PRIIPS 2017: Key Information Documents
On 8th March 2017, the European Commission published the Regulatory Technical Standards (RTS) for Key Information Documents (KIDs) for all Packaged Retail and Insurance-based Investment Products (PRIIPs). This replaced the previous RTS that had been rejected by the EU Parliament for giving too optimistic a view of possible outcomes to potential policyholders. Key Information Documents (KIDs) KIDs are required to be issued by the Regulations underlying PRIIPs for all new PRIIPs issued after December 2017 throughout the EU.
All savings-based or investment-based insurance products are PRIIPs and are covered. This leaves pure protection insurance business not covered. The KID is a document that shows:
- what the product is for (giving some key regulatory information),
- the risks including a standardised method of calculating a risk rating (Summary Risk Indicator or SRI),
- some performance scenarios showing projected payouts on a favourable, moderate, unfavourable and a stress scenario,
- a breakdown of costs between one off (entry and exit), ongoing, incidental costs including performance fees as well as splitting off any costs involved with risk benefits
- Statements on what happens if the PRIIPs manufacturer (insurer) cannot pay out
- The recommended holding period, which is the period the insurer would recommend people continue with the policy. What happens on early encashment
- Complaints procedure
- Any other relevant information.
This all has to be given within 3 pages using standardised templates.
The SRI is based on stochastic projections (10,000 simulations) of the outcome of a statistical analysis of the past performance of the assets and also allows for credit risk of the insurer. The performance scenarios are also stochastic and the favourable, moderate and unfavourable scenarios are the 10%, 50% and 90% percentiles of the distribution – this has a closed form solution for pure unit–linked.
The costs are given in reduction in yield and monetary amounts.
The documents are generic printed documents for policies of £1000 per annum for regular and £10,000 for single premiums and need to be on the website and provided pre-sale. This is a big change from current documentation.
The FCA has issued PS17/6 stating that it is removing the requirement to provide Key Features Documents and Key Features Illustrations for any PRIIP from 1/1/2018. It has also stated that the EU regulation will be imported into UK law after Brexit.
The FCA has stated that personalised projections will no longer be required. However it has also acknowledged the normal market practice of personalised projections and states that it is going to consult later in the year on this. Note that it says that anything provided in marketing literature should not confuse the client nor should it imply that the KID is not correct or a material document.
What are we doing?
SDA llp had previously set up a project to generate software to come up with the statistics on KIDs for SRI and for the performance scenarios plus the costs analysis. The majority of the work was completed before the EU Parliament stopped progress. We have now relaunched the project. We aim to move shortly into client / policy type specific running of the KIDs and discussion with our clients of the results.
We may also need to set up software for clients that will generate policy specific KIDs using the results of the generic examples to drive out implied growth rates for the underlying investments.
All insurers selling PRIIPs will need to issue KIDs. Therefore, the decision for a life assurer will be whether to also continue with Key Features Illustrations. We know that other consultancies have advised insurers that they can still issue Key Features and Key Features Illustrations at the same time as KIDs. We suspect this may confuse customers and could lead to the FCA stating that you are not in line with the requirements of the PRIIPs directive.
The FCA PS also stated that some additional disclosure over and above the KID would be required for adviser remuneration and for the Solvency II disclosure not covered by the KID. A review, similar to that performed with Key Features, will be necessary.
The Insurance Distribution Directive which is coming in 2018 will contain additional requirements.
On 8th March 2017, the European Commission published the Regulatory Technical Standards (RTS) for Key Information Documents (KIDs) for all Packaged Retail and Insurance-based Investment Products (PRIIPs);
- KIDs are required for all PRIIPs sold after 1/1/2018 ;
- the KID shows key information as outlined above, within 3 pages, using standardised templates;
- You will need to decide whether to continue to provide Key Features as well.