Capital extractions by run-off firms within the general insurance sector

Supervisory Statement 4/14

Update on 28 July 2016

Supervisory Statement 4/14 was updated to reflect the proposals consulted on in Consultation Paper 42/15 ‘Capital extractions by run-off firms within the general insurance sector’, following the change in the UK insurance regulatory regime from Individual Capital Adequacy Standards (ICAS) to Solvency II. Details of changes made to SS4/14 are available in Appendix 1 of the SS. 

In Consultation Paper 42/15 the PRA consulted on a draft supervisory statement that set out the PRA’s proposed changes to SS4/14 on capital extractions by run-off firms within the general insurance sector. The PRA received one response to the CP, which focussed on the PRA’s expectation as to the type of stress scenarios and projections the PRA would expect to be considered in a capital extraction request. In response to this, the PRA would emphasise that, as set out in the SS4/14, any projections or stress scenarios used to inform a view of future capital position following a proposed extraction should be appropriate to the underlying liabilities, the expected duration of the run-off and any other factors to which the firm is exposed. Furthermore, in reviewing a capital extraction request the PRA will take into account the appropriateness of the assumptions underlying these projections and possible risks. The PRA has also removed the reference to ‘approval’ from paragraph 3.5. This is to avoid confusion between this process and the formal ‘approvals’ under Solvency II.

The policy contained in this SS has been designed in the context of the current UK and EU regulatory framework. The PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework, including those arising once any new arrangements with the European Union take effect.

PDFSupervisory Statement 4/14 - July 2016 

Published on 25 April 2014

Background

This supervisory statement provides additional clarification of the Prudential Regulation Authority’s (PRA) expectations of firms in respect of existing prudential provisions within the PRA Handbook for run-off firms in the general insurance sector. Its purpose is to explain the PRA’s expectations that:

  • firms in run-off hold sufficient regulatory capital to continue to meet their obligations to policyholders as they fall due, and
  • firms satisfy themselves and the PRA that this remains the case after a proposed capital extraction. 

It is aimed at general insurance firms in run-off and highlights some factors that the PRA expects the senior management of a run-off firm to take into account when considering making a request to the PRA to extract capital from the firm during the course of a run-off. It also explains the approach that the PRA intends to take when considering such requests.

The PRA’s consultation on a draft of this supervisory statement ended on 26 October 2013. 

The PRA’s feedback on responses to the consultation have been incorporated into the statement.

PDFSupervisory Statement 4/14

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