Prudential Regulation Authority Rulebook

4.1

This Chapter applies only to a firm that carries on general insurance business.

4.2

A firm carrying on general insurance business, other than a Swiss general insurer, must complete Form 1.

4.3

A firm must complete Form 20 in respect of each required category of the whole of the general insurance business carried on by the firm.

4.4

A firm must complete Form 20A in respect of the whole general insurance business carried on by it.

4.5

A firm must prepare Forms 21, 22 and 23 for insurance business accounted for on an accident year basis in respect of each required category.

4.6

A firm must prepare Forms 24 and 25 for their insurance business accounted for on an underwriting year basis in respect of each required category.

4.7

A firm must account for insurance business on an underwriting year basis if it relates to risks in respect of which the claims outstanding for such insurance business are calculated using the method described in paragraph 58 of the insurance account rules.

4.8

Every firm which, in respect of any financial year, includes in Form 22 or 25 amounts relating to adjustments for discounting must prepare Form 30.

4.9

Every firm must prepare Forms 26 and 27 for treaty reinsurance business accounted for on an accident year basis in respect of each required category.

4.10

Every firm must prepare Forms 28 and 29 for treaty reinsurance business accounted for on an underwriting year basis in respect of each required category.

4.11

Every firm must prepare Forms 31 or 32 for direct and facultative insurance business accounted for on an accident year basis in respect of each required category.

4.12

Every firm must prepare Form 34 for direct and facultative insurance business accounted for on an underwriting year basis in respect of each required category.

4.13

A firm must allocate its general insurance business to one or more risk categories when completing the Forms required in 4.3 – 4.12.

4.14

For the purposes of allocation of general insurance business into risk categories under 4.13, where a contract of insurance falls within the description of more than one risk category:

1. (1) if the contract of insurance falls, to any extent, within the description of risk category 274, 590 or 690, a firm must allocate all the general insurance business represented by that contract of insurance to that risk category;
2. (2) subject to (3), in any other case, a firm must allocate all the general insurance business represented by the contract of insurance to the single risk category that, in the reasonable opinion of the firm’s governing body, best describes the risk covered by the contract of insurance;
3. (3) if:
1. (a) the premium payable under the contract of insurance is separable into the components relating to different risk categories; or
2. (b) in the reasonable opinion of the firm’s governing body, allocation under (2) would be misleading,

then the firm must apply a reasonable method to allocate the general insurance business represented by the contract of insurance amongst the appropriate risk categories and must apportion the amounts it reports in the Forms accordingly.

4.15

Unless the de minimis criteria in 4.16 are met, where:

1. (1) for the previous financial year, a firm was required to prepare a Form 20 to 34 for a category of business that was not category number 001 to 003, 409 or 709; and
2. (2) for the financial year in question, the reporting criteria for that Form are not met,

the business must be reported in the same category of business in the same Form for the financial year in question.

4.16

Where the conditions in 4.15 are met, a firm may only cease to report such business on that Form in that category of business if:

1. (1) the gross written premiums in the financial year in question and the gross undiscounted provisions at the end of that financial year for that category of business are each less than £0.5m; or
2. (2) the following conditions are met:
1. (a) the business in (1) has been reported on that Form for that category of business in each of the three previous financial years; and
2. (b) the gross written premiums in the financial year in question and the gross undiscounted provisions at the end of that financial year for that category of business are each less than 50% of the amounts respectively specified in the reporting criteria for that Form in respect of that category of business.

4.17

Subject to 4.18 and 4.19, if the total of all gross undiscounted provisions in Forms 26 to 29, 31, 32 and 34 is less than 80% of the firm’s total gross undiscounted provisions, the firm must prepare those Forms, as appropriate, for further categories of business in decreasing order of size, being measured in gross undiscounted provisions, until the 80% criterion is met.

4.18

A firm need not prepare Forms 26 to 29, 31, 32 or 34 for a category of business if:

1. (1) the firm’s gross written premiums in the financial year in question for that category of business are less than £1m; and
2. (2) the firm’s gross undiscounted provision at the end of the financial year in question for that category of business are less than £1m.

4.19

A firm need only prepare a Form 26 to 29, 31, 32 or 34 for a category of business if it is required to prepare a Form 20 for category number 110, 120, 160, 180, 220, 260, 270, 280, 330, 340, 350, 400, 500, 600 or 700 which includes that category of business.

4.20

A firm which, in respect of a financial year, prepares a Form under 4.9 to 4.12 containing figures in a currency other than sterling must prepare Form 36.

4.21

A firm must deposit with the PRA a statement relating to the financial year in question that:

1. (1) details:
1. (a) the full name of each of its major treaty reinsurers and their registered office or principal office in the country where it is incorporated (or, in the case of an unincorporated body, of the principal office) of each such reinsurer;
2. (b) whether (and, if so, how) the firm, at any time in the financial year, had close links with any such reinsurer;
3. (c) the amount of the reinsurance premiums payable in the financial year to each such reinsurer in respect of:
1. (i) general insurance business ceded under proportional reinsurance treaties; and
2. (ii) general insurance business ceded under non-proportional reinsurance treaties,
4. (d) the amount of any debt of each such reinsurer to the insurer in respect of general insurance business ceded under reinsurance treaties;
5. (e) the amount of any deposit received from each such reinsurer under reinsurance treaties; and
6. (f) the amount of any anticipated recoveries from each such reinsurer under reinsurance treaties to the extent that such recoveries have been taken into account by the insurer in determining the reinsurer’s share of technical provisions in respect of claims outstanding (except that, in respect of claims incurred but not reported, such recoveries need only be included to the extent that they are in respect of any specific occurrences for which provisions have been allocated by the insurer); or
2. (2) it has no major treaty reinsurer.

4.22

A firm must file with the PRA a statement relating to the financial year in question that:

1. (1) includes, in respect of each major facultative reinsurance contract, the following information about each major facultative reinsurer:
1. (a) its full name and the address of the registered office or of the principal office in the country where it is incorporated (or, in the case of an unincorporated body, the principal office);
2. (b) whether (and, if so, how) the firm had at any time in the financial year close links with such reinsurer;
3. (c) the amount of the reinsurance premiums payable in the financial year;
4. (d) the amount of any debt to the firm;
5. (e) the amount of any deposit received from reinsurers; and
6. (f) the amount of any anticipated recoveries to the extent that such recoveries have been taken into account by the firm in determining the reinsurers’ share of technical provisions in respect of claims outstanding (except that, in respect of claims incurred but not yet reported, such recoveries need only be included to the extent that they are in respect of any specific occurrences for which provisions have been allocated by the insurer); or
2. (2) it has no ‘major facultative reinsurer’.

4.23

A firm must file with the PRA a statement relating to the financial year in question detailing:

1. (1) the following information:
1. (a) the full name of each of its major cedants and the address of the registered office or of the principal office in the country where it is incorporated (or, in the case of an unincorporated body, the principal office);
2. (b) whether (and, if so, how) the firm had at any time in the financial year close links with any such cedant;
3. (c) the amount of the total of the gross premiums receivable in the financial year from each such cedant in respect of general insurance business accepted under reinsurance treaties;
4. (d) the amount of any deposit made with any such cedant; and
5. (e) the amount of any debt of each such cedant in respect of general insurance business accepted under reinsurance treaties; or
2. (2) that it has no major cedant.

4.24

A firm must deposit with the PRA, a statement regarding the general insurance business ceded, which includes the following information:

1. (1) subject to (2), for each contract of reinsurance entered into or modified during the financial year in question under which general insurance business has been ceded by the firm on a non-facultative basis, the firm must prepare a statement of:
1. (a) the type of business covered by reference to risk categories and if only part of a risk category is covered, a description of that part;
2. (b) the type of cover, including such details of the terms and conditions of the contract as are necessary for a proper understanding of the nature of the cover; and
3. (c) the period of cover.
2. (2) where the contract of reinsurance has been modified during the financial year in question:
1. (a) no information need be supplied pursuant to (1) in respect of a contract of reinsurance which was entered into before the beginning of the financial year of the firm to which the Insurance Companies (Accounts and Statements) Regulations 1996 first applied; and
2. (b) in any other case, the information to be supplied pursuant to (1) must be limited to any changes to the information previously supplied pursuant to that paragraph or its predecessor legislation in respect of that contract.
3. (3) for every contract reported pursuant to (1), whether in the return for the financial year in question or any previous return, the firm must also prepare, if relevant, a statement of:
1. (a) in the case of contracts which are subject to no or a limited number of reinstatements, any contract not previously reported pursuant to this provision (or its predecessor) under which it is anticipated that such limit will be exhausted by claims (including claims incurred but not reported, in respect of any specific occurrence for which provisions have been allocated);
2. (b) the percentage of cover, if in excess of 10% and if such information has not already been included in the return of the firm for any previous financial year, which has been ceded to reinsurers which have ceased to pay claims to their reinsureds in full, whether because of insolvency or for any other reason; and
3. (c) if the percentage specified in (b) has increased by more than 10 percentage points since the previous financial year in which it was included in the firm’s return, a statement of that percentage unless, in the opinion of the governing body, the likelihood of any claim being incurred under that policy is minimal.
4. (4) for each risk category, or part thereof, in respect of which separate non-facultative reinsurance cover has been obtained, the firm must prepare a statement of the ‘maximum net probable loss’ to the firm from any one contract of insurance effected by it and from all such contracts taken together.
5. (5) for the purposes of (4), the ‘maximum net probable loss’ is the maximum loss (net of reinsurance) arising from any one incident, or any one series of incidents from the same originating cause, which:
1. (a) the governing body at the time they decided upon the reinsurance cover in respect of the financial year in question, reasonably contemplated to be of a type which might take place during that financial year; or
2. (b) has actually occurred during the financial year in question.
6. (6) the disclosure required by (4) must be given in respect of all risk categories, or parts thereof, of the insurance business carried on by the firm whether or not the firm has purchased any reinsurance cover for that risk category, or part thereof, and in (5) deciding upon the reinsurance cover includes deciding not to obtain any reinsurance cover.
7. (7) for each combined category (other than category numbers 500 and 600) and risk category with category numbers 160, 350, 400, 510 to 590, 610 to 690 and 700 and separately for contracts of facultative and non-facultative reinsurance ceded in respect of the financial year in question the amount of the reinsurers share of gross premiums must be stated.

4.25

A firm must deposit with the PRA a statement regarding financial reinsurance in relation to any contract of insurance under which general insurance business has been ceded by the firm where:

1. (1) the value placed on future payments in respect of the contract in the return for the financial year in question is not commensurate with the economic value provided by that contract, after taking account of the level of risk transferred; or
2. (2) there are terms or foreseeable contingencies (other than the insured event) that have the potential to affect materially the value placed on the contract in the firm’s balance sheet at, or any time after, the end of the financial year in question,
3. and the statement must include the following information:
4. (3) the financial year of the return in which the contract was reported in the return;
5. (4) the financial effect of the contract of the insurer’s capital resources as shown in the return for the financial year in question;
6. (5) the amount of any undischarged obligation of the firm under the contract and a brief description of the conditions for the discharge of such obligation;
7. (6) how any undischarged obligations, including any contingent obligations, have been taken into account in determining the insurer’s capital resources; and
8. (7) a general description of how the firm makes the financial assessment that enables it to determine whether a contract satisfies the condition in (1), even if there are no contracts in respect of which information is required by (3) – (6).

4.26

In determining whether a contract of insurance meets one or both the conditions in 4.25, the firm must:

1. (1) treat as part of a contract any agreements, correspondence (including side letters) or understandings that amend or modify, or purport to amend or modify, the contract or its operation; and
2. (2) consider whether the contract meets the condition in 4.25(1) when considered together with one or more other contracts of insurance entered into between:
1. (a) the firm and the reinsurer under the first contract; or
2. (b) the firm and any other person, where it could reasonably be predicted, at the time the most recent contract was entered into, that the contracts when considered together would meet the condition in 4.25(1).

4.27

The statement required under 4.25 must also include the following information in relation to any financing arrangement:

1. (1) the financial year of the return in which the financing arrangement was first reported in the return;
2. (2) the financial effect of the financing arrangement on the insurer’s capital resources as shown in the return for the financial year in question;
3. (3) the amount of any undischarged obligation of the firm under the financing arrangement and a brief description of the conditions for the discharge of such obligation; and
4. (4) how any undischarged obligations, including any contingent obligations, have been taken into account in determining the insurer’s capital resources.

4.28

No information need be supplied pursuant to 4.25 or 4.27 in respect of a contract of insurance or financing arrangement if, when it is considered in aggregate with all such contracts with the same reinsurer or counterparty or any other person with whom the firm has entered into a contract:

1. (1) A is less than 1% of B in the return for the financial year in question; and
2. (2) the firm expects A to remain less than 1% of B for the foreseeable future,
3. where:
4. (3) A is the financial effect on the firm’s capital resources as a result of the existence of the contract(s); and
5. (4) B is the firm’s total gross amount of technical provisions.

4.29

Where the statement required under 4.25 and 4.27 includes information about a contract of insurance in respect of which information has been included in the statement required by 4.22 relating to the financial year in question, the firm must include in the statement under 4.25 and 4.27 a cross-reference to that other information.