Prudential Regulation Authority Rulebook

1.1

This supervisory statement is addressed to all UK Solvency II firms which write¹ with-profits insurance business and which are therefore required to calculate surplus funds. It sets out the Prudential Regulation Authority’s (PRA’s) expectations of firms in relation to surplus funds.

1.2

In particular, this statement sets out the PRA’s expectations of firms in relation to the following topics:

• interaction of the surplus funds calculation with the calculation of technical provisions; and
• the calculation of surplus funds.

1.3

This statement expands on the PRA’s general approach as set out in its insurance approach document.² 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. The PRA has considered matters to which it is required to have regard, and it considers that this statement is compatible with the Regulatory Principles and relevant provisions of the Legislative and Regulatory Reform Act 2006. This statement is not expected to have any direct or indirect discriminatory impact under existing UK law.

1.4

This statement has been subject to public consultation³ and reflects the feedback that was received by the PRA.

1.5

Firms should have regard to the Solvency II Regulations as well as the PRA Rulebook when calculating surplus funds and considering whether they meet the criteria for classification as Tier 1 own funds. In particular, Article 69 sets out a list of own funds items and Article 71 the features determining classification as Tier 1 own funds.