Prudential Regulation Authority Rulebook

5.1

There is a sixteen-year linear run off for the TMTP.^[6] 

5.2

Where firms are reliant on the TMTP in order to cover their SCR, they will be required to submit a phasing-in plan to the PRA.^[7] 

5.3

The use of transitional measures, regardless of whether or not they are needed to cover the SCR, will not prevent firms from paying dividends or releasing capital from subsidiaries.

5.4

However, firms reliant on the TMTP to cover their SCR are expected to be able to demonstrate that their capital position is sustainable under a range of operating conditions after allowing for any capital distributions and the TMTP run-off. This is likely to take the form of an updated phasing-in plan, and the PRA expects firms to evidence the adequacy of capital resources, stress-testing analysis and a medium-term capital plan before making any capital distribution.

5.5

Firms are expected to allocate the aggregate the TMTP by class of business and these lines of business may run off faster or slower than the 16 years for the TMTP. Where the liabilities run off more quickly this could lead to firms carrying a significant TMTP for business which is no longer in force or has substantially reduced volumes. Alternatively the TMTP could run off more quickly than the associated liabilities. In this instance, there may be a strain on the emergence of surplus and consequent expected deterioration in the solvency position of the firm.

5.6

The PRA therefore expects firms as part of their risk management to consider carefully:

• the projected risk profile relative to that implicit in the initial application for the TMTP; and
• the adequacy of technical provisions net of any TMTP. 

5.7

The PRA expects that the amount of the TMTP relative to the technical provisions for business remaining in force will be monitored on a continuing basis in firms’ own risk and solvency assessments (ORSA). 

5.8

If a firm’s ORSA highlights the risk that the TMTP may become disproportionately large, because of differences in the rate of run-off of the business and the TMTP, or if the surplus emerging from the business is not sufficient to support the projected TMTP run-off, the PRA would expect the firm to set out how this risk will be managed. Possible mitigants could include restricting the amount of the TMTP or setting up a provision to cover the potential shortfall.