Prudential Regulation Authority Rulebook

1.

A firm must calculate the capital requirement for marine risk in accordance with the following formula:

$${SCR}_{marine}=\sqrt{{SCR}_{vessel}^2+{SCR}_{platform}^2}$$

where:

1. (1) SCR _vessel is the capital requirement for the risk of a vessel collision; and
2. (2) SCR _platform is the capital requirement for the risk of a platform explosion.

2.

A firm must calculate the capital requirement for the risk of a vessel collision as equal to the loss in its basic own funds that would result from an instantaneous loss of an amount calculated in accordance with the following formula:

$$L_{vessel}={max}_v({SI}_{(hull,v)}+{SI}_{(liab,v)}+{SI}_{(pollution,v)})$$

where:

1. (1) the maximum relates to all sea, lake, river, and canal vessels insured by the firm in respect of vessel collision in lines of business 6, 18 and 27 where the insured value of the vessel is at least GBP 220,000;
2. (2) SI _{(hull, v)} is the sum insured by the firm, after deduction of the amounts that the firm can recover from reinsurance contracts and special purpose vehicles, for marine hull insurance and reinsurance in relation to vessel v;
3. (3) SI _{(liab, v)} is the sum insured by the firm, after deduction of the amounts that the firm can recover from reinsurance contracts and special purpose vehicles, for marine liability insurance and reinsurance in relation to vessel v; and
4. (4) SI _{(pollution, v)} is the sum insured by the firm, after deduction of the amounts that the firm can recover from reinsurance contracts and special purpose vehicles, for oil pollution insurance and reinsurance in relation to vessel v.

3.

For the purposes of determining SI _{(hull, v)}, SI _{(liab, v)}, and SI _{(pollution, v)}, a firm must only take into account reinsurance contracts and special purpose vehicles that would pay out in the event of insurance claims related to vessel v and must not take into account reinsurance contracts and special purpose vehicles where payout is dependent on insurance claims not related to vessel v.

4.

Where the deduction of amounts recoverable would lead to a capital requirement for the risk of a vessel collision that insufficiently captures the risk of a vessel collision that the firm is exposed to, the firm must calculate SI _{(hull, v)}, SI _{(liab, v)}, or SI _{(pollution, v)} without deduction of amounts recoverable.

5.

A firm must calculate the capital requirement for the risk of a platform explosion as equal to the loss in its basic own funds that would result from an instantaneous loss of an amount calculated in accordance with the following formula:

$$L_{platform}=\underset{p}{max}\left({SI}_p\right)$$

where:

1. (1) the maximum relates to all oil and gas offshore platforms insured by the firm in respect of platform explosion in lines of business 6, 18, and 27; and
2. (2) SI _p is the accumulated sum insured by the firm, after deduction of the amounts that the firm can recover from reinsurance contracts and special purpose vehicles, for the following insurance and reinsurance obligations in relation to platform p:
   1. (a) obligations to compensate for property damage;
   2. (b) obligations to compensate for the expenses for the removal of wreckage;
   3. (c) obligations to compensate for loss of production income;
   4. (d) obligations to compensate for the expenses for capping of the well or making the well secure; and
   5. (e) liability insurance and reinsurance obligations.

6.

For the purposes of determining SI _p, a firm must only take into account reinsurance contracts and special purpose vehicles that would pay out in the event of insurance claims related to platform p and must not take into account reinsurance contracts and special purpose vehicles where payout is dependent on insurance claims that are not related to platform p.

7.

Where the deduction of amounts recoverable would lead to a capital requirement for the risk of a platform explosion that insufficiently captures the risk of a platform explosion that the firm is exposed to, the firm must calculate SI _p without the deduction of amounts recoverable.