Prudential Regulation Authority Rulebook

6.1

The PRA expects firms to consider in advance and to put in place appropriate arrangements to ensure that their boards and senior management teams are able to provide effective management oversight following a MTE, and to ensure that significant decisions can be made quickly where necessary.

6.2

It is the responsibility of a firm’s board of directors to assess whether the financial position of the firm is sufficiently secure to enable it to continue to trade and to meet its ongoing legal and regulatory obligations. The PRA expects a firm to consider in advance what information its board would wish to see to gain assurance about the firm’s financial position after a MTE, and to assess what contingency actions might be available to the firm to improve its financial position if necessary. These actions might include potential recapitalisation options, either immediately after an event or in the event of future deterioration over time as loss estimates develop.

6.3

The PRA expects that after a MTE a firm’s board would need to take particular care to consider how the financial position of the firm might have been affected by the event when deciding how it should respond, particularly given the likely uncertainties involved in developing loss estimates in the early stages after a MTE. The PRA expects firms to be able to explain, if asked, the judgements that their boards have reached in this area.

6.4

Some firms might wish to respond to changed market conditions after a MTE by significantly amending their business plans to write greater levels of business or different classes of business than previously expected. The PRA expects firms wishing to respond in this way to assure themselves and their boards of directors that their financial position is sufficiently robust to justify their plans at a time of uncertainty that is likely to follow a MTE. The PRA expects a firm in this position to consider factors such as:

• the robustness of its short-term financial position, taking into account the possible initial uncertainty on loss estimates;
• the potential impact of any losses on the remaining coverage available within a firm’s reinsurance programme;
• the availability and speed of access to additional capital where needed;
• the financial and non-financial resources available to the firm to support writing higher volumes of business;
• the expertise available to the firm to ensure business written in new areas (geographies, products etc.) can be understood, monitored and controlled appropriately; and
• for subsidiaries of broader international groups, the extent to which support is likely to be available from other group companies.

6.5

The PRA also expects firms to notify the PRA of any material changes to business plans agreed by their boards in these circumstances.