Prudential Regulation Authority Rulebook

1.1

This supervisory statement adds to ‘The Prudential Regulation Authority’s (PRA’s) approach to insurance supervision’^[1]  (‘the approach document’) and supplements Supervisory Statement (SS) 44/15 ‘Solvency II: third-country insurance and pure reinsurance branches’^[2]. It clarifies how the PRA will authorise and supervise third-country insurance branches. Third country insurance branches are branches of insurers operating, but not headquartered, in the United Kingdom that are not able to benefit from passporting rights. In particular, this statement sets out the PRA’s expectations on when a subsidiary would be more appropriate than a branch for a third-country insurer wishing to carry out insurance business in the United Kingdom.

1.2

This supervisory statement is relevant to all third-country insurance branches, as well as to any insurer not headquartered in the United Kingdom looking to operate in the United Kingdom in the future. This statement does not apply to Swiss General Insurers, as defined in the PRA Rulebook, to which different requirements apply pursuant to the Swiss Treaty Agreement (No. 91/370/EEC).

1.3

Setting out the PRA’s proposed approach to branch supervision in a supervisory statement helps all firms to understand the PRA’s expectations, and so uses the resources of the PRA efficiently. In addition, the benefits set out at consultation^[3] advance the PRA’s objectives of promoting safety and soundness, and policyholder protection of PRA authorised firms, in order to protect and enhance the stability of the financial system of the United Kingdom.

1.4

The approach to the supervision of insurers that operate in the United Kingdom was set out in the approach document and further clarified in SS44/15. In the approach document, the PRA explains how its supervisory approach is anchored in its objectives to promote the safety and soundness of firms, and contribute to securing an appropriate degree of protection for policyholders.

1.5

If authorised to do so, insurers headquartered outside of the United Kingdom can operate in the United Kingdom either through a branch or by forming a subsidiary. This can either be through direct PRA authorisation or, in some circumstances, through passporting rights. A subsidiary is a separate legal entity from its parent and, as such, must meet regulatory capital requirements with its own funds and have its own governance and risk management. A branch forms part of a legal entity headquartered abroad.

1.6

Third-country insurers operating through a branch in the United Kingdom are subject to the PRA’s rules on third-country branches as set out in the PRA Rulebook with additional background in the approach document and SS44/15. For example, such branches need to have sufficient assets attributed to their branch business to meet branch liabilities and to have a local branch manager. The PRA also requires that the legal entity as a whole has sufficient financial resources. Supervisory powers reflect the differences in how a firm is structured. Insurance subsidiaries are subject to the PRA’s solo insurance regime. In contrast, responsibilities for the prudential supervision of branches are split between the supervisor where the insurer is headquartered (the home supervisor) and the PRA (the host supervisor).

1.7

In promoting its statutory objectives of safety and soundness and policyholder protection, the PRA focuses principally on the harm that firms can cause to the stability of the UK financial system. Aspects of both life and non-life insurance can be deemed critical to ensuring a stable financial system. The PRA’s view is that, subject to certain safeguards, the ability of financial services firms to branch into other countries is an important component of an open world economy which in turn benefits the UK economy.

1.8

The Financial Conduct Authority (FCA) is the conduct regulator for all insurers operating in the United Kingdom. All branches are subject to the FCA’s rules: these are not affected by this supervisory statement.