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Introduction
1.1
This supervisory statement (SS) is addressed to all UK general insurance firms regulated by the Prudential Regulation Authority (PRA) within the scope of the Solvency II Directive (the Directive),[1] including the Society of Lloyd’s (Lloyd’s) and managing agents (‘Solvency II firms’). The SS is aimed particularly at those firms operating in the global specialty insurance and reinsurance market known as the London Market, whose business models are exposed to low-probability, high-severity catastrophe risks. It sets out the PRA’s expectations of how such firms [2] might prepare for and respond to a major general insurance loss event, which might affect their solvency and future business plans, and explains how the PRA expects firms to interact with the PRA on these issues. The PRA expects the level of consideration given to these issues by firms to be proportionate to the nature and scale of their business, and the impact that a market turning event (MTE) is likely to have on its operations.
Footnotes
- 1. Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (recast).
- 2. Unless otherwise stated, references to ‘firms’ in this statement mean general insurance firms regulated by the PRA.
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1.2
The paper also responds to the recommendation in the industry ‘London Market looks ahead’ White Paper [3] for greater clarity on the PRA’s expectations of firms following a market turning event.
Footnotes
- 3. Published in January 2017 by an industry steering group comprised of insurers and brokers from across the market, as well as Lloyd’s ‘London Market looks ahead: Preparing for the next big insurance event’, available at www.hiscoxgroup.com/news/press-releases/2017/31-01-2017.aspx.
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1.3
This SS should be read in conjunction with the PRA’s rules in the Solvency II section of the PRA Rulebook,[4] and ‘The PRA’s approach to insurance supervision’.[5]
Footnotes
- 4. Solvency II contains the concept of an ‘exceptional adverse event’ under which firms may be granted an extension in the time in which they should recover a breach of solvency capital requirement (SCR). The intention is that this SS would be relevant not only in circumstances where an exceptional adverse situation has been declared by European Insurance and Occupational Pensions Authority (EIOPA), but that it could be considered alongside and/or in absence of this.
- 5. March 2016, available at https://www.bankofengland.co.uk/prudential-regulation/publication/pras-approach-to-supervision-of-the-banking-and-insurance-sectors.
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1.4
This SS expands on the PRA’s general approach as set out in its insurance approach document. By clearly and consistently explaining its expectations of firms in relation to the particular areas addressed, the PRA seeks to advance its statutory objectives of ensuring the safety and soundness of the firms it regulates, and contributing to securing an appropriate degree of protection for policyholders.
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