This is the optional supplementary questionnaire. We have aimed to keep the questionnaire as short as possible. As before a brief introduction is provided before each question, so you do not need to read the HMT papers. The numbering follows the numbering sequence from the core questionnaire. 

Thank you for responding to this questionnaire.
2. Objective of the call for evidence

Question Title

One of the review of Solvency II's objectives is to spur a vibrant, innovative, and internationally competitive insurance sector

2.4 - How can the prudential regulatory regime be enhanced to best support a thriving insurance sector?

3. Pillar 1 - capital

Question Title

A risk margin is added to the Solvency II best-estimate of the insurance liabilities to enhance policyholders protection. The review identifies a concern that "since its introduction, the risk margin has been larger and more volatile that had been anticipated for life insurance firms". It also suggests that the current approach to the risk margin encourages re-insurance of longevity risk outside the EU

3.4 - The approach to the risk margin should be reviewed to ensure volatility and procyclicality are limited.

Question Title

3.5 - What changes would you suggest making to the operation of the risk margin?

Question Title

A matching adjustment (MA) is allowed in the valuation of annuities which meet certain conditions about the contract (fixed duration and cash flows) and how the asset portfolio is managed (buy-to-hold). The use of the MA is subject to PRA approval. The review seeks to assess the design and implementation of the MA and its wider alignment with the Government objectives for encouraging investments in infrastructure and other investments.

3.6 -The eligibility of assets for inclusion in the MA portfolio should strike a balance between substance (stable cash flows) and legal structures

Question Title

A matching adjustment (MA) is allowed in the valuation of annuities which meet certain conditions about the contract (fixed duration and cash flows) and how the asset portfolio is managed (buy-to-hold). The use of the MA is subject to PRA approval. The review seeks to assess the design and implementation of the MA and its wider alignment with the Government objectives for encourging investments in infra-estructure and other investments.

3.7 - The formal re-approval of MA as a result of portfolio adjustments should allow for supervisory judgement to take into account the drivers of such changes, e.g. market turbulence and a proacting approach to manage climate change transition risk

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