Small change?

The PRA proposes basing periodic fees on the Solvency II metrics of:

• gross written premium (GWP) derived from S.05.01; and

• best estimate liabilities (BEL) derived from S.12.01 and, for general insurers, S.17.01.  

As currently, managed pension fund (Class VII) business and Trustee Investment Plan business will be excluded from the premium and liability measures.

The new metrics are considered by the PRA to be broadly comparable to the current ones, but there are some subtle…and not so subtle differences.  Perhaps the biggest difference is that the life insurance measure of GWP gives regular and single premiums equal weighting whereas, historically, the equivalent measure was single premiums plus ten times regular premiums.  That said, other proposed changes are likely to affect all firms.

In determining the overall fees, the PRA proposes changing the weightings between the premium and liability measures.

• For general insurers the current 90% premium/10% liability weighting changes to 75% premium/25% liability 

• For life insurers the current 75% premium/25% liability weighting changes to 50% premium/50% liability

In both cases, the proposed changes will tend to shift the burden towards, shall we say, more “mature” companies.

The proposed fee basis for non-Directive general insurers’ fees is to similarly amend the premium/liability weighting, with the premium and liability measures being sourced from the existing regulatory returns.  The current 11% fee discount for non-Directive general insurance firms will remain.

All non-Directive life insurers will simply pay the minimum fee under the PRA’s proposals, although this will not be subject to the non-Directive 11% discount.

The PRA plans to amend the recently introduced Solvency II internal model application fee so that it is determined by reference to the applicant’s BEL.  In addition to this, it is looking to introduce an annual “model maintenance fee” for all firms with approved models.  The model maintenance fee will be higher for general insurance firms compared to that for life insurers.  The model-related fees raised by the PRA should lead to a reduction in fees across other fee blocks.