Prudential Regulation Authority Rulebook

1.1

Unless otherwise stated, this Part applies to:

1. (1) every UK Solvency II firm:
1. (a) that is a member of a group for which the PRA is the group supervisor;
2. (b) that is a member of a group for which a supervisory authority (other than the PRA) is the group supervisor, subject to (c) and to the extent this Part gives effect to the Solvency II EEA implementing measures in the territory of its group supervisor; and
3. (c) where the group supervisor of a group of which a firm is a member is a supervisory authority in Gibraltar, the requirements of the Solvency II EEA implementing measures in that territory apply to the firm in relation to its capacity as a member of that group;
2. (2) in accordance with Insurance General Application 3, the Society as a mixed activity insurance holding company, as modified by 21; and
3. (3) a UK holding company.

1.2

In this Part, the following definitions shall apply:

close links

means a situation in which two or more persons are linked by control or participation, or a situation in which two or more persons are permanently linked to one and the same person by a control relationship.

[Note: Art. 13(17) of the Solvency II Directive]

consolidated group SCR

means the group SCR of a group based on consolidated data calculated in accordance with 11.2.

delegated act

means Commission Delegated Regulation (EU) 2015/35 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II), as it has effect as retained direct EU legislation as at 31 December 2023.

external group end user

means a person who receives services and who is outside of the group of which the firm is a member.

group internal model

means an internal model used to calculate the consolidated group SCR, as well as the SCR of Solvency II undertakings in the group.

group specific parameter

means, for the purposes of determining the group SCR using the standard formula, a parameter specific to a group, calculated in accordance with Group Supervision 11A, that replaces a standard parameter (within a subset of parameters in the life underwriting risk module, non-life underwriting risk module or health underwriting risk module).

group supervisor

means (in relation to a group) the authority designated as group supervisor in relation to that group, in accordance with Solvency II EEA implementing measures implementing Article 247 of the Solvency II Directive or in accordance with regulation 26 of the Solvency 2 Regulations.

GSP firm

means a firm that has a been granted a GSP Permission.

GSP method

means the method for calculating the group specific parameter in respect of which the firm has been granted a GSP Permission, determined in accordance with 11A.

GSP Permission

means the permission to apply a group specific parameter granted to a firm by the PRA pursuant to section 138BA of FSMA.

impact tolerance

means the maximum tolerable level of disruption to an important business service or an important group business service as measured by a length of time in addition to any other relevant metrics.

important business service

means a service provided by a firm, or by another person on behalf of the firm, to another person which, if disrupted, could pose a risk to:

1. (1) where the firm is a relevant Solvency II firm, the stability of the UK financial system;
2. (2) the firm’s safety and soundness; or
3. (3) an appropriate degree of protection for those who are or who may become the firm’s policyholders.

important group business service

means a service provided by a member of the firm’s group (other than the firm) to an external group end user which, if disrupted, could pose a risk to:

1. (1) where a relevant Solvency II firm is a member of the group, the stability of the UK financial system;
2. (2) the firm’s safety and soundness; or
3. (3) an appropriate degree of protection for those who are or may become the firm’s policyholders.

intermediate holding company

means an insurance holding company or a mixed financial holding company through which a Solvency II undertaking in a group holds a participation in a related Solvency II undertaking, a third country insurance undertaking or a third country reinsurance undertaking.

investment firm

has the meaning given in section 424A of FSMA.

mixed activity insurance holding company

means a parent undertaking, other than a Solvency II undertaking, a third-country insurance undertaking, a third-country reinsurance undertaking, an insurance holding company or a mixed financial holding company, the subsidiary undertakings of which include at least one Solvency II undertaking.

[Note: Art. 212(1)(g) of the Solvency II Directive]

own funds eligible for the group SCR

means:

1. (1) in relation to method 1, the own funds eligible for the group SCR in accordance with 11.1(3); and
2. (2) in relation to method 2, the aggregate eligible own funds of the group referred to in 12.2.

own funds eligible for the SCR

means the aggregate of the firm’s:

1. (a) Tier 1 own funds; and
2. (b) eligible Tier 2 own funds; and
3. (c) eligible Tier 3 own funds.

Part 9C rules

has the meaning given in section 143F(1) of FSMA.

participating Solvency II undertaking

means a Solvency II undertaking that holds a participation in another undertaking.

relevant Solvency II firm

means a firm which fulfils any of the following conditions:

1. (1) the firm’s annual gross written premium income exceeds £15 billion; or
2. (2) the total of the firm’s technical provisions, gross of the amounts recoverable from reinsurance contracts and UK ISPVs, as referred to in Technical Provisions 2.1 to 2.3 exceeds £75 billion,

determined on the basis of the average annual amount assessed across a rolling period of three years, assessed by reference to the firm’s accounting reference date; and where the firm has been in existence for less than three years, the assessment will be made on the basis of the annual average amount for the period during which the firm has existed (calculated by reference to the firm’s accounting reference date).

related Solvency II undertaking

means a Solvency II undertaking that is a related undertaking of another undertaking.

Solvency II EEA implementing measures

means any measures implementing the Solvency II Directive in Gibraltar.

solvency deficit

means the amount (if any) by which the related undertaking’s eligible own funds fall short of its solvency capital requirement under the SCR Rules or the relevant Solvency II EEA implementing measures as appropriate.

supervisory authority

means the national authorities empowered by law or regulation of the UK or Gibraltar to supervise Solvency II undertakings for the purposes of the provisions implementing the Solvency II Directive including the PRA, FCA and Financial Services Commission of Gibraltar (FSC).

third country

means a territory or country other than the United Kingdom or Gibraltar.

third country insurance undertaking

means an undertaking, other than a Gibraltarian insurance undertaking, that has its head office outside the UK and if its head office were situated in the UK would:

1. (1) need Part 4A permission; and
2. (2) satisfy the conditions set out in Insurance General Application 2.2.

third country reinsurance undertaking

means an undertaking, other than a Gibraltarian insurance undertaking that pursues only the business of reinsurance and has its head office outside the UK and if its head office were situated in the UK would:

1. (1) need Part 4A permission; and
2. (2) satisfy the conditions set out in Insurance General Application 2.2.

2.1

This Part applies at the level of the group to types of groups where:

1. (1) either:
1. (a) a UK Solvency II firm is a participating undertaking in at least one other Solvency II undertaking, third country insurance undertaking or third country reinsurance undertaking; or
2. (b) a Solvency II undertaking (other than a UK Solvency II firm) is a participating undertaking in a UK Solvency II firm; or
2. (2) the parent undertaking of a UK Solvency II firm is an insurance holding company or a mixed financial holding company which has its head office in the UK or Gibraltar; or
3. (3) the parent undertaking of a UK Solvency II firm is an insurance holding company or a mixed financial holding company which does not have its head office in the UK or Gibraltar or is a third country insurance undertaking or a third country reinsurance undertaking; or
4. (4) the parent undertaking of a UK Solvency II firm is a mixed activity insurance holding company.

[Note: Art. 213(2) of the Solvency II Directive]

2.2

Where, in accordance with 2.1, this Part applies at the level of a group, that group consists of all undertakings within the relevant group, subject to 2.3 and 3 and provided that:

1. (1) where 2.1(1) applies, the definition of a group must be applied to the participating Solvency II undertaking, its subsidiary undertakings, the undertakings in which it holds a participation and undertakings to which it is linked by a common management relationship or, where applicable, to the undertakings in a mutual-type group;
2. (2) where 2.1(2) applies, the definition of a group must be applied to the insurance holding company or mixed financial holding company, its subsidiary undertakings, the undertakings in which it holds a participation and undertakings to which it is linked by a common management relationship or, where applicable, to the undertakings in a mutual-type group;
3. (3) where 2.1(3) applies, the definition of a group must be applied to the insurance holding company or mixed financial holding company, third country insurance undertaking or third country reinsurance undertaking (as applicable), its subsidiary undertakings, the undertakings in which it holds a participation and undertakings to which it is linked by a common management relationship or, where applicable, to the undertakings in a mutual-type group; and
4. (4) where 2.1(4) applies, the definition of a group must be applied to the mixed activity insurance holding company, its subsidiary undertakings, the undertakings in which it holds a participation and undertakings to which it is linked by a common management relationship or, where applicable, to the undertakings in a mutual-type group.

[Note: Art. 213(2) of the Solvency II Directive]

2.3

Where the PRA has granted a waiver or where a supervisory authority which is the group supervisor has decided, in accordance with Solvency II EEA implementing measures implementing Article 214 of the Solvency II Directive, not to include an undertaking in the group supervision referred to in 2.1:

1. (1) that undertaking must be excluded from the group for the purposes of 2.1; and
2. (2) if that undertaking is a firm and is excluded because:
1. (a) it is of negligible interest with respect to the objectives of group supervision; or
2. (b) its inclusion would be inappropriate or misleading with respect to the objectives of group supervision,

the firm which is at the head of the group of which that firm would otherwise be a part, or any other firm which is a member of the group must provide any information in relation to the excluded firm that the PRA may require to facilitate the supervision of the excluded firm.

[Note: Art. 214(2) of the Solvency II Directive]

2.4

The provisions of the Solvency II Firms Sector of the PRA Rulebook concerning the supervision of firms (or the Solvency II EEA implementing measures in relation to Solvency II undertakings which are members of a group for which the PRA is the group supervisor) taken individually continue to apply to those undertakings, except where otherwise provided under this Part.

[Note: Art. 213(1) of the Solvency II Directive]

3.1

If the participating Solvency II undertaking or the insurance holding company or mixed financial holding company referred to in 2.1(1) or 2.1(2) is itself a subsidiary undertaking of another Solvency II undertaking or of another insurance holding company or mixed financial holding company which has its head office in the UK or Gibraltar, then 4 to 19 apply only at the level of the ultimate Solvency II undertaking, insurance holding company, or mixed financial holding company in the group which has its head office in the UK or Gibraltar.

[Note: Art. 215(1) of the Solvency II Directive]

3.2

If the PRA is not the group supervisor and makes a decision to undertake group supervision at national level then 4 to 19 apply with any necessary changes, subject to group supervision of the ultimate parent undertaking at national level being restricted to those remaining rules of 4 to 19 if the firm is granted a waiver of such other sections as would otherwise apply to a group.

1. (1) [deleted]
2. (2) [deleted]

4.1

Where 2.1(1) applies, each participating Solvency II undertaking that is a firm in the group and each relevant insurance group undertaking must ensure that eligible own funds are available in the group which are always at least equal to the group SCR as calculated in accordance with 7 to 12.

[Note: Art. 218(2) of the Solvency II Directive]

4.2

Where 2.1(2) applies, each relevant insurance group undertaking must ensure that eligible own funds are available in the group which are always at least equal to the group SCR as calculated in accordance with 14.

[Note: Art. 218(3) of the Solvency II Directive]

4.3

Relevant insurance group undertakings must have procedures in place to identify deteriorating financial conditions within the groups of which they are members and must immediately notify the group supervisor when that deterioration occurs.

[Note: Art. 218(4) and Art. 136 of the Solvency II Directive]

4.4

Relevant insurance group undertakings must:

1. (1) immediately inform the PRA as soon as they observe that the group SCR is no longer complied with, or where there is a risk of non-compliance within the next three months;
2. (2) within two months from the observation of non-compliance with the group SCR, submit a realistic recovery plan in accordance with Undertakings In Difficulty 5.1 for approval by the PRA;
3. (3) take the measures necessary to achieve, within six months (or such longer period as the group is permitted by the PRA pursuant to section 138A or 138BA of FSMA as the case may be) from the observation of non-compliance with the group SCR, the re-establishment of the level of eligible own funds covering the group SCR or the reduction of the risk profile to ensure compliance with the group SCR; and
4. (4) 
   1. (a) [deleted]
   2. (b) [deleted]

if the PRA has extended the period referred to in (3) by reason of the declaration by the PRA of an exceptional adverse situation affecting the group, submit a progress report to the PRA every three months setting out the measures taken and the progress made to re-establish the level of own funds covering the group SCR or to reduce the risk profile to ensure compliance with the group SCR.

4.5

Special purpose vehicles, to which the participating undertaking or one of its subsidiaries has transferred risk shall be excluded from the calculation of group solvency in any of the following situations:

1. (1) in the case of a UK ISPV, it complies with the requirements set out in Insurance Special Purpose Vehicles 2, 2A to 2C, and 5A.1 to 5A.5; and
2. (2) in the case of a special purpose vehicle in Gibraltar or a third country, it is regulated by a supervisory authority in Gibraltar or a third country, and complies with requirements equivalent to those set out in Insurance Special Purpose Vehicles 2, 2A to 2C, and 5A.1 to 5A.5.

For the purposes of this rule, Insurance Special Purpose Vehicles 2, 2A to 2C, and 5A.1 to 5A.5 shall apply at the level of the group.

5.1

The calculations referred to in 4.1 and 4.2 must be carried out at least annually by the relevant insurance group undertakings.

[Note: Art. 219(1) of the Solvency II Directive]

5.2

The relevant data for, and the results of, the calculations referred to in 4.1 and 4.2 must be submitted to the group supervisor by:

1. (1) the participating Solvency II undertakings referred to in 4.1, or by any one of them, in the case of the calculations referred to in 4.1; or
2. (2) the UK holding company in the case of the calculations referred to in 4.2.
3. (3) [Deleted]

5.2A

Where there is evidence to suggest that the risk profile of the group has altered significantly since the date on which the group SCR was last reported, relevant insurance group undertakings must be able to, upon request by the group supervisor, recalculate the group SCR without delay and report it to the group supervisor.

5.3

1. (1) The relevant insurance group undertakings must monitor the group SCR on an ongoing basis.

2. (2) Where the risk profile of the group deviates significantly from the assumptions underlying the last reported group SCR, the group SCR must be recalculated without delay and reported to the group supervisor.

3. (3) [Deleted]

[Note: Art. 219(2) of the Solvency II Directive]

5.4

Where there is evidence to suggest that the risk profile of the group has altered significantly since the date on which the group SCR was last reported, relevant insurance group undertakings must be able to, upon request by the group supervisor, recalculate the group SCR without delay and report it to the group supervisor.

6.1

1. (1) This Chapter applies to a firm if another member of its group which is not subject to Own Funds 5 intends to issue an item for inclusion within the basic own funds forming the own funds eligible for the group SCR of the firm’s group.
2. (2) This Chapter does not apply in respect of the following:
   1. (a) any item which a firm intends to include within the basic own funds forming the own funds eligible for the group SCR of the firm’s group that is not covered by the lists of own funds items set out in the own funds lists, but which may be included in the basic own funds forming the own funds eligible for the group SCR only if the firm has received a classification of own funds permission; and
   2. (b) any item which a firm intends to include within the ancillary own funds forming the own funds eligible for the group SCR of the firm’s group.

6.2

The changes to this rule are effective from 23:00 on 31/12/2020.

1. (1) Subject to 6.5, a firm must notify the PRA in writing of the intention of another member of its group which is not subject to Own Funds 5 to issue an item which it intends to include within the basic own funds forming the own funds eligible for the group SCR, as soon as it becomes aware of the intention of the issuing undertaking.
2. (2) When giving notice, a firm must:
1. (a) provide details of the amount of basic own funds to be raised through the intended issue and whether the item is intended to be issued to external investors or within its group;
2. (b) identify the classification of basic own funds the item is intended to fall within;
3. (c) provide a copy of the draft terms and conditions;
4. (d) describe the proposed item’s contribution to own funds eligible for the group SCR;
5. (e) describe the group’s membership and structure, including the relationship between the firm and the group member issuing the proposed item;
6. (f) provide a draft of a properly reasoned independent legal opinion from an appropriately qualified individual confirming that the item complies with the rules applicable to items of basic own funds included in the classification of the item identified in (b);
7. (g) for any item referred to in Own Funds 4A.3(1), provide a draft of a properly reasoned independent accounting opinion from an appropriately qualified individual as to the item’s treatment in the financial statements of the group member issuing the proposed item and of the group;
8. (h) include confirmation from the governing body of the firm that the item complies with the rules applicable to items of basic own funds included in the classification of the item identified in (b); and
9. (i) state whether the item is encumbered or whether there are any connected transactions in respect of the item and, if so, provide details.

6.3

If after an initial notification under 6.2, but prior to an item’s issuance, a firm proposes to change the information previously submitted, it must provide a further written notification of that change without delay.

6.4

If an undertaking proposes to establish or amend a debt securities programme for the issue of an item which the firm intends to include within the basic own funds forming the own funds eligible for the group SCR, the firm must:

1. (1) notify the PRA of the establishment of the programme or of the proposed amendment to the programme; and
2. (2) provide the information required by 6.2

as soon it becomes aware of the proposed establishment or amendment. The PRA must be notified of any changes in accordance with 6.3.

6.5

6.2 does not apply to:

1. (1) ordinary shares issued by an undertaking in the group which:
1. (a) meet the classification criteria for ordinary share capital in Tier 1 own funds; and
2. (b) are the same as ordinary shares previously issued by that undertaking;
2. (2) debt instruments issued from a debt securities programme established by an undertaking in the group, provided that:
1. (a) the establishment of (and any subsequent amendment to) the programme was notified to the PRA in accordance with 6.4 and the last such notification was given to the PRA no more than twelve months prior to the date of the proposed drawdown;
3. 1. (b) the programme complies with, and the information previously notified to the PRA in accordance with 6.4 in relation to the programme is unaffected by, any changes in law or regulation, or the interpretation or application of either, coming into effect since the last notification in accordance with 6.4; and
   2. (c) any instrument issued pursuant to the programme must, under the terms of the programme, constitute basic own funds; and
4. (3) any item which is to be issued on identical terms to one or more items included in the basic own funds forming the own funds eligible for the group SCR issued by the undertaking in the group within the previous twelve months and notified to the PRA in accordance with 6.2, excluding (1) the issue date, (2) the maturity date, (3) the amount of the issuance, (4) the currency of the issuance, and (5) the rate of interest payable by the issuer.

6.6

A firm must notify the PRA in writing, no later than the date of issue, of the intention of the undertaking in the group to issue an item listed in 6.5 which it intends to include within the basic own funds forming the own funds eligible for the group SCR. When giving notice, a firm must:

1. (1) provide the information set out in 6.2(2) other than 6.2(2)(c) (draft terms and conditions), 6.2(2)(f) (draft legal opinion) and 6.2(2)(g) (draft accounting opinion); and
2. (2) for the issue of an item pursuant to 6.5(1) or 6.5(3), confirm that the terms of the item have not changed since the previous issue of that type of item of basic own funds by that undertaking.

6.7

A firm must notify the PRA in writing of the intention of an undertaking in the group to amend or otherwise vary the terms of any item of own funds eligible for the group SCR as soon as it becomes aware of the intention of the issuing undertaking to amend or otherwise vary the terms of the item.

6.8

A firm must provide to the PRA as soon as practicable after it becomes aware of the issuance of an item of basic own funds by an undertaking in its group to which 6.2, 6.4, 6.5(2) or 6.5(3) applies:

1. (1) a finalised copy of the draft legal opinion referred to in 6.2(2)(f);
2. (2) a finalised copy of the draft accounting opinion referred to in 6.2(2)(g) if applicable;
3. (3) a copy of the instrument’s final terms and conditions; and
4. (4) a reasoned basis for the choice of coupon structure and any other provision that might suggest an incentive to redeem.

7.1

The calculation of the solvency at the level of the group of the Solvency II undertakings referred to in 2.1(1) must be carried out:

1. (1) in accordance with the technical principles in 8 to 10; and
1. [Note: Art. 220(1) of the Solvency II Directive]
2. (2) in accordance with method 1, unless the group supervisor has determined under Solvency II EEA implementing measures implementing Article 220(2) of the Solvency II Directive or imposed a requirement that method 2 or a combination of method 1 and method 2 must be applied.
1. [Note: Art. 220(2) of the Solvency II Directive]

8.1

The calculation of the solvency of a group must take account of the proportional share held by the participating undertaking in its related undertakings.

[Note: Art. 221(1) of the Solvency II Directive]

8.2

For the purposes of 8.1, the proportional share must comprise either of the following, subject to 8.3:

1. (1) where method 1 is used, the percentages used for the establishment of the consolidated accounts; or
2. (2) where method 2 is used, the proportion of the subscribed capital that is held, directly or indirectly, by the participating undertaking.

[Note: Art. 221(1) of the Solvency II Directive]

8.3

Notwithstanding 8.2:

1. (1) where the related undertaking is a subsidiary undertaking and does not have sufficient eligible own funds to cover its SCR, the total solvency deficit of the subsidiary undertaking must be taken into account; and

[Note: Art. 221(1) of the Solvency II Directive]

1. (2) where any of the following applies:
   1. (a) if there are no capital ties between any of the undertakings in the group, an undertaking in the group must be treated as if it is a participating undertaking that holds a proportional share of 100% of each other undertaking in the group for the purposes of 8.1;
   2. (b) if a participating undertaking has a participation in another undertaking because it effectively exercises a significant influence over that undertaking, the proportional share that must be taken account for the purposes of 8.1 must be 100%; or
   3. (c) if a participating undertaking is a parent undertaking of another undertaking because it effectively exercises a dominant influence over that undertaking, the proportional share that must be taken account for the purposes of 8.1 must be 100%.

[Note: Art. 221(2) of the Solvency II Directive]

8A.1

Where an own funds item has been classified into one of the three tiers based on the criteria set out in Own Funds 3A – 3J by a related Solvency II undertaking that is included in the calculation of the group solvency, the own funds item shall be classified in the same tier at group level provided that all of the following additional requirements are met:

1. (1) the Solvency II undertaking complies with the requirements set out in Own Funds 3B.1 – 3B.13, 3E.1 – 3E.5 and 3G.1 – 3G.5; and
2. (2) the own funds item is free from encumbrances and is not connected with any other transaction, which when considered with the own funds item, could result in that own funds item not satisfying the requirements set out in Own Funds 3.1 to 3.3 at group level.

8A.2

For the purposes of point (1) of 8A.1:

1. (1) the term ‘SCR’ in Own Funds 3B.1 – 3B.13, 3E.1 – 3E.5 and 3G.1 – 3G.5 shall mean both the SCR of the related undertaking that has issued the own funds item and the group SCR;
2. (2) the term ‘MCR’ in Own Funds 3B.1 – 3B.13, 3E.1 – 3E.5 and 3G.1 – 3G.5 shall mean both the MCR of the undertaking that has issued the own funds item and one of the following minimums:
   1. (a) where method 1 is used, the minimum for the group SCR as calculated in accordance with 11.3(2), or
   2. (b) where a combination of method 1 and method 2 is used, the minimum determined in accordance with 10.7.

8A.3

For the purposes of this Chapter, references to ‘firm’ in Own Funds 3A – 3J in the context of the characteristics and features of an own funds item shall mean both the participating Solvency II undertakings and the Solvency II undertakings belonging to the group that has issued the own funds item.

8A.4

Notwithstanding 8A.1, where a related Solvency II undertaking has included in Tier 2 own funds an own funds item which would qualify for inclusion in Tier 1 own funds in accordance with Own Funds 3E.1(11), that classification shall not prohibit the classification of the same own funds item in Tier 1 own funds at group level, provided that the limits set out in Own Funds 4A.3 are complied with at group level.

8B.1

Where an own funds item has been issued by a related third country insurance undertaking or third country reinsurance undertaking, the participating undertaking shall classify the own funds item using the criteria for classification set out in Own Funds 3A – 3J provided that all of the following additional requirements are met:

1. (1) the third country insurance undertaking or third country reinsurance undertaking complies with the requirements set out in Own Funds 3B.1 – 3B.13, 3E.1 – 3E.5 and 3G.1 – 3G.5; and
2. (2) the own funds item is free from encumbrances and is not connected with any other transaction, which when considered with the own funds item, could result in that own funds item not satisfying the requirements set out in Own Funds 3.1 to 3.3 at group level.

8B.2

For the purposes of point (1) of 8B.1:

1. (1) references to ‘SCR’ in Own Funds 3B.1 – 3B.13, 3E.1 – 3E.5 and 3G.1 – 3G.5 shall mean the group SCR;
2. (2) references to ‘MCR’ in Own Funds 3B.1 – 3B.13, 3E.1 – 3E.5 and 3G.1 – 3G.5 shall mean both the capital requirement, as laid down by the third country supervisory authority concerned, of the undertaking which has issued the own funds item and one of the following minimums:
   1. (a) where method 1 is used, the minimum for the group SCR as calculated in accordance with 11.3(2); or
   2. (b) where a combination of method 1 and method 2 is used, the minimum determined in accordance with 10.7.

8C.1

Where an own funds item has been issued by an insurance holding company, a mixed financial holding company, an intermediate holding company or an ancillary services undertaking in the group, the own funds item must be classified using the criteria for classification set out in Own Funds 3A – 3J provided that all of the following requirements are met:

1. (1) the undertaking complies with the requirements set out in Own Funds 3B.1 – 3B.13, 3E.1 – 3E.5 and 3G.1 – 3G.5;
2. (2) the own funds item is free from encumbrances and is not connected with any other transaction, which when considered with the own funds item, could result in that own funds item not satisfying the requirements set out in Own Funds 3.1 to 3.3 at group level.

8C.2

For the purposes of point (1) of 8C.1:

1. (1) the term ‘SCR’ in Own Funds 3B.1 – 3B.13, 3E.1 – 3E.5 and 3G.1 – 3G.5 shall mean the group SCR;
2. (2) the term ‘MCR’ in Own Funds 3B.1 – 3B.13, 3E.1 – 3E.5 and 3G.1 – 3G.5 includes both non-compliance with the relevant minimum referred to in 8A.2(2) and the insolvency of the insurance holding company, mixed financial holding company, intermediate holding company or ancillary services undertaking.

8C.3

For the purposes of this Chapter, references to ‘firm’ in Own Funds 3A – 3J in the context of the characteristics and features of an own funds item shall mean the insurance holding company, the mixed financial holding company, the intermediate holding company or the ancillary services undertaking which has issued the own funds item.

8D.1

For the purposes of 8A.1(2), 8B.1(2) and 8C.1(2), own funds items must not be considered to be free from encumbrances unless the claims relating to those own funds items rank after the claims of all policyholders of the Solvency II undertakings belonging to the group.

8E.1

The own funds items of related undertakings referred to in 11.1A(6) shall be considered as part of the reconciliation reserve at group level.

8E.2

Notwithstanding 8E.1, where practicable and where the own funds items referred to in 8D.1 materially affect the amount of group own funds or the group solvency, these own funds items must be classified into one of the three tiers based on the criteria set out in Own Funds 3A – 3J.

9.1

Own funds eligible for the SCR must not be taken into account more than once among the different Solvency II undertakings taken into account in the calculation of the solvency of a group. For that purpose, when calculating the solvency of a group and where method 1 and method 2 do not provide for it, the following amounts must be excluded:

1. (1) the value of any asset of the participating Solvency II undertaking which represents the financing of own funds eligible for the SCR of one of its related Solvency II undertakings;
2. (2) the value of any asset of a related Solvency II undertaking of the participating Solvency II undertaking which represents the financing of own funds eligible for the SCR of that participating Solvency II undertaking; and
3. (3) the value of any asset of a related Solvency II undertaking of the participating Solvency II undertaking which represents the financing of own funds eligible for the SCR of any other related Solvency II undertaking of that participating Solvency II undertaking.

9.2

Without prejudice to 9.1 or 9.3, the following must be excluded in the calculation of the solvency of a group unless they are, and only insofar as they are, eligible for covering the SCR of the related undertaking concerned:

1. (1) surplus funds falling under Surplus Funds 2.2 or Solvency II EEA implementing measures implementing Article 91(2) of the Solvency II Directive arising in a related Solvency II undertaking of the participating Solvency II undertaking for which the solvency of a group is calculated; and
2. (2) any subscribed but not paid-up capital of a related Solvency II undertaking of the participating Solvency II undertaking for which the solvency of a group is calculated.

[Note: Art. 222(2) of the Solvency II Directive]

9.3

Without prejudice to 9.1, the following must, in any event, be excluded from the calculation:

1. (1) subscribed but not paid-up capital which represents a potential obligation on the part of the participating undertaking;
2. (2) subscribed but not paid-up capital of the participating Solvency II undertaking which represents a potential obligation on the part of a related Solvency II undertaking; and
3. (3) subscribed but not paid-up capital of a related Solvency II undertaking which represents a potential obligation on the part of another related Solvency II undertaking of the same participating Solvency II undertaking.

9.4

Subject to 9.4A and 9.4B, where certain own funds eligible for the SCR of a related Solvency II undertaking (other than those referred to in 9.2 and 9.3) cannot effectively be made available to cover the SCR of the participating Solvency II undertaking for which the solvency of a group is calculated, those own funds must not be included in the calculation of the group solvency of the group unless they are, and only in so far as they are, eligible for covering the SCR of the related undertaking.

[Note: Art. 222(3) of the Solvency II Directive]

9.4A

The following items of a related undertaking that is a Solvency II undertaking, third country insurance undertaking or third country reinsurance undertaking, insurance holding company or mixed financial holding company shall be assumed not to be effectively available to cover the group SCR:

1. (1) ancillary own funds;
2. (2) preference shares, subordinated mutual members account and subordinated liabilities;
3. (3) an amount equal to the value of net deferred tax assets; for this purpose, the amount of deferred tax asset may be reduced by the amount of the associated deferred tax liability provided that those deferred tax assets and associated deferred tax liabilities both arise from the tax law of the UK, Gibraltar or third country and the taxation authority of the UK, Gibraltar or that third country permits such offsetting.

9.4B

The following items of a related undertaking that is a Solvency II undertaking, third country insurance undertaking or third country reinsurance undertaking, insurance holding company or mixed financial holding company shall in any case not be considered as effectively available to cover the group SCR:

1. (1) any minority interest in a subsidiary exceeding the contribution of that subsidiary to the group SCR, where the subsidiary is a Solvency II undertaking, third country insurance undertaking or third country reinsurance undertaking, an insurance holding company or a mixed financial holding company;
2. (2) any minority interest in a subsidiary ancillary services undertaking;
3. (3) any restricted own funds within a ring-fenced fund.

9.4C

Where an own funds item of a related undertaking that is a Solvency II undertaking, third country insurance undertaking or third country reinsurance undertaking, insurance holding company or mixed financial holding company cannot effectively be made available to cover the group SCR, this own funds item may only be included in the calculation of group solvency up to the contribution of that related undertaking that is a Solvency II undertaking, third country insurance undertaking or third country reinsurance undertaking, insurance holding company or mixed financial holding company to the group SCR.

9.4D

Where a related undertaking that is a Solvency II undertaking, third country insurance undertaking or third country reinsurance undertaking, insurance holding company or mixed financial holding company is included in the consolidated data pursuant to points (1) or (3) of 11.1A, its contribution to the consolidated group SCR shall reflect diversification effects and be calculated as follows:

1. (1) where the consolidated group SCR is calculated, in relation to that related undertaking, on the basis of the standard formula, the proportional share of the SCR of that related undertaking multiplied by a percentage corresponding to the proportion that the diversified component of the consolidated group SCR, as laid down in 11.2A(1), bears to the sum of the SCR of each of the undertakings included in the calculation of that diversified component of the consolidated group SCR;
2. (2) where the consolidated group SCR is calculated, in relation to that related undertaking, on the basis of an internal model, the SCR of that related undertaking multiplied by a percentage corresponding to the proportion of the diversification effects at group level that are attributed to that related undertaking, determined by that internal model.

9.4E

In each of 9.4D(1) and (2), the sum of the percentages referred to for all the related undertakings that are Solvency II undertakings, insurance holding companies or mixed financial holding companies included in the consolidated calculation must equal 100%.

9.5

The sum of the own funds included under 9.2 and 9.4 must not exceed the SCR of the related Solvency II undertaking.

[Note: Art. 222(4) of the Solvency II Directive]

9.6

Any eligible own funds of a related Solvency II undertaking of the participating Solvency II undertaking for which the solvency of a group is calculated that are subject to permission from the supervisory authority of the related Solvency II undertaking, by an ancillary own funds permission or in accordance with Solvency II EEA implementing measures implementing Article 90 of the Solvency II Directive, must be included in the calculation of the group solvency only in so far as they have been duly authorised by that supervisory authority.

[Note: Art. 222(5) of the Solvency II Directive]

9.7

When calculating the solvency of a group, no account must be taken of any own funds eligible for the SCR arising out of reciprocal financing between the participating Solvency II undertaking and any of the following:

1. (1) a related undertaking;
2. (2) a participating undertaking; and
3. (3) another related undertaking of any of its participating undertakings.

[Note: Art. 223(1) of the Solvency II Directive]

9.8

When calculating the solvency of a group, no account must be taken of any own funds eligible for the SCR of a related Solvency II undertaking of the participating Solvency II undertaking for which the group solvency of the group is calculated where the own funds concerned arise out of reciprocal financing with any other related undertaking of that participating Solvency II undertaking. Reciprocal financing exists at least where a Solvency II undertaking, or any of its related undertakings, holds shares in, or makes loans to, another undertaking which, directly or indirectly, holds eligible own funds of the first undertaking.

[Note: Art. 223(2), (3) of the Solvency II Directive]

9.9

The value of the assets and liabilities of a group must be assessed in accordance with Valuation 2.

[Note: Art. 224 of the Solvency II Directive]

10.1

Where a Solvency II undertaking has more than one related Solvency II undertaking, the group solvency calculation of the group must be carried out by including each of those related Solvency II undertakings.

[Note: Art. 225 of the Solvency II Directive]

10.1A

Unless the book value of the relevant related undertaking has been deducted from the own funds eligible for the group SCR pursuant to 10.6, the calculation of the group solvency shall include all of the following:

1. (1) the capital requirements for related undertakings which are credit institutions, investment firms or financial institutions and the own funds items of those undertakings calculated in accordance with Part 9C rules, the CRR, the PRA Rulebook or technical standards, as amended from time to time;
2. (2) the capital requirements for related undertakings which are institutions for occupational retirement provision and the own funds items of those undertakings calculated according to the Occupational Pension Schemes (Regulatory Own Funds) Regulations 2005 or the Occupational Pension Schemes (Regulatory Own Funds) Regulations (Northern Ireland) 2005, as amended from time to time;
3. (3) the capital requirements for related undertakings which are UCITS management companies and the own funds of those undertakings calculated in accordance with the FCA Handbook, as amended from time to time;
4. (4) the capital requirements for related undertakings which are alternative investment fund managers and the own funds of those undertakings calculated in accordance with the FCA Handbook, as amended from time to time; and
5. (5) the notional capital requirements and the own funds items of related undertakings which are non-regulated undertakings carrying out financial activities, where the notional capital requirement is the capital requirement with which the related undertaking would have to comply under the relevant sector rules if the undertaking were a regulated entity.

10.2

The changes to this rule are effective from 23:00 on 31/12/2020.

In respect of a related Solvency II undertaking with its head office in Gibraltar, the group solvency calculation must take account of the SCR and the own funds eligible for the SCR as laid down in the Solvency II EEA implementing measures of Gibraltar.

10.3

1. (1) When calculating the group solvency of a Solvency II undertaking in a group, the situation of each intermediate holding company must be taken into account.

2. (2) For the sole purpose of that calculation, the intermediate holding company must be treated as if it were a Solvency II undertaking subject to the SCR Rules in respect of the SCR and were subject to the same conditions as are laid down in the Own Funds Part of the PRA Rulebook in respect of own funds eligible for the SCR.

3. (3) In cases where an intermediate holding company holds subordinated debt or other eligible own funds subject to limitation in accordance with Own Funds 4 and 4A, they must be recognised as eligible own funds up to the amounts calculated by application of the limits in Own Funds 4 and 4A to the total eligible own funds outstanding at the level of the group as compared to the group SCR.

4. (4) Any eligible own funds of an intermediate holding company, which would require permission from a supervisory authority by an ancillary own funds permission or in accordance with Solvency II EEA implementing measures implementing Article 90 of the Solvency II Directive, must not be included in the calculation of the group solvency of the group unless a firm has permission from the supervisory authority to do so pursuant to section 138BA of FSMA or Solvency II EEA implementing measures implementing Article 90 of the Solvency II Directive, and only to the extent of its permission. 

[Note: Art. 226 of the Solvency II Directive]

10.4

1. (1) Subject to (2), when calculating, in accordance with method 2, the group solvency of a Solvency II undertaking in a group which is a participating undertaking in a third country insurance undertaking or third country reinsurance undertaking, that third country insurance undertaking or third country reinsurance undertaking must, solely for the purposes of that calculation, be treated as a related Solvency II undertaking.
2. (2) If the third country in which that third country insurance undertaking or third country reinsurance undertaking has its head office is an overseas jurisdiction designated under regulation 11 in relation to regulation 13 of the IRPR regulations in respect of the insurance group capital requirements calculation and paragraph (3) of regulation 13 of the IRPR regulations does not apply, the calculation in (1) must take into account, as regards that undertaking, the requirement equivalent to the SCR and the capital items eligible to satisfy that requirement as laid down by that third country.

[Note: Art. 227 of the Solvency II Directive]

10.5

When calculating the group solvency of a Solvency II undertaking in a group which is a participating undertaking in a credit institution, investment firm or financial institution, the participating Solvency II undertaking must either:

1. (1) apply method 1 or method 2 in Financial Conglomerates Annex 2 with any necessary changes, provided that method 1 in that Annex must be applied only where the group supervisor is satisfied as to the level of integrated management and internal control regarding the undertakings which would be included in the scope of consolidation and provided always that the method chosen must be applied in a consistent manner over time; or
2. (2) if the group supervisor so determines (either at the request of the participating undertaking or on its own initiative), deduct any such participation from the own funds eligible for the group SCR of the participating undertaking.

[Note: Art. 228 of the Solvency II Directive]

10.6

Where the information necessary for calculating the group solvency of a Solvency II undertaking in a group, concerning a related undertaking, is not available to the group supervisor then:

1. (1) the book value of that related undertaking in the participating Solvency II undertaking must be deducted from the own funds eligible for the group SCR; and
2. (2) the unrealised gains connected with that participation must not be recognised as own funds eligible for the group SCR.

[Note: Art. 229 of the Solvency II Directive]

10.7

Where the group applies a combination of method 1 and method 2, the consolidated group SCR calculated for the part of the group which is covered by method 1 shall have a minimum determined in accordance with the requirements set out in 11.3.

11.1

1. (1) The calculation of the group solvency of the participating Solvency II undertaking in a group must be carried out on the basis of the consolidated accounts.
2. (2) The group solvency of the participating Solvency II undertaking in a group is the difference between the following:
1. (a) the own funds eligible for the group SCR, calculated on the basis of consolidated data; and
2. (b) the group SCR calculated on the basis of consolidated data.
3. (3) Own Funds and the SCR Rules apply to the calculation of the own funds eligible for the group SCR and of the group SCR based on consolidated data.

[Note: Art. 230(1) of the Solvency II Directive]

11.1A

Consolidated data for the calculation of group solvency according to method 1 shall consist of all of the following:

1. (1) full consolidation of data of all the Solvency II undertakings, third country insurance undertaking or third country reinsurance undertakings, insurance holding companies, mixed financial holding companies and ancillary services undertakings which are subsidiaries of the parent undertaking;
2. (2) full consolidation of data of special purpose vehicles to which the participating undertaking or one of its subsidiaries has transferred risk and which are not excluded from the scope of the group solvency calculation pursuant to 4.5;
3. (3) proportional consolidation of data of the Solvency II undertakings, third country insurance undertaking or third country reinsurance undertakings, insurance holding companies, mixed financial holding companies and ancillary services undertakings managed by an undertaking referred to in point (1) together with one or more undertakings not included in point (1), where those undertakings’ responsibility is limited to the share of the capital they hold;
4. (4) on the basis of the adjusted equity method in accordance with Valuation 9.3, data of all holdings in related undertakings that are Solvency II undertakings, third country insurance undertaking or third country reinsurance undertakings, insurance holding companies, mixed financial holding companies which are not subsidiaries of the parent undertaking and which are not covered by points (1) and (3);
5. (5) the proportional share of the own funds of related undertakings, calculated as follows:
   1. (a) in relation to credit institutions, investment firms and financial institutions, in accordance with Part 9C rules, the CRR, the PRA Rulebook or technical standards, as amended from time to time;
   2. (b) in relation to alternative investment fund managers, in accordance with the FCA Handbook, as amended from time to time;
   3. (c) in relation to UCITS management companies, in accordance with the FCA Handbook, as amended from time to time;
   4. (d) in relation to institutions for occupational retirement provision, in accordance with the Occupational Pension Schemes (Regulatory Own Funds) Regulations 2005 or the Occupational Pension Schemes (Regulatory Own Funds) Regulations (Northern Ireland) 2005, as amended from time to time; and
   5. (e) according to the own funds items of non-regulated undertakings carrying out financial activities; and
6. (6) in accordance with Valuation 9.1 – 9.6, data of all related undertakings, including ancillary services undertakings, collective investment undertakings and investments packaged as funds, other than those referred to in points (1) to (5) of this rule.

11.1B

Notwithstanding point (4) of 11.1A data of related undertakings linked by a common management relationship shall be included in accordance with points (1), (3), (4), (5) or (6) of 11.1A on the basis of the proportional share as referred to in Chapter 8.

11.1C

For the purposes of the calculation of the consolidated group own funds, the data referred to in 11.1A and 11.1B shall be net of any intra-group transaction.

11.1D

The consolidated best estimate of technical provisions on the basis of the consolidated data shall be equal to the sum of the following:

1. (1) the best estimate of the participating Solvency II undertakings calculated in accordance with the Valuation, Technical Provisions, Technical Provisions – Further Requirements and Matching Adjustment Parts; and
2. (2) the proportional share referred to in 8.2(1) of the best estimate, calculated in accordance with the Valuation, Technical Provisions, Technical Provisions – Further Requirements and Matching Adjustment Parts, of related undertakings that are Solvency II undertakings and third country insurance undertakings or third country reinsurance undertakings referred to in 11.1A(1) and (3).

11.1E

For the purposes of 11.1D the best estimates of the participating Solvency II undertaking and of each related undertaking that is a Solvency II undertaking, third country insurance undertaking and third country reinsurance undertaking shall be net of any intra-group transactions. In relation to intra-group reinsurance contracts all of the following adjustments shall be made:

1. (1) the best estimate of the undertaking that accepts risks shall not include the cash flows arising from the obligations of the intra-group reinsurance contracts;
2. (2) the undertaking that cedes the risk shall not recognise the amounts recoverable from the intra-group reinsurance contracts.

11.1F

For the purposes of 11.1D, the participating Solvency II undertaking may restrict the documentation and the directory of data referred to in Conditions Governing Business 11C to the data used in the calculation of the adjustments of the best estimate referred to in 11.1E.

11.1G

The consolidated risk margin of technical provisions on the basis of the consolidated data shall be equal to the sum of the following:

1. (1) the risk margin of the participating Solvency II undertakings; and
2. (2) the proportional share, as referred to in 8.2(1), of the risk margin of the related undertakings that are Solvency II undertakings and third country insurance undertakings or third country reinsurance undertakings referred to in 11.1A(1) and (3).

11.2

The consolidated group SCR must be calculated on the basis of either the standard formula or an internal model for which internal model permission has been granted, in a manner consistent with the general principles contained in the SCR Rules

[Note: Art. 230(2) of the Solvency II Directive]

11.2A

The consolidated group SCR shall be calculated as the sum of the following:

1. (1) an SCR calculated on the basis of consolidated data as referred to in points (1) to (3) of 11.1A, data of collective investment undertakings and investments packaged as funds which are subsidiaries of the parent undertaking, following the rules laid down in the Solvency Capital Requirement - General Provisions, Solvency Capital Requirement – Internal Models and Solvency Capital Requirement – Standard Formula Parts;
2. (2) the proportional share of the SCR of each undertaking referred to in 11.1A(4); for a related undertaking that is a third country insurance undertaking or third country reinsurance undertaking which is not a subsidiary the SCR shall be calculated as if that undertaking had its head office in the UK;
3. (3) for undertakings referred to in 11.1A(5), the proportional share of the capital requirements of related undertakings, calculated as follows:
   1. (a) in relation to credit institutions, investment firms and financial institutions, in accordance with Part 9C rules, the CRR, the PRA Rulebook or technical standards, as amended from time to time;
   2. (b) in relation to alternative investment fund managers, in accordance with the FCA Handbook, as amended from time to time;
   3. (c) in relation to UCITS management companies, in accordance with the FCA Handbook, as amended from time to time;
   4. (d) in relation to institutions for occupational retirement provision, in accordance with the Occupational Pension Schemes (Regulatory Own Funds) Regulations 2005 or the Occupational Pension Schemes (Regulatory Own Funds) Regulations (Northern Ireland) 2005, as amended from time to time; and
   5. (e) in relation to non-regulated undertakings carrying out financial activities, according to the notional capital requirement which is the capital requirement with which the related undertaking would have to comply under the relevant sector rules if the undertaking were a regulated entity;
4. (4) for undertakings referred to in 11.1A(6), other than undertakings covered by point (5) of this rule, the amount determined in accordance with Valuation 9 and Solvency Capital Requirement – Standard Formula 3D7 - 3D11, 3D26 – 3D31 and 3D32; and
5. (5) for related collective investment undertakings or investments packaged as funds referred to in 11.1A(1)(6) which are not subsidiaries of the participating Solvency II undertakings, and to which the look-through approach is applied at solo level, the amount determined in accordance with the look-through approach.

11.2B

Where the consolidated group SCR is calculated, wholly or in part, on the basis of the standard formula, the local currency referred to in Solvency Capital Requirement – Standard Formula 3D32.2 shall be the currency used for the preparation of the consolidated accounts.

11.2C

Notwithstanding 11.2B, where a material amount of the consolidated technical provisions or the consolidated group own funds is denominated in a currency other than the one used for the preparation of the consolidated accounts, that currency may be considered as the local currency referred to in Solvency Capital Requirement – Standard Formula 3D32.1.

11.3

 

1. (1) The consolidated group SCR of a group must have as a minimum the sum of the following:
   1. (a) the MCR of the participating Solvency II undertaking; and
   2. (b) the proportional share of the MCR of the related Solvency II undertakings.
2. (2) That minimum must be covered by eligible own funds within paragraph 2 of the definition of ‘eligible own funds’.
3. (3) For the purposes of determining whether those eligible own funds qualify to cover the minimum consolidated group SCR of a group, the principles in 8 to 10 apply with any necessary changes. Undertakings In Difficulty 3 also applies with any necessary changes.

[Note: Art. 230(2) of the Solvency II Directive]

11.4

Any application for permission to use a group internal model submitted by a Solvency II undertaking and its related undertakings, or jointly by the related Solvency II undertakings of an insurance holding company or a mixed financial holding company, must be submitted to the group supervisor.

[Note: Art. 231(1) of the Solvency II Directive]

11.5

Where an internal model is used to calculate the consolidated group SCR in accordance with 11.2, the requirements set out in Solvency Capital Requirement – Internal Models 10 shall be complied with by all of the following undertakings:

1. (1) the participating undertaking which calculates the consolidated group SCR on the basis of the internal model;
2. (2) each related Solvency II undertaking whose business is fully or partly in the scope of the internal model, only in relation to the output of the internal model at group level; and
3. (3) each related undertaking that is an insurance holding company or a mixed financial holding company whose business is fully or partly in the scope of the internal model, only in relation to the output of the internal model at group level.

11.6

Where a group internal model is used, in addition to 11.5, the requirements set out in Solvency Capital Requirement – Internal Models 10 shall be complied with by:

1. (1) each participating Solvency II undertaking in relation to the output of the internal model at the level of that undertaking; and
2. (2) each related Solvency II undertaking which calculates its SCR on the basis of the group internal model, at the level of the undertaking.

11.7

For the purposes of 11.5 and 11.6, a Solvency II undertaking or insurance holding company or mixed financial holding company shall only comply with the requirements set out in Solvency Capital Requirement – Internal Models 10.8 and 10.9 in relation to the parts of the internal model which cover the risks of that undertaking and the risks of its related undertakings.

11A.1

A firm must not apply a group specific parameter unless it is a GSP firm.

11A.2

A GSP firm must not revert back to using the standard parameter in respect of which it has a GSP Permission.

11A.3

A GSP firm must calculate a group specific parameter by replacing a standard parameter set out in Solvency Capital Requirement – Undertaking Specific Parameters 2.3 by the parameter specific to the group.

11A.4

Data used to calculate a group specific parameter must satisfy the criteria set out in Solvency Capital Requirement – Undertaking Specific Parameters 3 at the level of the group.

11A.5

A GSP method used to calculate the group specific parameter in respect of which the GSP firm has a GSP Permission must correspond to the applicable USP method set out in Solvency Capital Requirement – Undertaking Specific Parameter 2.3.

11A.6

For the purposes of this Chapter, the Solvency Capital Requirement – Undertaking Specific Parameters Part must be read with the following modifications:

1. (1) a reference to ‘undertaking specific parameter’ is to be interpreted as a reference to ‘group specific parameter’;
2. (2) a reference to ‘USP firm’ is to be interpreted as a reference to a ‘GSP firm’;
3. (3) a reference to ‘USP method’ is to be interpreted as a reference to ‘GSP method’; and
4. (4) a reference to ‘USP Permission’ is to be interpreted as a reference to ‘GSP Permission’.

1.  
   
2.  

 

12.1

The group solvency of the participating Solvency II undertaking in a group is the difference between the following:

1. (1) the aggregated group eligible own funds, as provided for in 12.2; and
2. (2) the value in the participating Solvency II undertaking of the related Solvency II undertakings and the aggregated group SCR, as provided for in 12.3.

[Note: Art. 233(1) of the Solvency II Directive]

12.2

The aggregated group eligible own funds of a group is the sum of the following:

1. (1) the own funds eligible for the SCR of the participating Solvency II undertaking; and
2. (2) the proportional share of the participating Solvency II undertaking in the own funds eligible for the SCR of the related Solvency II undertakings.

[Note: Art. 233(2) of the Solvency II Directive]

12.3

The aggregated group SCR of a group is the sum of the following:

1. (1) the SCR of the participating Solvency II undertaking; and
2. (2) the proportional share of the SCR of the related Solvency II undertakings.

[Note: Art. 233(3) of the Solvency II Directive]

12.4

Where, in a group, the participation in the related Solvency II undertaking consists, wholly or in part, of an indirect ownership, the value in the participating Solvency II undertaking of the related Solvency II undertaking must incorporate the value of that indirect ownership. The value of that indirect ownership must take into account the relevant successive interests, and the items referred to in 12.2(2) and 12.3(2) must include the corresponding proportional shares, respectively, of the own funds eligible for the SCR of the related Solvency II undertaking and of the SCR of the related Solvency II undertakings.

[Note: Art. 233(4) of the Solvency II Directive]

12.5

Any application for permission to calculate the SCR of Solvency II undertakings in the group, on the basis of an internal model, submitted by a Solvency II undertaking and its related undertakings, or jointly by the related undertakings of an insurance holding company or a mixed financial holding company, must be submitted to the group supervisor.

[Note: Art. 233(5) of the Solvency II Directive]

12.6

The aggregated own funds eligible for the group SCR must be adjusted to eliminate the impact of an intra-group transaction where the impact of the intra-group transaction affects the best estimates of the Solvency II undertakings in such way that the amount set out in 12.7 is different depending on whether the intra-group transaction is eliminated in the calculation of that amount or not.

12.7

The amount referred to in 12.6 shall be the sum of the following:

1. (1) the best estimate of the participating Solvency II undertakings calculated in accordance with the Valuation, Technical Provisions, Technical Provisions – Further Requirements and Matching Adjustment Parts; and
2. (2) the proportional share as referred to in 8.2(2) of the best estimate, calculated in accordance with the Valuation, Technical Provisions, Technical Provisions – Further Requirements and Matching Adjustment Parts for each related undertaking that is Solvency II undertaking, a third country insurance undertaking or a third country reinsurance undertaking.

13.1

The relevant insurance group undertakings must make every effort to remedy the deficiencies that led to the imposition of a capital add-on arising as a result of an internal model significant risk profile deviation or a significant system of governance deviation at the level of the group.

[Note: Art. 232, Art. 233(6) and Art. 37(3) of the Solvency II Directive]

13.1A

The relevant insurance group undertakings must make all reasonable efforts to remedy the residual model limitation that led to the imposition of a capital add-on arising as a result of an internal model residual deviation at the level of the group.

13.1B

A relevant insurance group undertaking must be able to, upon request by the PRA as group supervisor, submit a progress report to the PRA as group supervisor setting out the measures taken, and the progress made, to remedy the deficiencies that led to the imposition of a capital add-on arising as a result of an internal model residual deviation, an internal model significant risk profile deviation or a significant system of governance deviation at the level of the group.

13.2

The group SCR prior to the imposition of the capital add-on, together with the amount of the capital add-on imposed at the level of the group, will constitute the group’s group SCR.

[Note: Art. 232, Art. 233(6) and Art. 37(5) of the Solvency II Directive]

14.1

1. (1) Where Solvency II undertakings in a group are subsidiary undertakings of an insurance holding company or a mixed financial holding company, the calculation of the solvency of the group must be carried out at the level of the insurance holding company or mixed financial holding company applying 7.1(2) to 12.
2. (2) For the purpose of that calculation, the insurance holding company or mixed financial holding company must be treated as if it were a Solvency II undertaking subject to the SCR Rules as regards the SCR and the Own Funds Part of the PRA Rulebook as regards the own funds eligible for the SCR, provided that the relevant insurance group undertakings remain responsible for discharging any obligations arising from the application of this sub-paragraph.

[Note: Art. 235 of the Solvency II Directive]

14.2

For the purposes of applying the provisions set out in 14.1, where the parent insurance holding company or mixed financial holding company has issued subordinated debt or has other eligible own funds subject to the limits set out in Own Funds 4 and 4A, Group Supervision 10.3 shall apply.

15.1

The changes to this rule are effective from 23:00 on 31/12/2020.

[Deleted.]

15.2

The changes to this rule are effective from 23:00 on 31/12/2020.

[Deleted.]

15.3

The changes to this rule are effective from 23:00 on 31/12/2020.

[Deleted.]

15.4

The changes to this rule are effective from 23:00 on 31/12/2020.

[Deleted.]

16.1

1. (1) Where 2.1(1) or 2.1(2) applies, the relevant insurance group undertakings or any UK holding company must report on a regular basis and at least annually to the group supervisor any significant risk concentration at the level of the group.
2. (2) The necessary information must be submitted to the group supervisor by the relevant insurance group undertaking which is at the head of the group or, where the group is not headed by a relevant insurance group undertaking, by the UK holding company or such other Solvency II undertaking in the group as the group supervisor may specify.

[Note: Art. 244 of the Solvency II Directive]

16.1A

For the purposes of identifying significant risk concentrations, participating Solvency II undertakings, insurance holding companies or mixed financial holding companies shall consider, at least, direct and indirect exposures of undertakings in the group to all of the following:

1. (1) individual counterparties;
2. (2) groups of individual but interconnected counterparties, for example undertakings within the same corporate group;
3. (3) specific geographical areas or industry sectors; and
4. (4) natural disasters or catastrophes.

16.2

1. (1) Where 2.1(1) or 2.1(2) applies, the relevant insurance group undertakings or any UK holding company must report on a regular basis, and at least annually, to the group supervisor all significant intra-group transactions.
2. (2) Where an intra-group transaction falling within (1) is very significant, it must be reported to the group supervisor as soon as practicable.
3. (3) The necessary information must be submitted to the group supervisor by the relevant insurance group undertaking which is at the head of the group or, where the group is not headed by a Solvency II undertaking, by the UK holding company or such other Solvency II undertaking in the group as the group supervisor may specify.

[Note: Art. 245 of the Solvency II Directive]

16.3

The relevant insurance group undertakings or UK holding company must consider as significant intra-group transactions the intra-group transactions that materially influence the solvency or liquidity position of the group or one of the undertakings involved in these transactions.

16.4

For the purposes of identifying significant intra-group transactions, participating Solvency II undertakings, insurance holding companies or mixed financial holding companies shall consider at least all of the following:

1. (1) investments;
2. (2) intercompany balances, including loans, receivables and arrangements to centralise the management of assets or cash;
3. (3) guarantees and commitments such as letters of credit;
4. (4) derivative transactions;
5. (5) dividends, coupons, and other interest payments;
6. (6) reinsurance operations;
7. (7) provision of services or agreements to share costs; and
8. (8) purchase, sale or lease of assets.

17.1

1. (1) Where 2.1(1) or 2.1(2) applies, the following requirements apply with any necessary changes at the level of the group:
   1. (1a) Conditions Governing Business 1A;
   2. (a) Conditions Governing Business 2.2 to 2.6;
   3. (a1) Conditions Governing Business 2A.1 to 2A.6;
   4. (b) Conditions Governing Business 3;
   5. (b1) Conditions Governing Business 3A;
   6. (c) Conditions Governing Business 4;
   7. (c1) Conditions Governing Business 4A;
   8. (d) Conditions Governing Business 5;
   9. (e) Conditions Governing Business 6;
   10. (f) Conditions Governing Business 7;
   11. (f1) Conditions Governing Business 11A to 11F;
   12. (g) Fitness and Propriety 2.1 to 2.3, 4.1, 4.3 and 4.4;
   13. (h) Allocation of Responsibilities 4; and
   14. (i) Key Function Holder – Notifications 2 to 6, in accordance with 17.4.
2. (2) Without prejudice to (1), the effective system of governance and reporting procedures must be implemented consistently in all the undertakings included in the scope of group supervision under 2.2(1) and 2.2(2) so that the effective system of governance and reporting procedures can be controlled at the level of the group.
3. (3) Without prejudice to (1), the internal control system must include at least the following:
   1. (a) adequate mechanisms as regards group solvency to identify and measure all material risks incurred and to appropriately relate eligible own funds to risks; and
   2. (b) sound reporting and accounting procedures to monitor and manage the intra-group transactions and the risk concentration.

17.2

1. (1) Where 2.1(1) or 2.1(2) applies, a participating Solvency II undertaking that is a firm, or if there is none, the UK holding company or the relevant insurance group undertakings, must undertake at the level of the group the ORSA assessment required by Conditions Governing Business 3.8 to 3.12.
2. (2) Where the calculation of the solvency at the level of the group is carried out in accordance with method 1, the participating Solvency II undertaking, the UK holding company or the relevant insurance group undertakings (as appropriate) must provide to the group supervisor a proper understanding of the difference between the sum of the SCR of all the related Solvency II undertakings in the group and the consolidated SCR of the group.
3. (3) Where the participating Solvency II undertaking, the UK holding company or the relevant insurance group undertakings (as appropriate) so decide, and subject to the agreement of the group supervisor, they may undertake any assessments required by Conditions Governing Business 3.8 to 3.12 at the level of the group and at the level of any subsidiary undertaking in the group at the same time, and may produce a single document covering all the assessments to satisfy the requirement to provide an ORSA report in Conditions Governing Business 3.11 and 3.12.
4. (4) Where the group exercises the option provided in (3), it must submit the ORSA report to all supervisory authorities concerned at the same time.
5. (5) The exercise of the option provided in (3) does not exempt the subsidiary undertakings concerned from the obligation to ensure that the requirements of Conditions Governing Business 3.8 to 3.12 are met.

[Note: Art. 246(1) to (4) of the Solvency II Directive]

17.3

Reporting 2.1 to 2.5B, 2.13 and the relevant provisions of Chapter 2A of the Reporting Part apply, with any necessary changes, to reporting information on a group to the PRA.

[Note: Art. 254(2) of the Solvency II Directive]

17.4

[Deleted.]

18.1

1. (1) When 2.1(1) or 2.1(2) applies, participating Solvency II undertaking that are firms or, if there are none, the relevant insurance group undertakings must disclose publicly, on an annual basis, a report on the solvency and financial condition at the level of the group. Reporting 3 to 6 apply with any necessary changes.
2. (2) Where a participating Solvency II undertaking that is a firm or the relevant insurance group undertakings (as appropriate) so decide, and subject to the agreement of the group supervisor, they may provide a single SFCR which must comprise the following:
1. (a) the information at the level of the group which must be disclosed in accordance with (1); and
2. (b) the information for any of the subsidiaries within the group which must be individually identifiable and disclosed in accordance with Reporting 3 to 6.

[Note: Art. 256 of the Solvency II Directive]

19.1

When 2.1(1) or 2.1(2) applies, participating Solvency II undertaking that are firms or, if there are none, the relevant insurance group undertakings must disclose publicly, at the level of the group, on an annual basis, the legal structure and the governance and organisational structure, including a description of all subsidiaries, material related undertakings, and significant branches belonging to the group.

[Note: Art. 256a of the Solvency II Directive]

20.1

When 2.1(3) applies, 4 to 14, 16 to 19 and External Audit 2 to 4 apply with any necessary changes at the level of the insurance holding company or mixed financial holding company which does not have its head office in the UK or Gibraltar, third country insurance undertaking or third country reinsurance undertaking unless:

1. (1) the third country in which that undertaking has its head office is an overseas jurisdiction designated under regulation 11 in relation to regulation 14 of the IRPR regulations in respect of insurance group supervision and paragraph (3) of regulation 14 of the IRPR regulations applies.
2. (2) [deleted]

[Note: Art. 262 of the Solvency II Directive]

20.2

[Deleted]

20.3

The changes to this rule are effective from 23:00 on 31/12/2020.

When calculating the solvency of a group falling within 2.1(3) for the purpose of 20.1, a relevant insurance group undertaking must treat the parent undertaking (being an insurance holding company which does not have its head office in the UK or Gibraltar or a third country insurance undertaking or a third country reinsurance undertaking), solely for the purposes of that calculation, as a UK Solvency II firm to which 2.1(1)(a) applies.

[Note: Art. 262 of the Solvency II Directive]

20.4

The changes to this rule are effective from 23:00 on 31/12/2020.

Where the parent undertaking referred to in 2.1(3) is itself a subsidiary undertaking of an insurance holding company or mixed financial holding company which does not have its head office in the UK or Gibraltar or a third country insurance undertaking or a third country reinsurance undertaking, 20.1 applies at the level of the ultimate parent undertaking which is an insurance holding company or mixed financial holding company which does not have its head office in the UK or Gibraltar or a third country insurance undertaking or a third country reinsurance undertaking.

1. (1) [deleted]

2. (2) [deleted] 

[Note: Art. 263 of the Solvency II Directive]

21.1

16.2 to 16.4 apply with any necessary changes, to groups falling within 2.1(4).

[Note: Art. 265 of the Solvency II Directive]

21.2

Reporting 2.1 to 2.5B, 2.13 and the relevant provisions of Chapter 2A of the Reporting Part apply, with any necessary changes, to reporting information on a group falling within 2.1(4) to the PRA.

22.1

Rules 22.2 to 22.5 apply to any UK Solvency II firm that is a member of a group for which the PRA is the group supervisor.

22.2

Where a firm is a member of a group covered by 2.1(1), 2.1(2) or, subject to 22.5, 2.1(3), the firm must also comply with Operational Resilience – Solvency II Firms 2.1 and 2.2 in relation to its important group business services.

22.3

Where a firm is a member of a group covered by 2.1(1), 2.1(2) or, subject to 22.5, 2.1(3), with the exception of Operational Resilience – Solvency II Firms 3.1(3), the firm must ensure that the strategies, processes and systems at the level of the group of which it is a member comply with the obligations set out in Operational Resilience – Solvency II Firms 3.

22.4

Where a firm is a member of a group covered by 2.1(1), 2.1(2) or, subject to 22.5, 2.1(3) the firm must ensure that the strategies, processes and systems at the level of the group of which it is a member enable the firm to assess whether important group business services at the level of the group could remain within the impact tolerance in the event of a severe but plausible disruption to its operations.

22.5

Where a firm is a member of a group covered by 2.1(3), 22.2, 22.3 and 22.4 do not apply if, the third country in which the group’s parent undertaking has its head office is an overseas jurisdiction designated under regulation 11 in relation to regulation 14 of the IRPR regulations in respect of insurance group supervision and paragraph (3) of regulation 14 of the IRPR regulations applies.

22.6

[Deleted]