Prudential Regulation Authority Rulebook

1.

Subject to 3A5.5, 3A5.6 and 3A5.7, for all segments set out in 3A3 and 3C4, a firm must calculate the factor for geographical diversification of a particular segment s referred to in 3A2 and 3C3 in accordance with the following formula:

$${DIV}_s=\frac{\sum _r{(V_{(prem,r,s)}+V_{res,r,s})}^2}{{\left(\sum _r(V_{(prem,r,s)}+V_{res,r,s})\right)}^2}$$

where:

1. (1) each of the sums cover all the geographical regions set out in 3A5.8;
2. (2) V(prem, r, s) denotes the volume measure for premium risk of the segment s and the region r; and
3. (3) V(res, r, s) denotes volume measure for reserve risk of the segment s and the region r.

2.

For all segments set out in 3A3 and 3C4 and all geographical regions set out in 3A5.8, a firm must calculate the volume measure for premium risk of a particular segment s and a particular region r in the same way as the volume measure for non-life or NSLT health premium risk of the segment s as referred to in 3A2 and 3C3, but taking into account only insurance and reinsurance obligations where the underlying risk is situated in the region r.

3.

For all segments set out in 3A3 and 3C4 and all geographical regions set out in 3A5.8 a firm must calculate the volume measure for reserve risk of a particular segment s and a particular region r in the same way as the volume measure for non-life or NSLT health reserve risk of the segment s as referred to in 3A2 and 3C3, but taking into account only insurance and reinsurance obligations where the underlying risk is situated in the region r.

4.

For the purpose of the calculations set out in 3A5.2 and 3A5.3, the following criteria apply:

1. (1) In the case of non-life insurance, the region in which a risk is situated is,
   
   1. (a) if the insurance relates to a building or to a building and its contents (so far as the contents are covered by the same policy), to the region in which the building is situated;
   2. (b) if the insurance relates to a vehicle of any type, to the region of registration;
   3. (c) in the case of policies of a duration of four months or less covering travel or holiday risks (whatever the class concerned), to the region in which the policyholder took out the policy; or
   4. (d) in a case not covered by (a) to (c):
      1. (i) if the policyholder is an individual, to the region in which the individual has their habitual residence at the date when the contract of insurance is entered into; and
      2. (ii) otherwise, to the region in which the establishment of the policyholder to which the policy relates is situated and that date; and
2. (2) In the case of life insurance, the region of the commitment, in relation to a commitment entered into at any date, is
   1. (a) if the policyholder is an individual, the region in which the individual had their habitual residence at that date; or
   2. (b) if the policyholder is not an individual, the region in which the establishment of the policyholder to which the commitment relates was situated at that date;
   3. where for these purposes ‘commitment’ means a commitment represented by contracts of insurance of a prescribed class.

5.

Notwithstanding 3A5.1, the factor for geographical diversification must be equal to 1 for segments 6, 10, 11 and 12 set out in 3A3 and for segment 4 set out in 3C4.

6

Notwithstanding 3A5.1, the factor for geographical diversification for a segment set out in 3A3 must be equal to 1 if a firm uses an undertaking specific parameter for the standard deviation for non-life premium risk or non-life reserve risk of the segment to calculate the non-life premium and reserve risk sub-module.

7.

Notwithstanding 3A5.1, the factor for geographical diversification for a segment set out in 3C4 must be equal to 1 if a firm uses an undertaking specific parameter for the standard deviation for NSLT health premium risk or NSLT health reserve risk of the segment to calculate the NSLT health premium and reserve risk sub-module.

8.

Regions for the calculation of the factor for geographical diversification.