Prudential Regulation Authority Rulebook

1.1

Unless otherwise stated, this Part applies to all firms for the purposes of determining whether they are subject to any of the provisions of the Solvency II Firms Sector of the PRA Rulebook.

1.2

In this Part, the following definitions shall apply:

ancillary risk

1. (1) subject to (2), means (in relation to an insurer with Part 4A permission to insure a principal risk belonging to one class of general insurance business) a risk included in another such class which is:
1. (a) connected with the principal risk,
2. (b) concerned with the object which is covered against the principal risk, and
3. (c) the subject of the same contract insuring the principal risk.
2. (2) the risks included in classes 14, 15 and 17 may not be treated as risks ancillary to other classes, except that the risk included in class 17 may be regarded as an ancillary risk of class 18 where:
1. (a) the conditions laid down in (1)(a) to (1)(c) are fulfilled, and
2. (b) the principal risk relates solely to assistance provided for persons who fall into difficulties while travelling, while away from home or while away from their permanent residence or where it concerns disputes or risks arising out of, or in connection with, the use of sea going vessels.

[Note: Art. 16 of the Solvency II Directive]

assistance

means the class of contract of general insurance, specified in paragraph 18 of Part I of Schedule 1 to the Regulated Activities Order.

requirement

means a requirement or limitation included in a firm's Part 4A permission under section 55F(4) of FSMA (Giving permission: the PRA), section 55L(3) of FSMA (Imposition of requirements by the FCA), section 55M(3) of FSMA (Imposition of Requirements by the PRA) or section 55O of FSMA (Imposition of requirements on acquisition of control).

Solvency II excluded operations

means:

1. (1) a mutual whose insurance business is restricted to the provision of benefits which vary according to the resources available and in which the contributions of the members are determined on a flat- rate basis; or
2. (2) a mutual whose liabilities in respect of contracts of general insurance must be fully reinsured with or guaranteed by other mutuals (including friendly societies) and the mutuals providing the reinsurance or the guarantees are Solvency II undertakings.

syndicate liabilities

means liabilities managed by a managing agent in respect of insurance business carried on through a syndicate.

2.1

A UK Solvency II firm means a firm:

1. (1) that satisfies the conditions set out in 2.2, or
2. (2) whose Part 4A permission includes a requirement that it comply with the Solvency II Firms Sector of the PRA Rulebook.

2.2

The conditions referred to in 2.1(1) are, subject to the exclusions in 2.3 to 2.6:

1. (1) the firm is an insurer;
2. (2) the firm has its head office in the UK;
3. (3) the firm’s Part 4A permission does not include a requirement that it must only carry on Solvency II excluded operations;
4. (4) if the firm is a Solvency I firm, it is not excluded pursuant to 2.6;
5. (5) if the firm is a non-Solvency I firm, it is not excluded pursuant to:
1. (a) 2.3 on the Solvency II implementation date; or
2. (b) 2.6;
6. (6) if it obtained its Part 4A permission to effect contracts of insurance and/or carry out contracts of insurance on or after Solvency II implementation date, the firm is not excluded pursuant to:
1. (a) 2.3 on the date it obtains such Part 4A permission, unless 2.5 applies; or
2. (b) 2.6; and
7. (7) the firm is not a pure reinsurer which ceased to conduct new reinsurance contracts before 10 December 2007.

[Note: Art. 2(1), Art. 4(1), (3), (4), Art. 5(2), Art. 7, Art. 9(1), (2), Art. 12(1) of the Solvency II Directive]

2.3

Subject to 2.5, a firm of the kind mentioned in 2.2(5) or 2.2(6) is excluded if it fulfils all of the following conditions:

1. (1) the firm’s annual gross written premium income does not exceed 5,000,000 euro;
2. (2) the total of the firm’s technical provisions, gross of the amounts recoverable from reinsurance contracts and ISPVs, as referred to in Technical Provisions 2.1 to 2.3 does not exceed 25,000,000 euro;
3. (3) where the firm belongs to a group, the total of the technical provisions of the group defined as gross of the amounts recoverable from reinsurance contracts and ISPVs does not exceed 25,000,000 euro;
4. (4) the business of the firm does not include insurance or reinsurance activities covering liability, credit and suretyship insurance risks, unless they constitute ancillary risks; and
5. (5) the business of the firm does not include reinsurance operations:
1. (a) exceeding:
1. (i) 500,000 euro of its gross written premium income; or
2. (ii) 2,500,000 euro of its technical provisions gross of the amounts recoverable from reinsurance contracts and ISPVs; or
2. (b) with more than 10% of its gross written premium income or more than 10% of its technical provisions gross of the amounts recoverable from reinsurance contracts and ISPVs.

[Note: Art. 4(1) of the Solvency II Directive]

2.4

A firm excluded under 2.3 shall cease to be excluded under that rule:

1. (1) from the fourth year if any of the amounts set out in 2.3(1), 2.3(2), 2.3(3) or 2.3 (5) are exceeded in each of the three preceding consecutive years after the Solvency II implementation date; and
2. (2) immediately and for as long as:
1. (a) it exercises EEA rights under the Solvency II Directive;
2. (b) its business includes insurance or reinsurance activities covering liability, credit or suretyship insurance risks, unless they constitute ancillary risks.

[Note: Art. 4(2), Art. 4(4)(2^nd sub-paragraph) of the Solvency II Directive]

2.5

Subject to 2.6, a firm of the kind mentioned in 2.2(6) is not excluded under 2.3 if;

1. (1) any of the amounts set out in 2.3(1), 2.3(2), 2.3(3) or 2.3(5) are expected to be exceeded within five years of the date the firm obtained its Part 4A permission to effect contracts of insurance and/or carry out contracts of insurance;
2. (2) it exercises EEA rights under the Solvency II Directive.

[Note: Art. 4(3), Art. 4(4)(2^nd sub-paragraph) of the Solvency II Directive]

2.6

A firm of the kind mentioned in 2.2(4), 2.2(5) or 2.2(6) is excluded provided

1. (1) it is not exercising EEA rights under the Solvency II Directive; and
2. (2) none of the thresholds set out in 2.3:
1. (a) has been exceeded for three consecutive years; and
2. (b) is expected to be exceeded during the following five years.

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

3.1

Where a provision in the Solvency II Firms Sector of the PRA Rulebook is expressed to apply to the Society “in accordance with” this Chapter, the Society must:

1. (1) manage each member’s funds at Lloyd’s;
2. (2) carry out any applicable calculations in respect of each member’s funds at Lloyd’s;
3. (3) manage its central assets and central liabilities;
4. (4) where the context requires, supervise the insurance business carried on by each member at Lloyd’s; and
5. (5) take such further steps as may be required,

in order to achieve, in relation to those assets and liabilities and that insurance business, the same effect as the relevant provision of the Solvency II Firms Sector of the PRA Rulebook would have (that is, conforming with the requirements of any rule) when applied to a UK Solvency II firm.

3.2

Where a provision in the Solvency II Firms Sector of the PRA Rulebook is expressed to apply to a managing agent “in accordance with” this Chapter, the managing agent must, in relation to each syndicate managed by it and for each syndicate year:

1. (1) manage the syndicate assets and syndicate liabilities;
2. (2) manage the insurance business carried on by the members of the syndicate through that syndicate; and
3. (3) take such further steps as may be required,

in order to achieve, in relation to those syndicate assets and syndicate liabilities and that insurance business, the same effect as the relevant provision of the Solvency II Firms Sector of the PRA Rulebook would have (that is, conforming with the requirements of any rule) when applied to a UK Solvency II firm.

4.1

Where a provision in the Solvency II Firms Sector of the PRA Rulebook makes reference to amounts in euro, the exchange rate from the euro to the pound sterling for each year with effect from 31 December is the rate applicable on the last day of the preceding October for which the exchange rates for the currencies of all of the EU member states were published in the Official Journal of the European Union.

[Note: Art. 299 of the Solvency II Directive]

4.2

Where a provision in the Solvency II Firms Sector of the PRA Rulebook makes reference to amounts in euro a firm must interpret those amounts as being succeeded by any such amounts published in the Official Journal of the European Union reflecting the percentage change in the Harmonised Indices of Consumer Prices (comprising all EU member states, as published by Eurostat) starting from 31 December 2015 until the date of revision and rounded up to a multiple of 100,000 euro, provided that where the percentage change since the previous revision is less than 5% the amounts will not be revised.

[Note: Art. 300 of the Solvency II Directive]