Financial strength & security
The financial model
PIC’s strategy is to manage the assets associated with defined benefit pension scheme liabilities and to make a consistent margin on these assets over the very long term.
The liabilities that we take on are in respect of the obligations to pay the pensions of members or former members of pension schemes.
As these obligations are highly predictable and the majority are non-callable, we are able to invest in assets with a very long-term investment horizon.
PIC is authorised to write long-term insurance business by the Prudential Regulation Authority (“PRA”) and regulated by the PRA and the Financial Conduct Authority (“FCA”). We operate in a highly regulated environment where our UK prudential regulator, the PRA, requires us to invest our assets and measure our liabilities in accordance with strict and detailed rules and guidance.
The PRA also requires us to hold capital over and above the assets required to pay out policyholder benefits, as an additional safeguard for policyholders.
From 1 January 2016 a new regulatory framework for the insurance industry, Solvency II, has been introduced in the UK and replaces the former Pillar 1 and Pillar 2 approach. Solvency II generally increases the levels of minimum capital required by insurance companies to protect pension liabilities as compared to the minimum requirements of Solvency I. Solvency II also enforces the principle of cash-flow matching, so that assets and liabilities in an insurer’s portfolio now have to be exactly matched. This ensures that insurance companies are able to pay out pensions at the right point in time across the whole lifetime of the pensioner.
PIC's Solvency II ratio*
*as at 31 December 2015