Prudential Regulation Authority Rulebook

1.1

Unless otherwise stated, this Part applies to:

1. (1) a UK Solvency II firm;
2. (2) in accordance with Insurance General Application 3, the Society, as modified by 12; and
3. (3) in accordance with Insurance General Application 3, managing agents, as modified by 12.

1.2

In this Part, the following definitions shall apply:

closed year

means a syndicate year closed by reinsurance to close, either into another syndicate year or into an insurer approved by the Council for that purpose.

concentration risk

means all risk exposures with a loss potential which is large enough to threaten the solvency or the financial position of a Solvency II undertaking.

[Note: Art. 13(35) of the Solvency II Directive]

corporate member

means a member that is a body corporate or a Scottish Limited partnership.

explicit maximum loss potential

means the maximum economic risk transferred by the ceding undertaking to the reinsurer under a contract of reinsurance.

external credit assessment institution

means a credit rating agency that is registered or certified in accordance with Regulation (EC) No 1060/2009 or a central bank issuing credit ratings which are exempt from the application of Regulation (EC) No 1060/2009.

[Note: Art. 13(40) of the Solvency II Directive]

finite reinsurance

means reinsurance:

1. (1) under which the explicit maximum loss potential arising from a significant transfer of both underwriting risk and timing risk exceeds the premium payable by the ceding undertaking over the duration of the contract by a limited but significant amount; and
2. (2) which possesses at least one of the following characteristics:
1. (a) explicit and material consideration of the time value of money;
2. (b) contractual provisions to moderate the balance of economic experience between the parties to the reinsurance over time to achieve the target risk transfer.

[Note: Art. 210(3) of the Solvency II Directive]

liquidity risk

means the risk that a firm is unable to realise investments and other assets in order to settle its financial obligations when they fall due.

[Note: Art. 13(34) of the Solvency II Directive]

technical provisions transitional measure

means a transitional deduction from a firm’s technical provisions applied in accordance with Transitional Measures 11.1.