Prudential Regulation Authority Rulebook

7.1

A firm must calculate a premiums basis solvency margin by:

1. (1) aggregating the gross premiums receivable (or contributions, as the case may be) in respect of the firm’s entire general insurance business for the last preceding financial year; and
2. (2) aggregating the gross premiums earned (or contributions, as the case may be) in respect of the firm’s entire general insurance business for the last preceding financial year,

and applying the calculation set out in 7.2 to 7.10.

7.2

From each of the aggregates arrived at under 7.1(1) and 7.1(2) a firm must deduct:

1. (1) any taxes included in the premiums; and
2. (2) any levies that are related to premiums and are recorded in the firm’s books as payable in the last preceding financial year in respect of general insurance business.

7.3

A firm must multiply the amount arrived at under 7.2 by twelve and divide by the number of months in the financial year.

7.4

A firm must calculate 18% of the amount arrived at under 7.3.

7.5

In the case of general insurance business consisting of health insurance based on actuarial principles, 7.4 applies with the substitution of 6% for 18% if the following conditions are satisfied:

1. (1) the gross premiums paid are calculated on the basis of sickness tables appropriate to insurance business;
2. (2) the reserves include provision for increasing age or, in the case of class IV, either the reserves include provision for increasing age, or the business is conducted on a group basis;
3. (3) an additional premium is collected in order to set up a safety margin of an appropriate amount;
4. (4) the contract does not allow the firm to cancel the contract after the end of the third year of the contract; and
5. (5) the contract provides for the possibility of increasing premiums or reducing payments during its currency.

7.6

Where 7.5 applies to a firm whose general insurance business consists partly of health insurance based on actuarial principles and partly of other business, the procedure provided in 7.1 to 7.5 must operate separately for each part of the general insurance business, so as to produce a sum under 7.5 for the health insurance and a sum under 7.4 for the other business.

7.7

If the provision for claims outstanding at:

1. (1) the end of the last preceding financial year exceeds the provision for claims outstanding at the beginning of the financial year two years prior to the last preceding financial year, then a firm must add the amount of the excess to the amount of claims paid in the three year period; and
2. (2) the beginning of the financial year two years prior to the financial year in question exceeds the provision for claims outstanding at the end of the financial year in question, then a firm must deduct the amount of the excess from the amount of claims paid in the three year period.

7.8

From the amount determined under 7.7(1) or (2), a firm must deduct the total sum recoverable in respect of that amount under reinsurance contracts ceded during the relevant period.

7.9

A firm must express the amount determined under 7.8 as a percentage of the amount determined under 7.7(1) or (2).

7.10

A firm must multiply the sum arrived at under 7.4 or 7.5, or the aggregate of the sums arrived at under 7.4 and 7.5, as the case may be:

1. (1) where the percentage arrived at under 7.9 is greater than 50% but not greater than 100%, by the percentage so arrived at;
2. (2) where the percentage arrived at under 7.9 is greater than 100%, by 100%; and
3. (3) in any other case, by 50%.