PRA consults on liquidity reporting for large insurers in CP19/24
The Prudential Regulation Authority today opened consultation CP19/24 on closing liquidity reporting gaps and streamlining standard formula reporting for insurers, with a particular focus on large firms using derivatives and securities financing. The paper proposes new liquidity templates and removes one long‑standing standard formula reporting expectation for life internal model firms under the Solvency II regime.
The PRA links CP19/24 to its 2024 insurance supervisory priorities, where it had already flagged liquidity risk and the role of derivatives in recent shocks affecting life insurers. In that priorities letter, the PRA set out plans to develop new liquidity reporting requirements to gather information on liquidity risk exposures on a more consistent and timely basis. CP19/24 is presented as the vehicle for delivering those plans within the existing Solvency II framework.
Liquidity risk focus and scope of firms
In CP19/24, the PRA states that UK insurers are most exposed to liquidity risk through their use of financial instruments, particularly derivatives that can generate fast‑moving margin and collateral calls. The paper notes that securities financing transactions have not been a substantial driver of recent liquidity strains, but when material they can increase short‑term collateral or repayment demands and therefore create liquidity risk.
Advisory commentary on the consultation reports that the new liquidity reporting requirements are targeted at large UK insurers with derivative or repo exposures. According to that commentary, the proposed scope would capture firms with more than £20 billion in assets on average over the last three quarters, excluding index or unit‑linked assets, and either gross nominal derivatives exposure above £10 billion or material securities financing transactions.
New liquidity reporting templates
Chapter 3 of CP19/24 sets out proposals to enhance liquidity reporting by introducing four new templates for the collection of liquidity information from in‑scope insurers. Commentary on the proposals states that these four templates are intended to provide the PRA with more timely, consistent and accurate information on the liquidity positions of large UK insurers with derivative or repo exposures.
Two of the four templates are described as cash flow mismatch templates that provide for monthly reporting. Advisory material notes that the shorter of these cash flow templates contains around 150 key data points and can be required by the PRA on a daily basis, giving the supervisor the option to increase reporting frequency in stress.
Under CP19/24, the PRA also proposes a committed facilities template requiring annual information on available credit facilities from in‑scope insurers. In addition, the consultation introduces a liquidity market risk sensitivities template that would require quarterly information showing how changes in market variables affect an insurer’s liquidity position.
The PRA explains that information from the new liquidity templates would enable it to assess the soundness of firms’ liquidity positions and engage with firms to address vulnerabilities before market stresses occur. CP19/24 further states that firms would be required to provide liquidity information on a consistent basis, which would facilitate comparisons between firms and foster a common understanding of liquidity risk within the insurance sector.
Interaction with Solvency II reporting reforms
The PRA describes CP19/24 as part of its broader programme of liquidity reporting reforms under Solvency II. The proposals are said to complement recent Solvency II reforms by streamlining reporting obligations and tailoring them more closely to the PRA’s supervisory needs.
As part of this streamlining, CP19/24 proposes to remove the expectation for life insurers with internal model permissions to submit annually the SF.01 template containing Solvency Capital Requirement information calculated using the standard formula. The PRA’s December 2024 Regulatory Digest records CP19/24 as the vehicle for these changes, combining the new liquidity reporting regime with adjustments to standard formula reporting expectations.
The consultation now sets the stage for detailed feedback on the calibration of thresholds, template design and reporting frequency, before the PRA decides on final rules and implementation timelines, which are not specified in the paper.
