Prudential Regulation Authority Rulebook

1.1

Unless otherwise stated, this Part applies to:

1. (1) a non-directive insurer, other than a non-directive friendly society; and
2. (2) subject to 1.2, a Swiss general insurer.

1.2

This Part only applies to a Swiss general insurer in respect of the activities of the firm carried on from a branch in the UK.

1.3

This Part applies to a firm in relation to the whole of its business, except where a particular provision provides for a narrower scope.

1.4

Where a firm carries on both long-term insurance business and general insurance business, this Part applies separately to each type of business.

2.1

For general insurance business, a firm must establish adequate technical provisions in accordance with Insurance Company – Overall Resources and Valuation 3.1.

2.2

For long-term insurance business, a firm must establish adequate technical provisions in respect of its contracts of long-term insurance as follows:

1. (1) for liabilities in respect of such contracts that have fallen due, in accordance with Insurance Company – Overall Resources and Valuation 3.1;
2. (2) otherwise, mathematical reserves in accordance with the Insurance Company – Mathematical Reserves Part of the PRA Rulebook and with due regard to generally accepted actuarial practice.

3.1

A firm may only take credit for reinsurance (including all contracts of reinsurance with an ISPV and analogous non-reinsurance financing agreements) if and to the extent that there has been an effective transfer of risk from the firm to a third party that is effective in all circumstances in which the firm may wish to rely upon the transfer.

4.1

Subject to 4.3, a firm (other than a composite firm) must hold admissible assets of a value at least equal to the amount of:

1. (1) the technical provisions that it is required to establish under:
1. (a) 2.1; or
2. (b) 2.2; and
2. (2) its other:
1. (a) general insurance liabilities; or
2. (b) long-term insurance liabilities.

4.2

Subject to 4.3, a composite firm must ensure that it holds;

1. (1) admissible assets separately identified in accordance with Insurance Company – Internal Contagion Risk 4.1 of a value at least equal to 4.1(1)(a) and 4.1(2)(a); and
2. (2) other admissible assets (other than those excluded under 4.3) of a value at least equal to 4.1(1)(b) and 4.1(2)(b).

4.3

For the purposes of 4.1 and 4.2, a firm (other than a pure reinsurer) must exclude property-linked liabilities and index-linked liabilities and the assets held to cover them under Insurance Company – Risk Management 4.

4.4

For the purpose of determining the value of assets available to meet technical provisions and other long-term insurance liabilities in accordance with 4.1, 4.2 and Non-Solvency II Firms - With-Profits 2.1, to the extent already offset in the calculation of technical provisions, no value is to be attributed to:

1. (1) debts owed by reinsurers;
2. (2) a claim under a contract of insurance;
3. (3) tax recoveries; or
4. (4) claims against compensation funds.

5.1

This Chapter does not apply:

1. (1) to a Swiss general insurer;
2. (2) in respect of debts owed by reinsurers;
3. (3) in respect of insurance business carried on by a UK firm outside the UK; or
4. (4) in respect of general insurance business class groups 3 (Marine and transport) and 4 (Aviation) of Insurance Company – Reporting 12.7.

5.2

In accordance with 5.3, a firm must hold admissible assets held pursuant to Insurance Company – Risk Management 3.2:

1. (1) (where the admissible assets cover technical provisions in UK sterling), in the UK; and
2. (2) (where the admissible assets cover technical provisions in any currency other than UK sterling), in the UK or in the country of that currency.

5.3

For the purposes of 5.2:

1. (1) a tangible asset is to be treated as held in the country or territory where it is situated;
2. (2) an admissible asset consisting of a claim against a debtor is to be treated as held in any country or territory where it can be enforced by legal action;
3. (3) a security which is listed is to be treated as held in any country or territory where there is a regulated market on which the security is dealt; and
4. (4) a security which is not listed is to be treated as held in the country or territory in which the issuer has its head office.

6.1

This Chapter does not apply:

1. (1) to a pure reinsurer; or
2. (2) in respect of assets held to cover index-linked liabilities or property-linked liabilities, except that, where the linked long-term contract of insurance in question includes a guarantee of investment performance or some other guaranteed benefit, this Chapter will nevertheless apply to assets held to cover that guaranteed element.

6.2

Assets held by a firm to cover its technical provisions and other long-term insurance liabilities or general insurance liabilities must:

1. (1) have characteristics of safety, yield and marketability which are appropriate to the type of business carried on by the firm;
2. (2) be diversified and adequately spread; and
3. (3) in accordance with 6.3, be of a sufficient amount, and of an appropriate currency and term, to ensure that the cash inflows from those assets will meet the expected cash outflows from the firm's insurance liabilities as they become due.

6.3

For the purpose of 6.2(3), in determining expected cash outflows, a firm must take into consideration any options which exist in the firm's contracts of insurance.

7.1

A firm must not enter into a contract of long-term insurance unless it is satisfied on reasonable actuarial assumptions that:

1. (1) the premiums receivable and the investment income expected to be earned from those premiums; and
2. (2) the reinsurance arrangements made in respect of the risk or risks covered by that new contract;

are sufficient to enable it, when taken together with the firm's other resources, to meet the requirements in 7.2.

7.2

The requirements referred to in 7.1 are, to:

1. (1) establish adequate technical provisions as required by 2.2;
2. (2) hold admissible assets of a value at least equal to the amount of the technical provisions and other long-term insurance liabilities as required by 4; and
3. (3) maintain adequate overall financial resources as required by Insurance Company - Overall Resources and Valuation 2.3.