Prudential Regulation Authority Rulebook

4.1

This Chapter:

1. (1) applies to a composite firm, other than a pure reinsurer; and
2. (2) does not apply to managing agents.

4.2

Without prejudice to the SCR Rules and the Minimum Capital Requirement Part of the PRA Handbook, the firm must calculate a notional minimum capital requirement on the basis of the accounts referred to in 3.2:

1. (1) with respect to its long-term insurance business, calculated as if the firm carried on long-term insurance business only; and
2. (2) with respect to its general insurance business, calculated as if the firm carried on general insurance business only.

[Note: Art. 74(2) of the Solvency II Directive]

4.3

The firm must cover:

1. (1) its notional life MCR with eligible own funds attributable to its long-term insurance business, as identified on the basis of the accounts referred to in 3.2; and
2. (2) its notional non-life MCR with eligible own funds attributable to its general insurance business, as identified on the basis of the accounts referred to in 3.2.

[Note: Art. 74(3) of the Solvency II Directive]

4.4

For the purposes of 4.3, the firm must not cover:

1. (1) its notional life MCR with eligible own funds attributable to its general insurance business; and
2. (2) its notional non-life MCR with eligible own funds attributable to its long-term insurance business.

[Note: Art. 74(3) of the Solvency II Directive]

4.5

The firm must prepare a statement on the basis of the accounts referred to in 3.2 identifying the eligible own funds covering the notional life MCR and the notional non-life MCR, respectively.

[Note: Art. 74(6) of the Solvency II Directive]

4.6

Provided the firm satisfies the requirements in 4.3 and 4.4, and subject to the requirement in 4.7, a firm may use:

1. (1) eligible own funds attributable to its general insurance business that are in excess of its notional non-life MCR; and
2. (2) eligible own funds attributable to its long-term insurance business that are in excess of its notional life MCR;

to cover part or all of the difference between the firm’s SCR and the sum of its notional non-life MCR and notional life MCR.

[Note: Art. 74(4) of the Solvency II Directive]

4.7

For the purposes of 4.6, a firm must notify the PRA before using:

1. (1) eligible own funds referred to in 4.6(1) to cover the portion of the difference referred to in 4.6 that relates to the difference between the notional life SCR and the notional life MCR; or
2. (2) eligible own funds referred to in 4.6(2) to cover the portion of the difference referred to in 4.6 that relates to the difference between the notional non-life SCR and the notional non-life MCR.

[Note: Art. 74(4) of the Solvency II Directive]

4.8

If a composite firm is in breach of either 4.3(1) or 4.3(2), Undertakings In Difficulty 4.1 applies to the activity in respect of which the breach has occurred, as if the words “MCR” in Undertakings In Difficulty 4.1 were substituted with the words “notional life MCR” or “notional non-life MCR”, as applicable, regardless of whether any breach has occurred in respect of the other activity.

[Note: Art. 74(7) of the Solvency II Directive]