Prudential Regulation Authority Rulebook

2.1

Non-Directive insurance companies must maintain adequate overall financial resources in accordance with Insurance Company - Overall Resources and Valuation 2.3 of the PRA Rulebook.

2.2

The liabilities referred to in this rule include a firm's contingent and prospective liabilities. They exclude liabilities that might arise from transactions that a firm has not entered into and which it could avoid by taking realistic management actions, such as ceasing to transact new business after a suitable period of time has elapsed. They include liabilities or costs that arise both in scenarios where the firm is a going concern and those where the firm ceases to be a going concern. They also include claims that could be made against a firm, which ought to be paid in accordance with the fair treatment of customers, even if such claims could not be legally enforced.

2.3

This supervisory statement is not intended to signal a change in expectations regarding a firm’s ability to at all times meet this rule. The PRA therefore does not expect this supervisory statement to change a firm’s assessment of its current capital levels.

2.4

The PRA does not intend to assess regularly and set Individual Capital Guidance for non-Directive insurance companies. Rather Insurance Company – Overall Resources and Valuation 2 requires a firm to identify and assess risks to its being able to meet its liabilities as they fall due, to assess how it intends to deal with those risks and to quantify the financial resources it considers necessary to mitigate those risks. This is referred to as a capital assessment, which should be carried out in accordance with Insurance Company – Overall Resources and Valuation 2.

2.5

The method a firm chooses to carry out such a capital assessment should be proportionate to the size and nature of its business. The PRA expects a firm to be able to carry out these assessments for a time horizon of 3 to 5 years.