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Sam’s PRAsserie

Hugh SavillThis week Sam Woods referred to Solvency II indigestion, and suggested that some tweaks and amendments were needed by way of digestif.

Now this is language that the ABI understands (and yes, we have taken the broad hint that some cognac would be appreciated at the next Insurance CEOs breakfast meeting).

We have produced - at the request of Tyrie’s restaurant inspectors on the Treasury Select Committee - a modest whine list of 23 improvements to Solvency II. We thought that this might help the PRA restaurant get its first Michelin star. Sam’s reaction has been mixed: we have so far scored 5 out of 23. But we are still talking to the PRA. As regular diners at their tables, insurers take a close interest in reducing the cost of dinner, and lowering the risks of heart attack from high capital levels.

Our most disliked dish is the Risk Margin. This stodgy offering takes up far too much space on the SCR plate. Worse, it changes shape and taste along with interest rates. Some insurers have found it is less offensive with liberal helpings of TMTP pickle, but even the tuxedo-clad PRA waiters are embarrassed to serve it up. We believe that the PRA can fix this themselves. All Sam has to do is to go down into the insurance kitchen in the bowels of 20 Moorgate, hurl a few choice kiwi expletives at head chef David Rule, and get the recipe changed. The PRA prefers to get the recipe changed officially, where it was originally written, at Gabriel Bernardino’s euro-fusion cooking EIOPA restaurant in Frankfurt. So we are working with them on that. Longer term, we are beginning to wonder whether the Risk Margin should be on the menu at all.

We are pleased that the PRA has launched a review of reporting requirements. We can understand that the waiters need to know what we have ordered, but there must be easier ways to do this than the current reporting templates. Sometimes ordering the meal takes longer than the meal itself.

We are also in discussion with the PRA about illiquid assets. Insurers appreciate the need for liquidity – no meal is complete without it. But if we are to avoid a monumental hangover, we have to absorb this with longer term assets that match our liabilities. There is an ongoing dialogue with the PRA about the raw ingredients eligible for the Matching Adjustment.

This discussion raises the question of what will happen at the PRA restaurant when all European food is banned in a couple of years’ time. This is important: if the quality of the fare suffers, some insurers may be tempted to patronise Bernadino’s restaurant instead. Insurers may moan about the Solvency II menu, but what menu would we prefer? The American diet of charred steak in amortised cost would be a return to the culinary dark ages. We have no appetite for the International Cooking Standard (ICS): the UK is not ready for an Indian or Chinese takeaway at the Bank of England, and the overpowering odour of a Basel cheese fondue would probably put diners off. We hope that Sam will remain the proprietor. We believe that the menu should remain similar to Solvency II, though greater care will be needed over the sourcing of the ingredients. To return to the important question of the digestif, cognac and grappa will be out of bounds, alas, and we will probably be restricted to a range of malts. Come to think of it, even that may be at risk. It is a little worrying that some in the PRA are attracted to the faddish macroprudential diet, based on counter-cyclical beans and pulses. Yuk. The bankers say it is good for their health. They can keep it.

Of course the PRA will no longer be able to call itself a restaurant, as this is a French word. Insurers will dine at the PRA caff. One thing that sadly will not change is the astronomical bill.

Last updated 29/03/2017