Prudential Regulation Authority Rulebook

1.1

Unless otherwise stated, this Part applies to a non-directive insurer.

1.2

In this Part, the following definitions shall apply:

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has the meaning given in section 4F(3) of Schedule 6 to FSMA.

material transaction

means a transaction (or a series of similar transactions in aggregate) in which:

1. (1) the price actually paid or received for the transfer of assets or liabilities or the performance of services; or
2. (2) the price which would have been paid or received had that transaction been negotiated at arm's length between unconnected parties;
3. exceeds:
1. (a) in the case of a firm which carries on long-term insurance business, but not general insurance business, the sum of €20,000 and 5% of the firm's liabilities arising from its long-term insurance business, excluding linked long-term liabilities and net of reinsurance ceded; or
2. (b) in the case of a firm which carries on general insurance business, but not long-term insurance business, the sum of €20,000 and 5% of the firm's liabilities arising from its general insurance business, net of reinsurance ceded; or
3. (c) in the case of a firm which carries on both long-term insurance business and general insurance business:
1. (i) where the transaction is in connection with the firm's long-term insurance business, the sum of €20,000 and 5% of the firm's liabilities arising from its long-term insurance business, excluding linked long-term liabilities and net of reinsurance ceded; and
2. (ii) in all other cases, the sum of €20,000 and 5% of the firm's liabilities arising from its general insurance business, net of reinsurance ceded.

scheme of operations

means a scheme which:

1. (1) describes the nature of the risks which the firm is underwriting, or intends to underwrite, and the guiding principles which it intends to follow in reinsuring or covering those risks; and
2. (2) contains the information required under 6.

2.1

If a firm decides to cease to effect new contracts of insurance in respect of the whole of its insurance business, it must, within 28 days of that decision, submit a run-off plan to the PRA including:

1. (1) a scheme of operations in accordance with 6; and
2. (2) an explanation of how, or to what extent, all liabilities to policyholders will be met in full as they fall due.

2.2

For the purposes of 2.1, a new contract of insurance excludes contracts effected under a term in a subsisting contract of insurance.

3.1

This Chapter only applies to a non-directive friendly society (other than a flat rate benefits business friendly society).

3.2

If a firm’s margin of solvency no longer equals to or exceeds its required margin of solvency, it must, within 28 days of becoming aware of this event, submit to the PRA a plan for the restoration of a sound financial position, including:

1. (1) a scheme of operations; and
2. (2) an explanation of how, if at all, and by when, it expects its margin of solvency to be adequately restored to the required margin of solvency.

4.1

This Chapter only applies to an incorporated friendly society.

4.2

If a firm’s margin of solvency falls below its guarantee fund, it must, within 28 days of the firm becoming aware of this event, submit to the PRA, a short-term financial plan, including:

1. (1) a scheme of operations; and
2. (2) an explanation of how, if at all, and by when, it expects its margin of solvency to be adequately restored to the guarantee fund.

5.1

This Chapter applies to a non-directive insurer (other than a non-directive friendly society).

5.2

If a firm’s capital resources fall below its CR Requirement, it must, within 28 days of becoming aware of this event:

1. (1) notify the PRA; and
2. (2) submit a plan for restoration, which:
1. (a) explains why the firm’s capital resources have fallen below its CR Requirement; and
2. (b) demonstrates how, if at all, and by when, it expects its capital resources to be restored to its CR Requirement.

6.1

In accordance with 6.2, a scheme of operations must:

1. (1) describe the firm's run-off strategy;
2. (2) include a description of the business underwritten by the firm;
3. (3) include the following financial projections (including appropriate scenarios and stress-tests) as applicable:
1. (a) a forecast summary profit and loss account in accordance with 6.3;
2. (b) a forecast summary balance sheet in accordance with 6.4;
3. (c) in the case of a non-directive friendly society only, a forecast statement of its margin of solvency and required margin of solvency at the end of each financial year or part financial year;
4. (d) in the case of an incorporated friendly society only, a forecast statement of its margin of solvency and guarantee fund at the end of each financial year or part financial year; and
5. (e) in the case of a non-directive insurer (other than a non-directive friendly society), a forecast statement of capital resources and the CR Requirement at the end of each financial year or part financial year;
4. (4) as at the end of each financial year which falls (in whole or part) within the period to which the scheme of operations relates:
1. (a) describe the assumptions which underlie those forecasts and the reasons for adopting those assumptions; and
2. (b) identify any material transactions proposed to be entered into or carried out with, or in respect of, any associate or any other person with whom the firm has close links;
5. (5) cover the run-off period until all liabilities to policyholders are met.

6.2

The information required by 6.1 must:

1. (1) in the case of a non-directive friendly society (other than a flat rate benefits business friendly society), reflect the nature and content of the rules relating to the margin of solvency and the required margin of solvency;
2. (2) in the case of an incorporated friendly society, reflect the nature and content of the rules relating to the margin of solvency and the guarantee fund;
3. (3) in the case of a non-directive insurer (other than a non-directive friendly society), reflect the nature and content of the rules relating to capital resources applicable to a firm; and
4. (4) where a firm carries on both long-term insurance business and general insurance business, be separated for long-term insurance business and general insurance business.

6.3

The forecast summary profit and loss account referred to in 6.1(3) (a) must contain the following information:

1. (1) premiums and claims (gross and net of reinsurance) analysed by accounting class of insurance business;
2. (2) investment return;
3. (3) expenses;
4. (4) other charges and income;
5. (5) taxation; and
6. (6) dividends paid and accrued.

6.4

The forecast summary balance sheet referred to in 6.1(3) (b) must contain the following information:

1. (1) investments analysed by type;
2. (2) assets held to cover linked long-term liabilities;
3. (3) other assets and liabilities separately identifying cash at bank and in hand;
4. (4) capital and reserves analysed into called up share capital or equivalent funds, share premium account, revaluation reserve, other reserves and profit and loss account;
5. (5) subordinated liabilities;
6. (6) the fund for future appropriations;
7. (7) technical provisions gross and net of reinsurance analysed by accounting class of insurance business and separately identifying the provision for linked long-term liabilities, unearned premiums, unexpired risks and equalisation; and
8. (8) other liabilities and credits.

7.1

A firm which has previously submitted a scheme of operations to the PRA must, during the period covered by that scheme of operations:

1. (1) notify the PRA at least 28 days before entering into or carrying out any material transaction with, or in respect of, an associate or any other person with whom the firm has close links, unless that transaction is in accordance with a scheme of operations which has been submitted to the PRA:
2. (2) notify the PRA promptly of any matter which has happened or is likely to happen and which represents a significant departure from the scheme of operations and either:
1. (a) explain the nature of the departure and the reasons for it and provide revised forecast financial information in 6.1 (3) in the scheme of operations for its remaining term; or
2. (b) provide an amended scheme of operations and explain the amendments and the reasons for them.