Challenge

The client sought to improve capital efficiency under the Solvency II Standard Formula, where standard parameters did not fully reflect the underlying risk profile of their pet insurance portfolio. A key challenge was navigating the complexity of an undertaking-specific parameter (USP) application with the UK regulator, alongside addressing data limitations and inconsistencies across multiple entities.

Approach

Feasibility assessment and application strategy: Milliman assessed the potential benefits of applying for undertaking-specific parameters and defined a clear strategy aligned with regulatory expectations.

Data validation and methodology development: We worked closely with the client to consolidate and validate data across entities, addressing gaps and ensuring robustness. Milliman developed appropriate methodologies for premium and reserve risk parameters that better reflected the insurer’s experience.

Regulatory engagement and submission: Milliman supported the end-to-end USP application process with the Prudential Regulation Authority, including documentation, justification of methodologies and responses to regulatory queries.

Impact

Improved capital efficiency: The client received approval to use undertaking-specific parameters, resulting in a capital requirement more closely aligned with their true risk profile.

Successful regulatory outcome: Milliman’s expertise and market insight supported a smooth application process and a positive outcome with the regulator.

Enhanced internal understanding: Board-level training and engagement improved understanding of capital modelling and strengthened governance around Solvency II.

Stronger data and processes: The project led to improved data quality and more robust processes, supporting future regulatory interactions and capital management initiatives.