) 42,817 40,889
Less:
- Risk margin (2,026) (2,425)
- Transitional measures deduction 757 1,072
Solvency II best estimate liability (net of reinsurance) 41,548 39,536
Add:
- Classification difference of deferred premium – 4
- Impact of valuation discount rate margin 836 1,246
- Impact of other IFRS valuation margins 1,279 1,276
IFRS technical provisions (net of reinsurance) 43,663 42,062
Add:
- Value of reinsurance recoverables on IFRS basis 3,350 2,773
IFRS technical provisions (gross of reinsurance) 47,013 44,835
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)
2021
PIC
(£m)
2021
PICG
(£m)
2020
PIC
(£m)
2020
Solvency II value 183 183 115 107
Consolidation differences 15 – 3 –
Valuation differences – – – –
Statutory Accounts value 198 183 118 107
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 £15 million (2020: £3 million) in the above table.
D. Valuation for Solvency Purposes continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202150
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 2021, this resulted in a
deferred tax liability of £215 million (2020: £227 million), primarily arising from adjustments to Technical Provisions and Risk
Margin arising from the application of Solvency II regulations.
On the IFRS Statement of Financial Position a deferred tax liability of £1 million (2020: £2 million) is held relating to transitional
arrangements on the UK Life tax regime.
PICG & PIC
(£m)
2021
PICG & PIC
(£m)
2020
Solvency II value 215 227
Consolidation difference – –
Valuation differences (214) (225)
Statutory Accounts value 1 2
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)
2021
PICG & PIC
(£m)
2020
Solvency II value 1,608 1,704
Consolidation differences – –
Valuation differences 11 (86)
Statutory Accounts value 1,619 1,618
The valuation differences arise because the subordinated debt is measured at amortised cost for IFRS purposes and at fair
value under Solvency II.
Resticted 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 2021 this value was £11 million (2020: £12 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 2021, the Group recognised a right-of-use asset of £17 million (2020: £20 million) and a corresponding lease
liability of £20 million (2020: £22 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 202151
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 £173 million; PIC £162 million (2020: PICG £91 million, PIC
£87million)
Investment properties are held indirectly through investment entities and included in the QRT on an adjusted equity basis.
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) – £9,021 million PIC and PICG (2020: £7,736 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 – PIC: £1,125 million (2020: £547 million); PICG: £1,125 million (2020:£534million)
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 £19 million (2020: £25 million)
This is determined using a modelled valuation of the PICG Group, derived from its audited Market Consistent Embedded
Value at the valuation date.
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 202152
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;
•
Efficient 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:
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
2020 (£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 870 – – 870 524 – – 524
Reconciliation reserve 3,706 – – 3,706 2,812 – – 2,812
Restricted Tier 1 debt 444 – – 444 444 – – 444
Subordinated liabilities – 1,704 – 1,704 – 1,704 – 1,704
Amount of basic own funds available
and eligible to cover SCR 5,022 1,704 – 6,726 5,006 1,704 – 6,710
Eligibility deduction in Tier 2 own funds – (1,491) – (1,491) – (1,491) – (1,491)
Amount of basic own funds eligible
tocover MCR 5,022 213 – 5,235 5,006 213 – 5,219
As at 31 December 2021, the ratio of eligible Own Funds to Solvency Capital Requirement of PICG was 169% (2020: 158%) and
of PIC was 168% (2020: 157%).
E. Capital Management
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202153
There are no items of ancillary Own Funds at 31 December 2021 (2020: 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 rest 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 £198 million (2020: £213 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
2021 £m
Tier 1 Tier 2
Total
Share
Capital
Share
Premium
Reconciliation
Reserve
Tier 1
Restricted
Capital
Subordinated
Debt
At start of year 2 870 3,706 444 1,704 6,726
Issued in year – – – – – –
Movements in year – 3 66 – (96) (27)
At end of year 2 873 3,772 444 1,608 6,699
2020 £m
Tier 1 Tier 2
TotalShare Capital
Share
Premium
Reconciliation
Reserve
Tier 1
Restricted
Capital
Subordinated
Debt
At start of year 2 119 3,274 475 962 4,832
Issued in year – 750 – – 700 1,450
Movements in year – 1 432 (31) 42 444
At end of year 2 870 3,706 444 1,704 6,726
There was no additional share capital raised during the year (2020: £750 million).
There was no subordinated debt raised during the year (2020: £700 million).
Further analysis of the reconciliation reserve is set out in E1.6.
E.1.3.2 Reconciliation of opening and closing own funds: PIC
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
Issued in year – – – – – –
Movements in year – – 55 – (96) (41)
At end of year 1,226 524 2,867 444 1,608 6,669
2020 £m
Tier 1 Tier 2
Total
Share
Capital
Share
Premium
Reconciliation
Reserve
Tier 1
Restricted
Capital
Subordinated
Debt
At start of year 1,000 – 2,407 475 962 4,844
Issued in year 226 524 – – 700 1,450
Movements in year – – 405 (31) 42 416
At end of year 1,226 524 2,812 444 1,704 6,710
E. Capital Management continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202154
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
2021
£m
2020
£m
03/07/14 300 9 9.107 6.5 03/07/24 320 334
23/11/16 250 98.916 8.0 23/11/26 253 265
20/09/18 350 99.693 5.625 20/09/30 367 392
07/05/20 300 99.554 4.625 07/05/31 293 312
21/10/20 400 9 9.12 9 3.625 21/10/32 375 401
Total Tier 2 capital 1,608 1,704
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 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 movements in the risk-free rate between the dates of issue and the reporting date have led to an increase in the
value of the subordinated debt (including accrued interest) of £18 million (2020: increase of £115 million). The difference in
value between the two bases is offset by an equal and opposite amount included within the Reconciliation Reserve.
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
2021 2020 2021 2020
Equity per IFRS financial statements 4,465 4,1 67 4,429 4,1 43
Add: Reclassification of Subordinated debt as Tier 2 capital for regulatory
purposes, included at regulatory value 1,608 1,704 1,608 1,704
* Deferred Tax (liability)/asset arising from Subordinated debt revaluation (3) 16 (3) 16
* Adjustment of subordinated debt value between IFRS and
regulatoryvalue 11 (115) 11 (115)
* Adjustment for RT1 accrued interest (11) (12) (11) (12)
* Decrease in technical provisions under regulatory rules 1,461 1,942 1,461 1,942
* Increase in deferred tax liability under regulatory rules (211) (225) (211) (225)
* Decrease in reinsurance recoverable and other assets under
regulatoryrules (621) (751) (615) (743)
Own Funds per regulatory requirements 6,699 6,726 6,669 6,710
Items marked with a ‘*’ above form part of the regulatory Reconciliation Reserve (see E.1.6 below), which totals £3,772 million
for PICG (2020: £3,706 million) and £2,867 million for PIC (2020: £2,812 million) at 31 December 2021.
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 202155
E.1.6 Constituents of reconciliation reserve
The reconciliation reserve at 31 December is formed of the following elements:
2021
£m Group Company
IFRS retained earnings per financial statements 2,055 2,175
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
2020
£m Group Company
IFRS retained earnings per financial statements 1,773 1,889
Capital contribution reserve per financial statements – 60
Capital Reduction reserve per financial statements 1,055 –
Other reserves per financial statements 48 –
Differences between IFRS rules and Solvency II rules (marked with ‘*’ above) 855 863
Treasury Shares per financial statements (25) –
Reconciliation reserve at 31 December 2020 3,706 2,812
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 2021, PICG’s and PIC’s Solvency Capital Requirement amounted to £3,968 million (2020: £4,261 million), and
its Minimum Capital Requirement amounted to £992 million (2020: £1,065 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 2021;
•
The impact of changes in economic conditions over the year, in particular an increase in interest rates which materially
reduced capital requirements and more than offset an increase in capital requirements arising from higher inflation and a
narrowing 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 LPI and CPI, longevity calibrations and correlations, and correlations
between risks.
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 2021 is as follows:
Summary of SCR (£m) 2021 2020
Risk capital before diversification:
•
Market risk 3,821 3,917
•
Counterparty credit risk 172 163
•
Insurance risk 1,280 1,463
•
Expense risk 349 287
•
Operational risk 378 363
Total before diversification 6,000 6,193
Diversification benefit (1,746) (1,674)
Loss absorbing capacity of deferred tax (“LACDT”) (286) (258)
Total diversified SCR after LACDT 3,968 4,261
E. Capital Management continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202156
E.2.1.1 Loss absorbing capacity of deferred tax
The total SCR for the Company has been adjusted for LACDT. At 31 December 2021 the amount of the adjustment was
£286m(2020: £258m). 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 the
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 2020 and 2021 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; and
•
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 202157
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
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
Internal
Model with
matching
adjustment
FY2020
£m
Standard
Formula with
matching
adjustment
FY2020
£m
Market risk 3,917 4,892
Insurance Risk 1,463 579
Operational Risk 363 226
Expense Risk 287 260
Counterparty credit Risk 163 86
Benefit of diversification (1,674) (666)
Loss absorbing capacity of deferred tax (258) (334)
Solvency Capital Requirement 4,261 5,043
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 2021 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 202158
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.
LIBOR
The London Interbank Offered Rate (LIBOR) is a benchmark interest rate at which major global banks lend to one another in
the international interbank market for short-term loans.
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
The RM, 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.
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202159
SCR
Solvency Capital Requirement – the risk based capital assessment under Solvency II. Can either be set by standard formula
or a regulatory-approved internal model.
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. A transitional arrangement whereby differences between the Solvency II
regime and an insurer’s previous regulatory capital regime can be phased in over a period, generally a maximum of 16 years.
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 202160
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.02.01.02 Balance Sheet
S.05.01.02 Premiums, claims and expenses by line of business
S.05.02.01 Premiums, claims and expenses by country
S.12.01.02 Life and Health SLT Technical Provisions
S.22.01.21 Impact of long-term guarantees measures and transitionals
S.23.01.01 Own Funds
S.25.03.21 SCR – for undertakings on Full Internal Models
S.28.01.01 MCR – Only life or only non-life insurance or reinsurance activity
Pension Insurance Corporation Group Limited
QRT REF QRT NAME
S.02.01.02 Balance Sheet
S.05.01.02 Premiums, claims and expenses
S.05.02.01 Premiums, claims and expenses by country
S.22.01.22 Impact of long-term guarantees measures and TMTP’s
S.23.01.22 Own Funds
S.25.03.22 SCR – for undertakings on Full Internal Models
S.32.01.22 Undertakings in the scope of the group
The appendices to the SFCR are presented in GBP sterling (£m) unless otherwise stated.
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202161
S.02.01.02
Pension Insurance Corporation plc
Balance sheet
2021
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) 58,520,247,785
R0080 Property (other than for own use) 0
R0090 Holdings in related undertakings, including participations 161,664,898
R0100 Equities 0
R0110 Equities - listed 0
R0120 Equities - unlisted 0
R0130 Bonds 40,044,733,768
R0140 Government Bonds 18,262,952,688
R0150 Corporate Bonds 21,450,890,476
R0160 Structured notes 0
R0170 Collateralised securities 330,890,604
R0180 Collective Investments Undertakings 3,295,913,031
R0190 Derivatives 15,017,936,087
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 7,450,727,070
R0240 Loans on policies 0
R0250 Loans and mortgages to individuals 0
R0260 Other loans and mortgages 7,450,727,070
R0270 Reinsurance recoverables from: 2,734,732,257
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 index-linked and unit-linked 2,734,732,257
R0320 Health similar to life 0
R0330 Life excluding health and index-linked and unit-linked 2,734,732,257
R0340 Life index-linked and unit-linked 0
R0350 Deposits to cedants 0
R0360 Insurance and intermediaries receivables 972,517
R0370 Reinsurance receivables 5,506,783
R0380 Receivables (trade, not insurance) 11,008,740
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 804,879,556
R0420 Any other assets, not elsewhere shown 98,184,240
R0500 Total assets 69,626,258,946
Appendix B continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202162
Appendix B continued
S.02.01.02 (continued)
Pension Insurance Corporation plc
Balance sheet
2021
Solvency II value
C0010
Liabilities
R0510 Technical provisions – non-life 0
R0520 Technical provisions – non-life (excluding health) 0
R0530 TP calculated as a whole 0
R0540 Best Estimate 0
R0550 Risk margin 0
R0560 Technical provisions - health (similar to non-life) 0
R0570 TP calculated as a whole 0
R0580 Best Estimate 0
R0590 Risk margin 0
R0600 Technical provisions - life (excluding index-linked and unit-linked) 45,551,825,994
R0610 Technical provisions - health (similar to life) 0
R0620 TP 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) 45,551,825,994
R0660 TP calculated as a whole 0
R0670 Best Estimate 44,282,581,928
R0680 Risk margin 1,269,244,067
R0690 Technical provisions - index-linked and unit-linked 0
R0700 TP 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 214,870,548
R0790 Derivatives 16,997,144,252
R0800 Debts owed to credit institutions 0
R0810 Financial liabilities other than debts owed to credit institutions 0
R0820 Insurance & intermediaries payables 0
R0830 Reinsurance payables 21,865,293
R0840 Payables (trade, not insurance) 161,055,787
R0850 Subordinated liabilities 1,608,182,498
R0860 Subordinated liabilities not in BOF 0
R0870 Subordinated liabilities in BOF 1,608,182,498
R0880 Any other liabilities, not elsewhere shown 0
R0900 Total liabilities 64,554,944,372
R1000 Excess of assets over liabilities 5,071,314,574
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202163
Appendix B continued
S.05.01.02
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 4,702,594,575 4,702,594,575
R1420 Reinsurers’ share 846,436,191 846,436,191
R1500 Net 3,856,158,384 3,856,158,384
Premiums earned
R1510 Gross 4,702,594,575 4,702,594,575
R1520 Reinsurers’ share 846,436,191 846,436,191
R1600 Net 3,856,158,384 3,856,158,384
Claims incurred
R1610 Gross 1,844,486,974 1,844,486,974
R1620 Reinsurers’ share 59,262,217 59,262,217
R1700 Net 1,785,224,757 1,785,224,757
Changes in other technical provisions
R1710 Gross 2,177,584,206 2,177,584,206
R1720 Reinsurers’ share 577,688,269 577,688,269
R1800 Net 1,599,895,937 1,599,895,937
R1900 Expenses incurred 195,920,504 195,920,504
R2500 Other expenses
R2600 Total expenses 195,920,504
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202164
Appendix B continued
S.05.02.01
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 4,702,594,575 4,702,594,575
R1420 Reinsurers’ share 846,436,191 846,436,191
R1500 Net 3,856,158,384 3,856,158,384
Premiums earned
R1510 Gross 4,702,594,575 4,702,594,575
R1520 Reinsurers’ share 846,436,191 846,436,191
R1600 Net 3,856,158,384 3,856,158,384
Claims incurred
R1610 Gross 1,844,486,974 1,844,486,974
R1620 Reinsurers’ share 59,262,217 59,262,217
R1700 Net 1,785,224,757 1,785,224,757
Changes in other
technical provisions
R1710 Gross 2,177,584,206 2,177,584,206
R1720 Reinsurers’ share 577,688,269 577,688,269
R1800 Net 1,599,895,937 1,599,895,937
R1900 Expenses incurred 195,920,504 195,920,504
R2500 Other expenses
R2600 Total expenses 195,920,504
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202165
Appendix B continued
S.12.01.02
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
calculated as a whole 0
Technical provisions calculated as a sum
of BE and RM
Best estimate
R0030 Gross Best Estimate 44,282,581,927 44,282,581,927
R0080
Total Recoverables from reinsurance/
SPV and Finite Re after the adjustment
for expected losses due to
counterparty default 2,734,732,257 2,734,732,257
R0090
Best estimate minus recoverables from
reinsurance/SPV and Finite Re 41,547,849,670 0 41,547,849,670
R0100 Risk margin 2,026,502,523 2,026,502,523
Amount of the transitional on Technical
Provisions
R0110
Technical Provisions calculated as a
whole 0
R0120 Best estimate 0
R0130 Risk margin -757,258,456 -757,258,456
R0200 Technical provisions - total 45,551,825,994 45,551,825,994
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202166
Appendix B continued
S.22.01.21
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 45,551,825,994 757,258,457 0 0 6,671,821,602
R0020 Basic own funds 6,668,742,699 -567,943,843 0 0 -5,002,856,838
R0050
Eligible own funds to meet Solvency
Capital Requirement 6,668,742,699 -567,943,843 0 0 -5,107,479,289
R0090 Solvency Capital Requirement 3,967,589,509 189,314,614 0 0 6,116,598,221
R0100
Eligible own funds to meet Minimum
Capital Requirement 5,258,939,676 -558,478,112 0 0 -6,342,674,729
R0110 Minimum Capital Requirement 991,897,377 47,328,654 0 0 1,529,149,555
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202167
Appendix B continued
S.23.01.01
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 2,866,348,653 2,866,348,653
R0140 Subordinated liabilities 1,608,182,498 0 1,608,182,498 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 6,668,742,699 4,616,158,997 444,401,204 1,608,182,498 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 6,668,742,699 4,616,158,997 444,401,204 1,608,182,498 0
R0510 Total available own funds to meet the MCR 6,668,742,699 4,616,158,997 444,401,204 1,608,182,498
R0540 Total eligible own funds to meet the SCR 6,668,742,699 4,616,158,997 444,401,204 1,608,182,498 0
R0550 Total eligible own funds to meet the MCR 5,258,939,676 4,616,158,997 444,401,204 198,379,475
R0580 SCR 3,967,589,509
R0600 MCR 991,897,377
R0620 Ratio of Eligible own funds to SCR 168.08%
R0640 Ratio of Eligible own funds to MCR 530.19%
Reconciliation reserve C0060
R0700 Excess of assets over liabilities 5,071,314,574
R0710 Own shares (held directly and indirectly) 0
R0720 Foreseeable dividends, distributions and charges 10,754,373
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 2,866,348,653
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202168
Appendix B continued
S.25.03.21
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 911,662,315
3 10600I Property Risk 1,339,962
4 10700I Spread risk - if matching adjustment impact not identified 3,983,624,443
5 10900I Currency risk 233,144,583
6 11010I Other market risk - inflation risk 101,680,226
7 11020I Other market risk - implied volatility risk 399,254,249
8 11030I Other market risk - RPI/CPI basis risk 241,249,474
9 11090I Other market risk - funds risk 562,725,016
10 19900I Diversification within market risk -2,613,860,310
11 20120I Type 1 counterparty risk - external reinsurance 136,663,422
12 20190I Type 1 counterparty risk - asset counterparty 35,074,858
13 30210I Longevity risk - longevity mis-estimation 256,184,276
14 30220I Longevity risk - longevity trend 1,197,047,036
15 30290I Longevity risk - other longevity risks 423,021,426
16 30299I Longevity risk - longevity diversification -596,276,859
17 30600I Expense risk 526,993,894
18 39900I Life underwriting risk diversification -177,668,203
19 70100I Operational risk 378,463,718
20 80300I Loss-absorbing capacity of deferred tax -286,482,194
Calculation of Solvency Capital Requirement C0100
R0110 Total undiversified components 5,713,841,333
R0060 Diversification -1,746,251,825
R0160 Capital requirement for business operated in accordance with Art. 4 of Directive 2003/41/EC
R0200 Solvency capital requirement excluding capital add-on 3,967,589,509
R0210 Capital add-ons already set
R0220 Solvency capital requirement 3,967,589,509
Other information on SCR
R0300 Amount/estimate of the overall loss-absorbing capacity of technical provisions
R0310 Amount/estimate of the overall loss-absorbing capacity of deferred taxes -286,482,193
R0410 Total amount of Notional Solvency Capital Requirements for remaining part 686,855,253
R0420 Total amount of Notional Solvency Capital Requirement for ring fenced funds
R0430 Total amount of Notional Solvency Capital Requirement for matching adjustment portfolios 3,280,734,256
R0440 Diversification effects due to RFF nSCR aggregation for article 304
R0460 Net future discretionary benefits
Approach to tax rate C0109
R0590 Approach based on average tax rate No
LAC DT
C0130
R0640 Amount/estimate of LAC DT -286,482,193
R0650 Amount/estimate of LAC DT justified by reversion of deferred tax liabilities -215,757,094
R0660 Amount/estimate of LAC DT justified by reference to probable future taxable economic profit
R0670 Amount/estimate of LAC DT justified by carry back, current year -70,725,099
R0680 Amount/estimate of LAC DT justified by carry back, future years
R0690 Amount/estimate of Maximum LAC DT -286,482,193
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202169
S.28.01.01
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 872,504,843
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 41,547,849,670
R0250 Total capital at risk for all life (re)insurance obligations
Overall MCR calculation C0070 C0070
R0300 Linear MCR 872,504,843
R0310 SCR 3,967,589,509
R0320 MCR cap 1,785,415,279
R0330 MCR floor 991,897,377
R0340 Combined MCR 991,897,377
R0350 Absolute floor of the MCR 3,126 ,130
R0400 Minimum Capital Requirement 991,897,377
Appendix B continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202170
Appendix B continued
S.02.01.02
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 4,938,052
R0050 Pension benefit surplus 0
R0060 Property, plant & equipment held for own use 17,121,696
R0070 Investments (other than assets held for index-linked and unit-linked contracts) 58,520,327,211
R0080 Property (other than for own use) 0
R0090 Holdings in related undertakings, including participations 161,744,324
R0100 Equities 0
R0110 Equities - listed 0
R0120 Equities - unlisted 0
R0130 Bonds 40,044,733,768
R0140 Government Bonds 18,262,952,688
R0150 Corporate Bonds 21,450,890,476
R0160 Structured notes 0
R0170 Collateralised securities 330,890,604
R0180 Collective Investments Undertakings 3,295,913,031
R0190 Derivatives 15,017,936,087
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 7,450,727,070
R0240 Loans on policies 0
R0250 Loans and mortgages to individuals 0
R0260 Other loans and mortgages 7,450,727,070
R0270 Reinsurance recoverables from: 2,734,732,257
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 index-linked and unit-linked 2,734,732,257
R0320 Health similar to life 0
R0330 Life excluding health and index-linked and unit-linked 2,734,732,257
R0340 Life index-linked and unit-linked 0
R0350 Deposits to cedants 0
R0360 Insurance and intermediaries receivables 972,517
R0370 Reinsurance receivables 5,506,783
R0380 Receivables (trade, not insurance) 11,939,076
R0390 Own shares (held directly) 19,301,689
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 811,987,971
R0420 Any other assets, not elsewhere shown 98,183,644
R0500 Total assets 69,675,737,966
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202171
Appendix B continued
S.02.01.02 (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 TP calculated as a whole 0
R0540 Best Estimate 0
R0550 Risk margin 0
R0560 Technical provisions – health (similar to non-life) 0
R0570 TP calculated as a whole 0
R0580 Best Estimate 0
R0590 Risk margin 0
R0600 Technical provisions – life (excluding index-linked and unit-linked) 45,551,825,994
R0610 Technical provisions – health (similar to life) 0
R0620 TP 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) 45,551,825,994
R0660 TP calculated as a whole 0
R0670 Best Estimate 44,282,581,928
R0680 Risk margin 1,269,244,067
R0690 Technical provisions – index-linked and unit-linked 0
R0700 TP 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 214,870,548
R0790 Derivatives 16,997,144,252
R0800 Debts owed to credit institutions 0
R0810 Financial liabilities other than debts owed to credit institutions 0
R0820 Insurance & intermediaries payables 0
R0830 Reinsurance payables 21,865,293
R0840 Payables (trade, not insurance) 160,658,706
R0850 Subordinated liabilities 1,608,182,498
R0860 Subordinated liabilities not in BOF 0
R0870 Subordinated liabilities in BOF 1,608,182,498
R0880 Any other liabilities, not elsewhere shown 0
R0900 Total liabilities 64,554,547,292
R1000 Excess of assets over liabilities 5,121,190,674
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202172
Appendix B continued
S.05.01.02
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 4,702,594,575 4,702,594,575
R1420 Reinsurers’ share 846,436,191 846,436,191
R1500 Net 3,856,158,384 3,856,158,384
Premiums earned
R1510 Gross 4,702,594,575 4,702,594,575
R1520 Reinsurers’ share 846,436,191 846,436,191
R1600 Net 3,856,158,384 3,856,158,384
Claims incurred
R1610 Gross 1,844,486,974 1,844,486,974
R1620 Reinsurers’ share 59,262,217 59,262,217
R1700 Net 1,785,224,757 1,785,224,757
Changes in other technical provisions
R1710 Gross 2,177,584,206 2,177,584,206
R1720 Reinsurers’ share 577,688,269 577,688,269
R1800 Net 1,599,895,937 1,599,895,937
R1900 Expenses incurred 196,536,197 196,536,197
R2500 Other expenses
R2600 Total expenses 196,536,197
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202173
Appendix B continued
S.05.02.01
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 4,702,594,575 4,702,594,575
R1420 Reinsurers’ share 846,436,191 846,436,191
R1500 Net 3,856,158,384 3,856,158,384
Premiums earned
R1510 Gross 4,702,594,575 4,702,594,575
R1520 Reinsurers’ share 846,436,191 846,436,191
R1600 Net 3,856,158,384 3,856,158,384
Claims incurred
R1610 Gross 1,844,486,974 1,844,486,974
R1620 Reinsurers’ share 59,262,217 59,262,217
R1700 Net 1,785,224,757 1,785,224,757
Changes in other
technical provisions
R1710 Gross 2,177,584,206 2,177,584,206
R1720 Reinsurers’ share 577,688,269 577,688,269
R1800 Net 1,599,895,937 1,599,895,937
R1900 Expenses incurred 196,536,197 196,536,197
R2500 Other expenses
R2600 Total expenses 196,536,197
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202174
Appendix B continued
S.22.01.22
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 45,551,825,994 757,258,457 0 0 6,671,821,602
R0020 Basic own funds 6,699,317,110 -567,943,843 0 0 -5,002,856,838
R0050
Eligible own funds to meet Solvency
Capital Requirement 6,699,317,110 -567,943,843 0 0 -5,107,479,289
R0090 Solvency Capital Requirement 3,967,589,509 189,314,614 0 0 6,116,598,221
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202175
Appendix B continued
S.23.01.22
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 0
R0080 Non-available surplus funds at group level 0 0
R0090 Preference shares 0 0 0 0
R0100 Non-available preference shares at group level 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 3,771,362,454 3,771,362,454
R0140 Subordinated liabilities 1,608,182,498 0 1,608,182,498 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 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
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
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 6,699,317,110 4,646,733,408 444,401,204 1,608,182,498 0
Ancillary own funds
R0300 Unpaid and uncalled ordinary share capital callable on demand 0
R0310 Unpaid and uncalled initial funds, members' contributions or the equivalent basic own fund item for mutual and mutual - type undertakings, callable on demand 0
R0320 Unpaid and uncalled preference shares callable on demand 0
R0330 A legally binding commitment to subscribe and pay for subordinated liabilities on demand 0
R0340 Letters of credit and guarantees under Article 96(2) of the Directive 2009/138/EC 0
R0350 Letters of credit and guarantees other than under Article 96(2) of the Directive 2009/138/EC 0
R0360 Supplementary members calls under first subparagraph of Article 96(3) of the Directive 2009/138/EC 0
R0370 Supplementary members calls - other than under first subparagraph of Article 96(3) of the Directive 2009/138/EC 0
R0380 Non available ancillary own funds at group level 0
R0390 Other ancillary own funds 0
R0400 Total ancillary own funds 0 0 0
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202176
Total
Tier 1
unrestricted
Tier 1
restricted Tier 2 Tier 3
Basic own funds before deduction for participations in other financial sector C0010 C0020 C0030 C0040 C0050
Own funds of other financial sectors
R0410 Credit institutions, investment firms, financial institutions, alternative investment fund managers, UCITS management companies - total 0
R0420 Institutions for occupational retirement provision 0
R0430 Non regulated entities carrying out financial activities 0
R0440 Total own funds of other financial sectors 0 0 0 0 0
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
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 ) 6,699,317,110 4,646,733,408 444,401,204 1,608,182,498 0
R0530 Total available own funds to meet the minimum consolidated group SCR 6,699,317,110 4,646,733,408 444,401,204 1,608,182,498
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 ) 6,699,317,110 4,646,733,408 444,401,204 1,608,182,498 0
R0570 Total eligible own funds to meet the minimum consolidated group SCR (group) 5,289,514,087 4,646,733,408 444,401,204 198,379,475
R0610 Minimum consolidated Group SCR 991,897,377
R0650 Ratio of Eligible own funds to Minimum Consolidated Group SCR 533.27%
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 ) 6,699,317,110 4,646,733,408 444,401,204 1,608,182,498 0
R0680 Group SCR 3,967,589,509
R0690 Ratio of Eligible own funds to group SCR including other financial sectors and the undertakings included via D&A 168.85%
Reconciliation reserve C0060
R0700 Excess of assets over liabilities 5,121,190,674
R0710 Own shares (held directly and indirectly) 19,301,689
R0720 Foreseeable dividends, distributions and charges 10,754,373
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 3,771,362,454
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.23.01.22 continued
Pension Insurance Corporation Group Limited
Own Funds continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202177
Appendix B continued
S.25.03.22
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 911,662,315
3 10600I Property Risk 1,339,962
4 10700I Spread risk – if matching adjustment impact not identified 3,983,624,443
5 10900I Currency risk 233,144,583
6 11010I Other market risk – inflation risk 101,680,226
7 11020I Other market risk – implied volatility risk 399,254,249
8 11030I Other market risk – RPI/CPI basis risk 241,249,474
9 11090I Other market risk – funds risk 562,725,016
10 19900I Diversification within market risk -2,613,860,310
11 20120I Type 1 counterparty risk – external reinsurance 136,663,422
12 20190I Type 1 counterparty risk – asset counterparty 35,074,858
13 30210I Longevity risk – longevity mis-estimation 256,184,276
14 30220I Longevity risk – longevity trend 1,197,047,036
15 30290I Longevity risk – other longevity risks 423,021,426
16 30299I Longevity risk – longevity diversification -596,276,859
17 30600I Expense risk 526,993,894
18 39900I Life underwriting risk diversification -177,668,203
19 70100I Operational risk 378,463,718
20 80300I Loss-absorbing capacity of deferred tax -286,482,194
Calculation of Solvency Capital Requirement
C0100
R0110 Total undiversified components 5,713,841,333
R0060 Diversification -1,746,251,825
R0160 Capital requirement for business operated in accordance with Art. 4 of Directive 2003/41/EC
R0200 Solvency capital requirement excluding capital add-on 3,967,589,509
R0210 Capital add-ons already set
R0220 Solvency capital requirement 3,967,589,509
Other information on SCR
R0300 Amount/estimate of the overall loss-absorbing capacity of technical provisions
R0310 Amount/estimate of the overall loss-absorbing capacity of deferred taxes -286,482,194
R0410 Total amount of Notional Solvency Capital Requirements for remaining part 686,855,253
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 3,280,734,256
R0440 Diversification effects due to RFF nSCR aggregation for article 304
R0470 Minimum consolidated group solvency capital requirement 991,897,377
Information on other entities
R0500 Capital requirement for other financial sectors (Non-insurance capital requirements) 0
R0510
Credit institutions, investment firms and financial institutions, alternative investment funds
managers, UCITS management companies
R0520 Institutions for occupational retirement provisions
R0530 Capital requirement for non- regulated entities carrying out financial activities
R0540 Capital requirement for non-controlled participation requirements
R0550 Capital requirement for residual undertakings
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202178
S.32.01.22
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
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 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
1 1 1 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 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 M31AVDIX8NY21MAUQF46 1 - LEI Pension
Insurance
Corporation
Plc
1 - Life
insurance
undertaking
Company
limited by
shares or
guarantee
2
- Non-
mutual
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 PICERM 2
- Specific
code
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 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
Appendix B continued
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202179
Criteria of influence
Inclusion in the scope of
Group supervision
Group solvency
calculation
Country
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 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 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
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 PSC 2
- Specific
code
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 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
S.32.01.22 (continued)
Pension Insurance Corporation Group Limited
Undertakings in the scope of the Group
Pension Insurance Corporation Group Limited | Solvency and Financial Condition Report 202180
Pension Insurance Corporation Group Limited
14 Cornhill, London EC3V 3ND
www.pensioncorporation.com