Quilter : Solvency and Financial Condition Report 2022

Quilter plc Group Solvency and Financial Condition Report 2022

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Quilter plc Group Solvency and Financial Condition Report 2022
Solvency and Financial Condition Report ("SFCR") overview
Contents
Solvency and Financial Condition Report overview	3
Audit opinion	4
Statement of Directors' responsibilities	8
Summary	..............................................................................................................................................................................................	9
Section A Business and performance	12
A.1	Business	13
A.2	Underwriting performance	16
A.3	Investment performance	16
A.4	Performance of other activities	17
A.5	Any other information	17
Section B System of governance	18
B.1	General information on the system of governance	19
B.2	Fit and proper requirements	26
B.3	Risk management system including own risk and solvency assessment	27
B.4	Internal control system	30
B.5	Internal Audit function	30
B.6	Actuarial function	31
B.7	Outsourcing	31
B.8	Any other information	32
Section C Risk profile	33
C.1	Underwriting risk	35
C.2	Market risk	36
C.3	Credit risk	38
C.4	Liquidity risk	38
C.5	Operational risk	39
C.6	Other material risks	41
C.7	Any other information	41
Section D Valuation for solvency purposes	43
D.1	Assets	46
D.2	Technical provisions	48
D.3	Other liabilities	52
D.4	Alternative methods for valuation	53
D.5	Any other information	53
Section E Capital management	54
E.1	Own funds	55
E.2	Solvency Capital Requirement and Minimum Capital Requirement ("MCR")	59
E.3	Use of duration-based equity risk sub-module in the calculation of SCR	60
E.4	Difference between the standard formula and any internal model used	60
E.5	Non-compliance with the MCR and SCR	60
E.6	Any other information	60
Section F Appendices	61
Appendix F.1 Quilter Life & Pensions Limited (''QLPL'') solo SFCR disclosures	62
Appendix F.2.1 Quantitative Reporting Templates (QRTs) - QLPL	93
Appendix F.2.2 Group QRTs	103
Appendix F.3 Disclaimer	125
Appendix F.4 Abbreviations and glossary	127
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Quilter plc Group Solvency and Financial Condition Report 2022

Solvency and Financial Condition Report ("SFCR") overview

Solvency and Financial Condition Report overview

The Solvency and Financial Condition Report ("SFCR") provides detailed information on the Quilter plc Group's capital position on a Solvency II basis. This report also includes detailed entity-level information on the Group's UK insurance undertaking: Quilter Life & Pensions Limited ("QLPL").

The structure of this SFCR is aligned with the requirements of the Solvency II rules:

1. Business and performance: Describes the nature of our business and legal structure and how the business performed during the year ended 31 December 2022, with a specific focus on insurance activities.
2. System of governance: Describes the governance model that has been established at Board level and how this is cascaded to key functions within the business. The section also outlines our approach to risk management and internal controls.
3. Risk profile: Describes the risks faced by Quilter plc and subsidiary businesses including underwriting risk, market risk and credit risk, with specific information provided on the profile of regulatory capital held for the insurance businesses.
4. Valuation for solvency purposes: Describes the consolidation approach and methods used to determine the regulatory balance sheet, including the calculation of insurance technical provisions for the consolidated insurance Group.
5. Capital management: Describes the components of available own funds that are eligible to cover regulatory capital requirements and provides information on the composition of regulatory capital requirements.

The Quantitative Reporting Templates ("QRTs") included in the appendices to this report include additional information relevant to the capital position of the Group and QLPL in a standardised format.

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Quilter plc Group Solvency and Financial Condition Report 2022

Audit opinion

Report of the external independent auditors to the Directors of Quilter plc ('the Company') pursuant to Rule 4.1 (2) of the External Audit Part of the PRA Rulebook applicable to Solvency II firms

Report on the Audit of the relevant elements of the Single Group-Wide Solvency and Financial Condition Report

Opinion

Except as stated below, we have audited the following documents prepared by the Company as at 31 December 2022:

• The 'Valuation for solvency purposes' and 'Capital Management' sections of the Single Group-Wide Solvency and Financial Condition Report of the Company as at 31 December 2022, ('the Narrative Disclosures subject to audit'); and
• Group templates S.02.01.02, S.23.01.22, S.25.01.22 and S.32.01.22 ('the Group Templates subject to audit').
• Company templates S.02.01.02, S.12.01.02, S.23.01.01, S.25.01.21 and S.28.01.01 in respect of Quilter Life & Pensions Limited
  ('the Company Templates subject to audit')

The Narrative Disclosures subject to audit, the Group Templates subject to audit and the Company Templates subject to audit are collectively referred to as the 'relevant elements of the Single Group-WideSolvency and Financial Condition Report'.

We are not required to audit, nor have we audited, and as a consequence do not express an opinion on the Other Information which comprises:

• The 'Summary', 'Business and performance', 'System of governance' and 'Risk profile' elements of the Single Group-Wide Solvency and Financial Condition Report;
• Group templates S.05.01.02 and Company templates S.05.01.02;
• The written acknowledgement by management of their responsibilities, including for the preparation of the Single Group-Wide Solvency and Financial Condition Report ('the Responsibility Statement');
• Information which pertains to an undertaking that is not a Solvency II undertaking and has been prepared in accordance with PRA rules other than those implementing the Solvency II Directive or in accordance with an EU instrument other than the Solvency II regulations ('the sectoral information') as identified in the Appendix to this report.

To the extent the information subject to audit in the relevant elements of the Single Group-Wide Solvency and Financial Condition Report includes amounts that are totals, sub-totals or calculations derived from the Other Information, we have relied without verification on the Other Information.

In our opinion, the information subject to audit in the relevant elements of the Single Group-Wide Solvency and Financial Condition Report of the Company as at 31 December 2022 is prepared, in all material respects, in accordance with the financial reporting provisions of the PRA Rules and Solvency II regulations on which they are based, as modified by relevant supervisory modifications.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) including ISA (UK) 800 and ISA (UK) 805, and applicable law. Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the relevant elements of the Single Group-Wide Solvency and Financial Condition Report section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the Single Group-Wide Solvency and Financial Condition Report in the UK, including the FRC's Ethical Standard as applied to public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

Our evaluation of the Directors' assessment of the Company's ability to continue to adopt the going concern basis of accounting included:

• We obtained the Directors' updated going concern assessment and challenged the rationale for assumptions on growth of assets under management/administration and asset returns using our knowledge of Quilter's business performance and corroborating to external market evidence where available. Our assessment included reviewing management's stress testing and scenario analyses;
• We obtained management's estimated Solvency capital position and evaluated this for consistency of available information and against management's own target capital ratios. We found that the Group maintained internal targets for its Group Solvency Capital Requirement (SCR) ratio, and is forecast to remain compliant with all external regulatory capital requirements for the period covered by the going concern assessment; and
• We confirmed compliance with the debt covenants of the Groups' borrowings, and the forecast continued compliance for the duration of the period covered by the going concern assessment.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Company's ability to continue as a going concern for a period of at least twelve months from the date on which the Single Group-Wide Solvency and Financial Condition Report is authorised for issue.

In auditing the Single Group-Wide Solvency and Financial Condition Report, we have concluded that the Directors' use of the going

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Quilter plc Group Solvency and Financial Condition Report 2022

Audit opinion

concern basis of accounting in the preparation of the Single Group-Wide Solvency and Financial Condition Report is appropriate.

However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Company's ability to continue as a going concern.

Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.

Emphasis of Matter - Basis of Accounting

We draw attention to the 'Valuation for solvency purposes', 'Capital Management' and A.1.2 Basis of Preparation sections of the Single Group-Wide Solvency and Financial Condition Report, which describe the basis of accounting. The Single Group-Wide Solvency and Financial Condition Report is prepared in compliance with the financial reporting provisions of the PRA Rules and Solvency II regulations, and therefore in accordance with a special purpose financial reporting framework. The Single Group-Wide Solvency and Financial Condition Report is required to be published, and intended users include but are not limited to the Prudential Regulation Authority. As a result, the Single Group-Wide Solvency and Financial Condition Report may not be suitable for another purpose. Our opinion is not modified in respect of this matter.

Other Information

The Directors are responsible for the Other Information.

Our opinion on the relevant elements of the Single Group-Wide Solvency and Financial Condition Report does not cover the Other Information and we do not express an audit opinion or any form of assurance conclusion thereon.

In connection with our audit of the Single Group-Wide Solvency and Financial Condition Report, our responsibility is to read the Other Information and, in doing so, consider whether the Other Information is materially inconsistent with the relevant elements of the Single Group-Wide Solvency and Financial Condition Report, or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the relevant elements of the Single Group-Wide Solvency and Financial Condition Report or a material misstatement of the Other Information. If, based on the work we have performed, we conclude that there is a material misstatement of this Other Information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Directors for the Single Group-Wide Solvency and Financial Condition Report

The Directors are responsible for the preparation of the Single Group-Wide Solvency and Financial Condition Report in accordance with the financial reporting provisions of the PRA rules and Solvency II regulations which have been modified by the modifications made by the PRA under section 138A of FSMA, the PRA Rules and Solvency II regulations on which they are based, as detailed below:

Modifications:

• Permission to publish a Single Group-wide SFCR
• Permission to exclude Quilter Insurance Company Limited from the scope of Solvency II group supervision

The Directors are also responsible for such internal control as they determine is necessary to enable the preparation of a Single Group-Wide Solvency and Financial Condition Report that is free from material misstatement, whether due to fraud or error.

Auditors' Responsibilities for the Audit of the relevant elements of the Single Group-Wide Solvency and Financial Condition Report

It is our responsibility to form an independent opinion as to whether the information subject to audit in the relevant elements of the Single Group-Wide Solvency and Financial Condition Report is prepared, in all material respects, in accordance with the financial reporting provisions of the PRA Rules and Solvency II regulations on which they are based.

Our objectives are to obtain reasonable assurance about whether the relevant elements of the Single Group-Wide Solvency and Financial Condition Report are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but it is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the decision making or the judgement of the users taken on the basis of the Single Group-Wide Solvency and Financial Condition Report.

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.

Based on our understanding of the Company/industry, we identified that the principal risks of non-compliance with laws and regulations related to breaches of UK regulatory principles, such as those governed by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) and unsuitable or prohibited business practices, and we considered the extent to which non- compliance might have a material effect on the Single Group-Wide Solvency and Financial Condition Report. We also considered those laws and regulations that have a direct impact on the Single Group-Wide Solvency and Financial Condition Report such as PRA rulebook applicable to Solvency II firms. We evaluated management's incentives and opportunities for fraudulent manipulation of the

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