Run-off Operations

1.1

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

Unless otherwise stated, this Part applies to:

1. (1) a UK Solvency II firm; and
2. (2) in accordance with 5, third country branch undertakings except:
1. (a) Swiss general insurers; and
2. (b) SRO insurers.

1.2

In this Part, the following definitions shall apply:

material transaction

means a transaction (when aggregated with any similar transactions) in which:

1. (1) the price actually paid or received for the transfer of assets or liabilities or the performance of services; or
2. (2) the price which would have been paid or received had that transaction been negotiated at arm's length between unconnected parties;
1. exceeds:
2. (a) in the case of a firm which carries on long-term insurance business, but not general insurance business, the sum of £18,000 and 5% of the firm's liabilities arising from its long-term insurance business, excluding linked long-term liabilities and net of reinsurance ceded;
3. (b) in the case of a firm which carries on general insurance business, but not long-term insurance business, the sum of £18,000 and 5% of the firm's liabilities arising from its general insurance business, net of reinsurance ceded; or
4. (c) in the case of a firm which carries on both long-term insurance business and general insurance business:
1. (i) where the transaction is in connection with the firm's long-term insurance business, the sum of £18,000 and 5% of the firm's liabilities arising from its long-term insurance business, excluding linked long-term liabilities and net of reinsurance ceded; and
2. (ii) in all other cases, the sum of £18,000 and 5% of the firm's liabilities arising from its general insurance business, net of reinsurance ceded;
3. and
5. (d) in the case of third country branch undertakings, a reference to the “firm’s liabilities” is to be interpreted as a reference only to the liabilities relevant to the operations effected by the third country branch.

scheme of operations

means a scheme which:

1. (1) describes the nature of the risks which the insurer is underwriting, or intends to underwrite, and the guiding principles which it intends to follow in reinsuring or covering those risks; and
2. (2) contains the information required under 3.1.

2.1

If a firm decides to cease to effect new contracts of insurance in respect of the whole of its insurance business, it must, within 28 days of that decision, submit a run-off plan to the PRA including:

1. (1) a scheme of operations, in accordance with 3; and
2. (2) an explanation of how, or to what extent, all liabilities to policyholders will be met in full as they fall due.

2.2

For the purposes of 2.1, a new contract of insurance excludes contracts effected under a term in a subsisting contract of insurance.

2.3

A third country branch undertaking must apply the requirements in 2.1 and 2.2 taking account only of the operations effected by the third country branch.

3.1

In accordance with 3.2, a scheme of operations must:

1. (1) describe the firm's run-off strategy;
2. (2) include a description of the business underwritten by the firm;
3. (3) include financial projections (including appropriate scenarios and stress-tests) as follows:
1. (a) a forecast summary profit and loss account in accordance with 3.3;
2. (b) a forecast summary balance sheet in accordance with 3.4; and
3. (c) for a firm other than a third country branch undertaking, forecast MCR and SCR at the end of each financial year or part financial year;
4. (4) as at the end of each financial year which falls (in whole or part) within the period to which the scheme of operations relates:
1. (a) describe the assumptions which underlie those forecasts and the reasons for adopting those assumptions; and
2. (b) identify any material transactions proposed to be entered into or carried out with, or in respect of, any associate or any other person with whom the firm has close links; and
5. (5) cover the run-off period until all liabilities to policyholders are met.

3.2

The information required by 3.1 must:

1. (1) for a firm other than a third country branch undertaking, reflect the nature and content of the rules relating to eligible own funds applicable to a firm;
2. (1A) for a third country branch undertaking, reflect the nature and content of the rules relating to the valuation of assets and liabilities applicable to a third country branch undertaking;
3. (2) where a firm carries on both long-term insurance business and general insurance business, be separated for long-term insurance business and general insurance business; and
4. (3) in the case of third country branch undertakings, take account only of matters relevant to the operations effected by the third country branch.

3.3

The forecast summary profit and loss account referred to in 3.1(3)(a) must contain the following information:

1. (1) premiums and claims (gross and net of reinsurance) analysed by accounting class of insurance business;
2. (2) investment return;
3. (3) expenses;
4. (4) other charges and income;
5. (5) taxation; and
6. (6) dividends paid and accrued.

3.4

The forecast summary balance sheet referred to in 3.1(3)(b) must contain the following information:

1. (1) investments analysed by type;
2. (2) assets held to cover linked long-term liabilities;
3. (3) other assets and liabilities separately identifying cash at bank and in hand;
4. (4) capital and reserves analysed into called up share capital or equivalent funds, share premium account, revaluation reserve, other reserves and profit and loss account;
5. (5) subordinated liabilities;
6. (6) the fund for future appropriations;
7. (7) technical provisions gross and net of reinsurance analysed by accounting class of insurance business and separately identifying the provision for linked long-term liabilities, unearned premiums, unexpired risks and equalisation; and
8. (8) other liabilities and credits.

4.1

A firm which has submitted a scheme of operations to the PRA must during the period covered by that scheme of operations:

1. (1) notify the PRA at least 28 days before entering into or carrying out any material transaction with, or in respect of, an associate or any other person with whom the firm has close links, unless that transaction is in accordance with a scheme of operations which has been submitted to the PRA;
2. (2) notify the PRA promptly of any matter which has happened or is likely to happen and which represents a significant departure from the scheme of operations and either:
1. (a) explain the nature of the departure and the reasons for it and provide revised forecast financial information in 3.1(3) in the scheme of operations for its remaining term; or
2. (b) include an amended scheme of operations and explain the amendments and the reasons for them.

5.1

This Chapter applies to third country branch undertakings.

5.2

In this Part, reference to ‘technical provisions’ is to be interpreted as a reference to the provisions referred to in Third Country Branches 6.1.