The Solvency 2 Regulations 2015

PART 1 U.K. Citation, commencement and interpretation

Citation and commencement U.K.

1.—(1) These Regulations may be cited as the Solvency 2 Regulations 2015.

(2) Except where paragraph (3) applies, these Regulations come into force on 1st January 2016.

(3) Regulations 1, 2, 38 to 58 and paragraph 15 of Schedule 1 come into force on 31st March 2015.

(4) Before 1st January 2016, references to “the Solvency 2 Directive” in any amendment of FSMA that comes into force in accordance with paragraph (3) are to be read as if the amendments made by paragraphs 16(b) and 17(3) of Schedule 1 were already in force.

Interpretation U.K.

2.—(1) In these Regulations—

“capital add-on” means the amount by which the solvency capital requirement of an insurance undertaking or reinsurance undertaking, or a group, is increased by the PRA;

“EEA solvency 2 parent” means a parent undertaking with its head office in an EEA State which is—

(a)

an insurance undertaking or reinsurance undertaking which is a participating undertaking in at least one insurance undertaking, reinsurance undertaking or third-country insurance undertaking;

(b)

an insurance holding company; or

(c)

a mixed financial holding company;

“EIOPA” means the European Insurance and Occupational Pensions Authority established under the EIOPA Regulation;

“EIOPA Regulation” means Regulation (EU) No 1094/2010 of the European Parliament and of the Council of 24th November 2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority) M1 ;

“Financial Conglomerates Directive” means Directive 2002/87/EC of the European Parliament and of the Council of 16th December 2002 on the supplementary supervision of credit institutions, insurance undertakings, and investment firms in a financial conglomerate M2 ;

“FSMA” means the Financial Services and Markets Act 2000 M3 ;

“home EEA State” means—

(a)

for non-life insurance, the EEA State in which the head office of the insurance undertaking covering the risk is situated;

(b)

for life insurance, the EEA State in which the head office of the insurance undertaking covering the commitment is situated;

(c)

for reinsurance, the EEA State in which the head office of the reinsurance undertaking is situated;

“method 1” and “method 2” have the same meaning as in Articles 220 to 234 of the Solvency 2 Directive;

“non-EEA solvency 2 parent” means a parent undertaking which is—

(a)

a third-country insurance undertaking; or

(b)

an insurance holding company or mixed financial holding company with its head office outside the EEA;

“regulated entity” has the meaning given by Article 2(4) of the Financial Conglomerates Directive;

“Solvency 2 Directive” means 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) M4 ;

“third country” means a country which is not an EEA State;

“third-country insurance undertaking” has the meaning given by Article 13(3) of the Solvency 2 Directive;

“UK solvency 2 parent” means a parent undertaking with its head office in the United Kingdom which is—

(a)

an insurance undertaking or reinsurance undertaking which is a participating undertaking in at least one insurance undertaking, reinsurance undertaking or third-country insurance undertaking;

(b)

an insurance holding company; or

(c)

a mixed financial holding company;

“ultimate EEA solvency 2 parent” means an EEA solvency 2 parent which has no parent undertaking which is an EEA solvency 2 parent or a non-EEA solvency 2 parent;

“ultimate non-EEA solvency 2 parent” means a non-EEA solvency 2 parent which has no parent undertaking which is an EEA solvency 2 parent or non-EEA solvency 2 parent;

“ultimate UK solvency 2 parent” means a UK solvency 2 parent which has no parent undertaking which is an EEA solvency 2 parent or non-EEA solvency 2 parent.

(2) Except as provided by paragraph (1) or regulation 38(2)—

(a) any expression used in these Regulations which is defined in section 417 (definitions) or 424 (insurance) of, or Part 1 of Schedule 3 to, FSMA has the meaning given by that section or Part M5 ;

(b) any other expression used in these Regulations which is used in the Solvency 2 Directive has the meaning which it is given in that Directive M6 .

Marginal Citations

M1 OJ no L331, 15.12.2010, p. 48.

M2 OJ no L035, 11.02.2003, p.1.

M3 2000 c.8.

M4 OJ no L335, 17.12.2009, p.1, as amended by Directive 2011/89/EU (OJ no L326, 8.12.2011, p. 113), Directive 2012/23/EU (OJ no L249, 14.9.2013, p. 1), Directive 2013/23/EU (OJ no L158, 10.6.2013, p. 362), Directive 2013/58/EU (OJ no L341, 18.12.2013, p. 1) and Directive 2014/51/EU (OJ no L153, 22.5.2014, p. 1).

M5 “FCA”, “insurance undertaking”, “PRA”, “reinsurance undertaking”, “rule” and “Tribunal” are defined in section 417 and “EEA State” is defined in Part 1 of Schedule 3.

M6 “Branch”, “parent undertaking”, “reinsurance” and “supervisory authority” are defined in Article 13.

PART 2 U.K. Supervision

Exercise of PRA and FCA functions U.K.

3.—(1) The PRA and FCA must in the exercise of their functions as supervisory authorities under the Solvency 2 Directive—

(a) take into account, in an appropriate way, a European Economic Area dimension;

(b) duly consider the potential impact of their decisions on the stability of the financial systems of other EEA States, in particular during emergency situations, taking into account the information available at the relevant time; and

(c) in times of exceptional movements in the financial markets, take into account the potential pro-cyclical effects of their actions.

Review of capital add-ons U.K.

4.  Where the PRA imposes a capital add-on, it must review the capital add-on at least once a year.

Passporting: notification of home state regulator U.K.

5.—(1) This regulation applies to an insurance undertaking or reinsurance undertaking which—

(a) is established in an EEA State other than the United Kingdom; and

(b) either—

(i) in the case of an insurance undertaking, has insured a risk or entered into a commitment situated in the United Kingdom; or

(ii) in the case of a reinsurance undertaking, has exercised a right under Part 2 of Schedule 3 to FSMA to provide services in the United Kingdom.

(2) Where the PRA considers that the activities of such an insurance undertaking or reinsurance undertaking might affect the undertaking's financial soundness, the PRA must inform the supervisory authority of the undertaking's home EEA State accordingly.

EIOPA: information U.K.

6.—(1) The PRA must provide the following information to EIOPA on an annual basis—

(a) the average capital add-on per undertaking;

(b) the distribution of capital add-ons imposed by the PRA measured as a percentage of the solvency capital requirement, shown separately for—

(i) all insurance undertakings and reinsurance undertakings;

(ii) life insurance undertakings;

(iii) non-life insurance undertakings;

(iv) insurance undertakings pursuing both life and non-life activities;

(v) reinsurance undertakings;

(c) for each disclosure referred to in sub-paragraphs (a) and (b), the proportion of capital add-ons imposed by or under FSMA in pursuance of Articles 37(1)(a), (b) and (c) of the Solvency 2 Directive;

(d) the number of insurance undertakings and reinsurance undertakings benefiting from—

(i) the limitation on regular supervisory reporting referred to in Article 35(6) of the Solvency 2 Directive;

(ii) the exemption from reporting on an item-by-item basis referred to in Article 35(7) of the Solvency 2 Directive;

(e) for the insurance undertakings or reinsurance undertakings referred to in sub-paragraph (d), the total volume of capital requirements, premiums, technical provisions and assets, measured as a percentage of the total volume of capital requirements, premiums, technical provisions and assets of insurance undertakings and reinsurance undertakings in the United Kingdom;

(f) the number of groups benefiting from the limitation on regular supervisory reporting or the exemption from reporting on an item-by-item basis referred to in Article 254(2) of the Solvency 2 Directive; and

(g) for the groups referred to in sub-paragraph (f), the total volume of capital requirements, premiums, technical provisions and assets, measured as a percentage of the total volume of capital requirements, premiums, technical provisions and assets of all groups.

(2) Until the end of 2020, the PRA shall provide the following information to EIOPA on an annual basis—

(a) the number of insurance undertakings and reinsurance undertakings applying the matching adjustment, the volatility adjustment, the extension of the recovery period in accordance with Article 138(4) of the Solvency 2 Directive and the transitional measures set out in regulations 53 and 54;

(b) its assessment of the availability of long-term guarantees in insurance products and the behaviour of insurance undertakings and reinsurance undertakings as long-term investors in the United Kingdom market;

(c) its assessment of the impact at a national level of the relevant measures on the financial position of insurance undertakings and reinsurance undertakings, anonymised in respect of each undertaking;

(d) its assessment of the effect of the relevant measures on the investment behaviour of insurance undertakings and reinsurance undertakings and whether any of the relevant measures provide undue capital relief;

(e) its assessment of the effect of any extensions of the recovery period in accordance with Article 138(4) of the Solvency 2 Directive on the efforts of insurance undertakings and reinsurance undertakings to re-establish the required level of eligible own funds covering their solvency capital requirements or to reduce their risk profiles in order to ensure compliance with their solvency capital requirements;

(f) its assessment of whether the insurance undertakings and reinsurance undertakings that apply the transitional measures set out in regulations 53 and 54 comply with the phasing-in plans referred to in Article 308e of the Solvency 2 Directive; and

(g) its assessment of the prospects of those undertakings reducing their use of those transitional measures in the future, taking into account the United Kingdom's regulatory environment.

(3) In this regulation—

(a) a requirement to provide information about undertakings applies only in relation to undertakings that are PRA-authorised persons.

(b) “the relevant measures” means the matching adjustment, the volatility adjustment, the symmetric adjustment mechanism to the equity capital charge and the transitional measures set out in regulations 53 and 54.

EIOPA and EBA: notifications U.K.

7.—(1) The PRA must notify EIOPA when it authorises or cancels the authorisation of an insurance undertaking, reinsurance undertaking or third-country insurance undertaking.

(2) Each notification under paragraph (1) must include the name of the undertaking.

(3) Where the PRA exercises its discretion under paragraph (2) or (4) of regulation 11, it must inform EBA and EIOPA.

Other EEA States: information U.K.

8.—(1) Where a supervisory authority of another EEA State requests relevant information from the PRA, the PRA must send the information in aggregate form to the supervisory authority within a reasonable period of time.

(2) In this regulation “relevant information” means information which—

(a) is relevant to the EEA State; and

(b) has been provided to the PRA under rules implementing Article 159 of the Solvency 2 Directive.

Non-compliance with the minimum capital requirement: provision of information to other supervisory authorities U.K.

9.  Where—

(a) the PRA imposes an assets requirement under section 55M of FSMA on an insurance undertaking or reinsurance undertaking which is exercising an EEA right; and

(b) the assets requirement is imposed because the undertaking is not compliant with the minimum capital requirement,

the PRA must inform the host state regulator.

PART 3 U.K. Groups

CHAPTER 1 U.K. Cases of application and scope

Risk concentration and intra-group transactions U.K.

10.  Where the PRA is the group supervisor of a group, the PRA may decide not to supervise risk concentration or intra-group transactions within the group at a level specified in the first column of Table 1 where all the conditions specified in relation to that level in the second column of Table 1 are satisfied.

Table 1

Levels at which supervision need not be exercised	Conditions to be satisfied
The participating undertaking, insurance holding company and mixed financial holding company.	The group contains an insurance undertaking or reinsurance undertaking and either—
		(a) the parent undertaking of the insurance undertaking or reinsurance undertaking is an insurance holding company or a mixed financial holding company which has its head office in an EEA State; or
		(b) the insurance undertaking or reinsurance undertaking is a participating undertaking in at least one insurance undertaking, reinsurance undertaking, third-country insurance undertaking or third-country reinsurance undertaking;
	The participating undertaking, insurance holding company or mixed financial holding company referred to above is, or is a related undertaking of, a regulated entity or mixed financial holding company subject to supplementary supervision in accordance with Article 5(2) of the Financial Conglomerates Directive.
	The PRA has consulted the other supervisory authorities concerned in supervising the group.
The ultimate EEA solvency 2 parent.	The parent undertaking of an ultimate EEA solvency 2 parent is subject to supplementary supervision in accordance with Article 5(2) of the Financial Conglomerates Directive.

Equivalent provisions U.K.

11.—(1) This regulation applies where the PRA is the group supervisor of a group which includes a mixed financial holding company.

(2) Where the mixed financial holding company is subject to equivalent provision under rules and directly applicable regulations implementing the Solvency 2 Directive and the Financial Conglomerates Directive, the PRA may apply only the rules and directly applicable regulations implementing the Financial Conglomerates Directive to the mixed financial holding company.

(3) Before exercising its discretion under paragraph (2), the PRA must consult the other supervisory authorities concerned in supervising the group.

(4) Where the mixed financial holding company is subject to equivalent provisions under rules and directly applicable regulations implementing the following two sets of legislation—

(a) the Solvency 2 Directive; and

(b) the capital requirements directive and the capital requirements regulation,

the PRA may apply only the rules and directly applicable regulations implementing the set of legislation relating to the most significant sector, as determined in accordance with rules implementing Article 3(2) of the Financial Conglomerates Directive.

(5) Before exercising its discretion under paragraph (4), the PRA must obtain the agreement of the consolidating supervisor under the capital requirements directive.

Exclusion of undertaking from group supervision U.K.

12.—(1) This regulation applies where the PRA is the group supervisor of a group and the PRA is considering whether to exclude an undertaking from group supervision.

(2) The PRA must consult the other supervisory authorities concerned in the supervision of the group before deciding to exclude the undertaking from group supervision where—

(a) that undertaking is of negligible interest with respect to the objectives of group supervision; or

(b) inclusion of that undertaking would be inappropriate or misleading with respect to the objectives of group supervision.

CHAPTER 2 U.K. Levels

Supervision of parents and subgroups at national level: substantive powers U.K.

13.—(1) The PRA may supervise an ultimate UK solvency 2 parent at group level in the United Kingdom where—

(a) the ultimate EEA solvency 2 parent has its head office in an EEA State other than the United Kingdom;

(b) the ultimate EEA solvency 2 parent has not obtained permission in accordance with national laws implementing Articles 237 or 243 of the Solvency 2 Directive for the UK solvency 2 parent to be subject to rules implementing Articles 238 and 239 of the Solvency 2 Directive; and

(c) the PRA is not the group supervisor.

(2) Where—

(a) the PRA is supervising an ultimate UK solvency 2 parent in accordance with paragraph (1); and

(b) the ultimate UK solvency 2 parent and an ultimate parent undertaking in an EEA State other than the United Kingdom are related undertakings,

the PRA may conclude an agreement with the supervisory authority of that EEA State to carry out group supervision at subgroup level in both the United Kingdom and the other EEA State.

(3) Where the PRA has concluded an agreement in accordance with paragraph (2)—

(a) the PRA may only carry out group supervision at the level specified in the agreement; and

(b) the PRA must explain the agreement to the group supervisor and the ultimate EEA solvency 2 parent undertaking.

(4) Where the PRA is the group supervisor of a group and supervisory authorities in other EEA States conclude an agreement to carry out group supervision at subgroup level in those EEA States, the PRA must inform the college of supervisors.

Supervision of parents and subgroups at national level: procedure U.K.

14.—(1) The PRA must follow the procedure set out in this regulation when supervising an ultimate UK solvency 2 parent under regulation 13(1) or concluding an agreement with another supervisor under regulation 13(2).

(2) Before deciding to exercise supervision or conclude such an agreement, the PRA must consult the group supervisor and the ultimate EEA solvency 2 parent.

(3) If the PRA decides to exercise supervision or conclude such an agreement, the PRA must explain its decision to both the group supervisor and the ultimate EEA solvency 2 parent.

(4) The PRA must recognise and apply any permission granted pursuant to national laws implementing Article 231 or 233(5) of the Solvency 2 Directive to the ultimate EEA solvency 2 parent to calculate the group solvency capital requirement for insurance undertakings and reinsurance undertakings in the group on the basis of an internal model.

CHAPTER 3 U.K. Group Solvency

Supervision of group solvency and frequency of calculation U.K.

15.—(1) Where the PRA is the group supervisor of a group, the PRA must—

(a) ensure that the calculations referred to in rules implementing Articles 218(2) and (3) of the Solvency 2 Directive are carried out at least annually;

(b) conduct supervisory reviews to determine whether insurance undertakings or reinsurance undertakings in the group are complying with rules implementing Articles 218(2) and (3) of the Solvency 2 Directive;

(c) inform the other supervisory authorities in the college of supervisors as soon as a participating undertaking in the group informs the PRA that it is no longer in compliance with the solvency capital requirement, or that there is a risk of non-compliance in the next three months;

(d) where the group is not headed by an insurance undertaking or reinsurance undertaking, consult the undertakings in the group and the other supervisory authorities concerned in the supervision of the group before identifying an undertaking other than an insurance holding company or a mixed financial holding company to supply relevant data for, and the results of, the calculations referred to in rules implementing Articles 218(2) and (3) of the Solvency 2 Directive.

(2) Where the PRA is not the group supervisor of a group, the PRA must nevertheless analyse the situation of the group where the group supervisor informs the PRA that a participating undertaking in the group is no longer in compliance with the solvency capital requirement, or that there is a risk of non-compliance in the next three months.

Choice of method U.K.

16.—(1) Where the PRA is the group supervisor of a group, the PRA must consult the group and the other supervisory authorities concerned in the supervision of the group before requiring the group to use method 2, or a combination of method 1 and method 2, for the calculation of solvency at a group level.

(2) Where the PRA is not the group supervisor, the PRA must apply the method chosen by the group supervisor for the ultimate EEA solvency 2 parent in relation to—

(a) group supervision at a national level in accordance with regulation 13(1); and

(b) supervision at subgroup level in accordance with regulation 13(2).

Inclusion of proportional share U.K.

17.—(1) In this regulation, “ proportional share” means the proportional share held by a participating undertaking in its related undertakings.

(2) The PRA must determine the proportional share which must be taken into account in the calculation of group solvency where—

(a) the PRA is the group supervisor of a group; and

(b) any of the following applies—

(i) there are no capital ties between any of the undertakings in a group;

(ii) a supervisory authority has determined that the direct or indirect holding of voting rights or capital in an undertaking qualifies as a participation because the holding means that a significant influence is effectively exercised over that undertaking;

(iii) a supervisory authority has determined that an undertaking is a parent undertaking because the undertaking effectively exercises a dominant influence over the other undertaking.

(3) Before determining the proportional share, the PRA must consult the undertakings in the group and the other supervisory authorities concerned in the supervision of the group.

Related undertakings: calculation of group solvency U.K.

18.—(1) This regulation applies where—

(a) the PRA is the group supervisor of a group;

(b) the group contains at least three insurance undertakings, reinsurance undertakings, insurance holding companies or mixed financial holding companies (“A”, “B” and “C”);

(c) A and B are related undertakings;

(d) A and C are related undertakings; and

(e) either B or C has its head office in an EEA State other than the United Kingdom.

(2) Except where paragraph (3) applies, the PRA must permit the group, in the calculation of group solvency, to take into account national laws which—

(a) are adopted by that EEA State to implement the solvency capital requirement and the requirements relating to the own funds eligible to satisfy the solvency capital requirement; and

(b) apply to B or C (as the case may be).

(3) This paragraph applies where—

(a) there is a significant change to the national laws referred to in paragraph (2); and

(b) it is not in the interests of the group's policyholders to take into account the national laws referred to in paragraph (2).

Participating undertakings: calculation of group solvency U.K.

19.—(1) This regulation applies where—

(a) the PRA is the group supervisor of a group;

(b) the group contains an insurance undertaking or reinsurance undertaking which is a participating undertaking in a third-country insurance undertaking or third-country reinsurance undertaking; and

(c) the third country in which the third-country insurance undertaking or third country reinsurance undertaking has its head office makes it subject to authorisation and imposes on it a solvency regime at least equivalent to that specified in Chapter 6 of Title 1 of the Solvency 2 Directive.

(2) The PRA must permit the group to take into account national laws adopted by the third country in respect of the group's solvency capital requirement and the own funds eligible to satisfy the solvency capital requirement in the calculation of the group's solvency unless—

(a) there has been a significant change to those national laws; and

(b) it is not in the interests of the group's policyholders to do so.

(3) Where no delegated act has been adopted pursuant to paragraph (4) or (5) of article 227 of the Solvency 2 Directive, the PRA may, and on the request of the participating authority must, verify whether a solvency regime in the third country is at least equivalent to Chapter 6 of Title 1 to the Solvency 2 Directive.

(4) The PRA must—

(a) consult the other supervisory authorities concerned in the supervision of the group before taking a decision under paragraph (3);

(b) take the decision in accordance with the criteria set out in any directly applicable regulation made under paragraph (3) of Article 227; and

(c) ensure that its decision does not contradict any previous decision on the equivalence of the third country, except where it is necessary to take into account significant changes to the supervisory regime laid down in Chapter 6 of Title 1 to the Solvency 2 Directive or to the solvency regime of the third country.

Internal models and capital add-ons U.K.

20.—(1) Where group solvency is determined in accordance with method 1, the PRA must pay particular attention to the cases referred to in Article 37(1) of the Solvency 2 Directive for the imposition of a capital add-on when it determines whether the consolidated group solvency capital requirement appropriately reflects the risk profile of the group, in particular where—

(a) a specific risk existing at group level would not be sufficiently covered by the standard formula or the internal model used because it is difficult to quantify; or

(b) a capital add-on to the solvency capital requirement of the related insurance undertaking or reinsurance undertakings is imposed by the supervisory authorities concerned in accordance with Article 37 or 231(7) of the Solvency 2 Directive.

(2) Where group solvency is determined in accordance with method 2, the PRA must, when it determines whether the aggregated group solvency capital requirement appropriately reflects the risk profile of the group, pay particular attention to any specific risks existing at group level which would not be sufficiently covered because they are difficult to quantify.

(3) Where the PRA is a member of the college of supervisors and the PRA considers that the risk profile of an insurance undertaking or reinsurance undertaking belonging to a group deviates significantly from the assumptions underlying the internal model approved at group level, the PRA may—

(a) impose a capital add-on to the solvency capital requirement of the insurance undertaking or reinsurance undertaking;

(b) in exceptional circumstances where a capital add-on would not be appropriate, require the insurance undertaking or reinsurance undertaking to calculate its solvency capital requirement on the basis of the standard formula; or

(c) where the PRA has exercised its discretion under sub-paragraph (b) to require an insurance undertaking or reinsurance undertaking to calculate its solvency capital requirement on the basis of the standard formula, impose a capital add-on to the solvency capital requirement.

(4) Where the PRA—

(a) imposes a capital add-on on an insurance undertaking or reinsurance undertaking; or

(b) requires the insurance undertaking or reinsurance undertaking concerned to calculate its solvency capital requirement on the basis of the standard formula,

the PRA must explain its decision to the relevant insurance undertaking or reinsurance undertaking and the other members of the college of supervisors.

(5) Where the PRA is a member of a college of supervisors responsible for supervising a group, the PRA must adopt and apply the following decisions by the group supervisor on the basis of an internal model—

(a) the calculation of the group solvency capital requirement;

(b) the calculation of the solvency capital requirement of an insurance undertaking and reinsurance undertaking in the group;

(c) the calculation of the aggregated group solvency capital requirement.

(6) Where the PRA has imposed a capital add-on, it must review the capital add-on at least once a year.

Subsidiaries: solvency capital requirement U.K.

21.—(1) This regulation applies where—

(a) a parent undertaking has permission to apply the national laws implementing Articles 238 and 239 of the Solvency 2 Directive to a subsidiary undertaking; and

(b) the PRA is a member of the college of supervisors for that subsidiary undertaking.

(2) Where the PRA is responsible for authorising the subsidiary under Part 4A of FSMA, the PRA may propose to the college of supervisors that any of the following requirements (“a relevant requirement”) be imposed on the subsidiary undertaking—

(a) a capital add-on;

(b) a requirement that the subsidiary calculates its solvency capital requirement on the basis of the standard formula; or

(c) a requirement that the subsidiary replace a subset of the parameters used in the calculation of the standard formula calculation with a subset of parameters specific to the subsidiary when calculating its life, non-life and health underwriting risk modules referred to in Article 104(1) of the Solvency 2 Directive.

(3) The PRA may only impose a requirement referred to in paragraph (2)(b) in exceptional circumstance where a capital add-on would be inappropriate.

(4) The PRA may only impose a requirement referred to in paragraph (2)(c)—

(a) in exceptional circumstances;

(b) where the PRA considers that the subsidiary undertaking's risk profile deviates significantly from the assumptions underlying the standard formula; and

(c) where the subsidiary undertaking does not properly address the PRA's concerns.

(5) Where the PRA proposes the imposition of a relevant requirement, the PRA must—

(a) discuss the proposed requirement with the college of supervisors; and

(b) communicate the grounds for the requirement to both the subsidiary and the college of supervisors.

(6) Before imposing a relevant requirement, the PRA must do everything within its power to reach an agreement within the college of supervisors on a proposal for a relevant requirement or on other possible measures.

(7) The PRA may refer a proposal to impose a relevant requirement to EIOPA where—

(a) the PRA—

(i) is the group supervisor; or

(ii) proposed the imposition of the relevant requirement;

(b) the college of supervisors has not reached agreement on the proposal; and

(c) the referral is made within the period of one month starting on the day on which the proposal was communicated to the college (either by the PRA under paragraph (2) or by another supervisory authority).

(8) Where the PRA proposes the imposition of a relevant requirement—

(a) if the college of supervisors has reached agreement on the proposal, the PRA must take its decision in accordance with the agreement;

(b) if the proposal has been referred to EIOPA, the PRA must take its decision in accordance with EIOPA's decision;

(c) in all other cases, the PRA must decide whether to impose the relevant requirement and provide full reasons for its decision to the subsidiary undertaking and college of supervisors.

(9) The PRA must recognise and apply a decision made by another supervisory authority in accordance with Article 238 of the Solvency 2 Directive to apply a relevant requirement to a subsidiary.

Subsidiaries: non-compliance with the solvency and minimum capital requirements U.K.

22.—(1) This regulation applies where the PRA has approved an application made in accordance with regulation 52.

(2) Where the PRA authorised the subsidiary under Part 4A of FSMA, the PRA must notify the following matters to the college of supervisors without delay—

(a) where the subsidiary is not in compliance with the subsidiary's solvency capital requirement, the recovery plan submitted by the subsidiary in accordance with rules implementing Article 138 of the Solvency 2 Directive;

(b) any deteriorating financial conditions and the proposed measures to be taken; and

(c) where the subsidiary is not in compliance with the subsidiary's minimum capital requirement—

(i) the short-term finance scheme submitted by the subsidiary in accordance with rules implementing Article 139 of the Solvency 2 Directive; and

(ii) any measures taken by the PRA by or under FSMA to enforce the minimum capital requirement at the level of the subsidiary.

(3) Where the PRA notifies the college of supervisors of deteriorating financial conditions in accordance with paragraph (2)(b), the PRA must discuss the measures it proposes to take within the college of supervisors unless the situation is an emergency.

(4) Where the PRA notifies the college of supervisors of a recovery plan referred to in paragraph (2)(a) or the proposed measures referred to paragraph (2)(b), the PRA—

(a) must do everything in its power to reach agreement within the college on the recovery plan or proposed measures; and

(b) may refer the recovery plan or proposed measures to EIOPA where—

(i) the PRA—

(aa) is the group supervisor; or

(bb) notified the recovery plan or proposed measure to the college of supervisors;

(ii) the college has not reached agreement on the recovery plan or proposed measures;

(iii) in the case of proposed measures, an emergency situation does not exist; and

(iv) the referral is made within whichever of the following periods applies—

(aa) four months starting on the day on which the recovery plan was notified to the college; or

(bb) one month starting on the day on which the recovery plan was notified to the college.

(5) Where the PRA notifies the college of supervisors in accordance with paragraph (2)—

(a) if the college of supervisors has reached agreement on the notification, the PRA must take its decision in accordance with the agreement;

(b) if the notification has been referred to EIOPA, the PRA must take its decision in accordance with EIOPA's decision;

(c) in all other cases, the PRA must decide the matter and provide full reasons for its decision to the subsidiary and to the college of supervisors.

(6) In the case of a recovery plan referred to in paragraph (2)(a) or proposed measures referred to in paragraph (2)(b), the PRA must take due account of the views and reservations of the other supervisory authorities when deciding on a matter in accordance with paragraph (5)(c).

Subsidiaries: revocation of approval for applying Articles 238 and 239 of the Solvency 2 Directive U.K.

23.—(1) This regulation applies where the PRA—

(a) approves an application made by a parent undertaking in accordance with regulation 52 for Articles 238 And 239 of the Solvency 2 Directive to be applied to a subsidiary undertaking of the parent undertaking; and

(b) is the group supervisor of the group to which the parent undertaking and subsidiary undertaking belong.

(2) Where the PRA decides, after consulting the college of supervisors, that the subsidiary undertaking should not be included in group supervision, the PRA must inform the parent undertaking and its supervisory authority immediately.

(3) The PRA must verify the following matters on its own initiative at least annually or at the request of a supervisory authority—

(a) that the risk management processes and internal control mechanisms of the parent undertaking cover the subsidiary;

(b) that the parent undertaking is managing the subsidiary undertaking prudently;

(c) that the agreement referred to in the third sub-paragraph of Article 246(4) of the Solvency 2 Directive is still current; and

(d) that the agreement referred to in the first sub-paragraph of Article 256(2) of the Solvency 2 Directive is still current.

(4) Where the PRA considers, after consulting the college of supervisors, that a plan proposed by the subsidiary undertaking to restore compliance with the matters referred to in sub-paragraphs (a) to (d) of paragraph (3) is insufficient or has not been implemented within the agreed period of time, the PRA must conclude that the parent undertaking no longer complies with those matters and inform the supervisory authority concerned.

CHAPTER 4 U.K. Risk concentration and intra-group transactions

Supervision of risk concentration and intra-group transactions U.K.

24.—(1) Where the PRA is the group supervisor of a group, the PRA must—

(a) identify the type of risks and intra-group transactions which insurance undertakings and reinsurance undertakings in the group must report to the PRA in all circumstances, taking into account the specific group and risk management structure of the group;

(b) impose appropriate thresholds based on solvency capital requirements, or technical provisions, in order to identify which significant risk concentrations and significant intra-group transactions should be reported;

(c) identify the insurance undertaking or reinsurance undertaking in the group responsible for submitting the information required under rules implementing Articles 244 and 245 of the Solvency 2 Directive where the group is not headed by an insurance undertaking or a reinsurance undertaking;

(d) review the risk concentrations of the group and intra-group transactions at group level, and in particular monitor the possible risk of contagion within the group, the risk of a conflict of interests and the level or volume of risks.

(2) The PRA must consult the group and the other supervisory authorities concerned in the supervision of the group whilst carrying out the activities referred to in sub-paragraphs (a) to (c) of paragraph 24.

(3) Where the PRA is not the group supervisor and the PRA is consulted by the group supervisor in relation to the supervision of risk concentration at group level or the reporting of intra-group transactions, the PRA must take into account the specific group and risk management structure of the group when giving its opinion about the type of risks to be reported.

CHAPTER 5 U.K. Risk management and internal control

Supervision of system of governance U.K.

25.  Where the PRA is the group supervisor of a group, the PRA must—

(a) review the systems and reporting procedures implemented by the group in accordance with rules implementing paragraphs 1 and 2 of Article 246 of the Solvency 2 Directive;

(b) review the own-risk and solvency assessment conducted at group level by the group in accordance with rules implementing paragraph 4 of Article 246 of the Solvency 2 Directive; and

(c) consult the members of the college of supervisors and duly take into account their views and reservations before agreeing to a request from a participating insurance undertaking, reinsurance undertaking, insurance holding company or mixed financial holding company to undertake its own-risk and solvency assessment at group and subsidiary levels in accordance with rules implementing Article 45 of the Solvency 2 Directive at the same time and produce a single document covering all such assessments.

CHAPTER 6 U.K. Measures to facilitate group supervision

Rule for deciding the group supervisor U.K.

26.—(1) This regulation—

(a) states the rule which applies for the purposes of deciding when—

(i) the PRA is the group supervisor of a group; and

(ii) the PRA must recognise another supervisory authority as the group supervisor of a group; and

(b) applies only when regulation 27 (which specifies exceptions to the rule) does not apply.

(2) Where the PRA is the supervisor of all the insurance undertakings and reinsurance undertakings in a group, the PRA is the group supervisor of the group.

(3) Where paragraph (2) does not apply and the group is headed by an insurance undertaking or reinsurance undertaking which is authorised by the PRA under Part 4A of FSMA, the PRA is the group supervisor of the group.

(4) Where paragraph (2) does not apply and the group is not headed by an insurance undertaking or reinsurance undertaking, the PRA is the group supervisor of the group in any of the following circumstances—

(a) where—

(i) an insurance undertaking or reinsurance undertaking has an insurance holding company or mixed financial holding company as a parent; and

(ii) the PRA has authorised that insurance undertaking or reinsurance undertaking;

(b) where—

(i) the group contains two or more insurance undertakings or reinsurance undertakings with their head offices in an EEA State;

(ii) the undertakings have the same insurance holding company or mixed financial holding company as a parent;

(iii) one of those undertakings has been authorised by the PRA; and

(iv) the insurance holding company or mixed financial holding company has its head office in the United Kingdom;

(c) where—

(i) the group is headed by two or more insurance holding companies or mixed financial holding companies with their head offices in different EEA States;

(ii) there is an insurance undertaking or reinsurance undertaking in the group in each of those EEA States; and

(iii) the PRA has authorised the insurance undertaking or reinsurance undertaking with the largest balance sheet total;

(d) where—

(i) two or more insurance undertakings or reinsurance undertakings with their head offices in an EEA State have the same insurance holding company or mixed financial holding company as a parent;

(ii) none of those undertakings has been authorised in the EEA State in which the insurance holding company or mixed financial holding company has its head office; and

(iii) the PRA has authorised the insurance undertaking or reinsurance undertaking with the largest balance sheet total;

(e) where the group is a group without a parent undertaking, or in any circumstances not referred to in sub-paragraphs (a) to (d), the PRA has authorised the insurance undertaking or reinsurance undertaking with the largest balance sheet total.

(5) Where another supervisory authority has been designated as the group supervisor in accordance with national laws implementing Article 247 of the Solvency 2 Directive, the PRA must recognise that supervisory authority as the group supervisor of the group.

Exceptions to the rule for deciding the group supervisor U.K.

27.—(1) Notwithstanding regulation 26—

(a) the PRA is the group supervisor of a group if all the supervisory authorities concerned take a joint decision that the PRA should be the group supervisor; and

(b) the PRA must recognise a joint decision taken by all the supervisory authorities that a supervisory authority other than the PRA should be the group supervisor of a group.

(2) The PRA may ask the other supervisory authorities concerned to consider whether—

(a) the criteria specified in paragraph 2 of Article 247 of the Solvency 2 Directive are appropriate for determining which supervisory authority should be the group supervisor; and

(b) a supervisory authority other than the supervisory authority satisfying those criteria should be the group supervisor.

(3) The PRA may not make a request referred to in paragraph (2) more than once a year.

(4) Where the supervisory authorities are considering (whether at the request of the PRA or another supervisory authority) whether the criteria are appropriate or whether a particular supervisory authority should be group supervisor—

(a) the PRA must do everything in its power to reach a joint decision on the request within a period of three months commencing on the date of the request;

(b) the PRA must permit the group concerned to give its opinion on the request;

(c) the PRA may refer the matter to EIOPA in accordance with Article 19 of the EIOPA Regulation within a period of three months beginning with the date of the request;

(d) where the matter is referred to EIOPA, the PRA must take a joint decision in accordance with any decision taken by EIOPA;

(e) where the matter is not referred to EIOPA or EIOPA take no decision on such a referral, the PRA may take a joint decision with the other supervisory authorities that—

(i) the criteria referred to in paragraph (2)(a) are inappropriate, taking into account the structure of the group and the relative importance of the activities of insurance undertakings and reinsurance undertakings in the different countries; and

(ii) a supervisory authority other than the supervisory authority satisfying the criteria should be the group supervisor; and

(f) where the joint decision designates the PRA as the group supervisor, the PRA must provide a copy of the decision to the group stating the full reasons for the decision.

Duties of group supervisor and establishment of college of supervisors U.K.

28.—(1) Paragraphs (2) to (7) apply where the PRA is the group supervisor of a group, and paragraph (8) applies where the PRA is a member of a college of supervisors for a group but is not the group supervisor.

(2) The PRA must—

(a) coordinate the gathering and dissemination of relevant or essential information for going-concern and emergency situations, including the dissemination of information which is of importance to the supervisory functions of another supervisory authority;

(b) conduct supervisory reviews and assessments of the financial situation of the group;

(c) assess the group's compliance with the rules on solvency, risk concentration and intra-group transactions set out in Articles 218 to 245 of the Solvency 2 Directive;

(d) assess the group's system of governance in accordance with regulation 25;

(e) assess whether the members of the administrative, management or supervisory body of the participating undertakings in the group fulfil the requirements set out in rules implementing Articles 42 and 257 of the Solvency 2 Directive;

(f) plan and coordinate, through regular meetings held at least annually or other appropriate means, supervisory activities in going-concern and emergency situations, in cooperation with the other supervisory authorities concerned and taking into account the nature, scale and complexity of the risks inherent in the business of all the undertakings in the group;

(g) lead the process for validating an internal model at group level as set out in regulation 49;

(h) lead the process for permitting the application of the regime referred to in Articles 237 to 240 of the Solvency 2 Directive; and

(i) carry out the other tasks, measures and decisions assigned to the group supervisor by the Solvency 2 Directive.

(3) In order to facilitate the exercise of the tasks referred to in paragraph (2), the PRA must establish and chair a college of supervisors comprising—

(a) the PRA;

(b) the supervisory authorities of the EEA States in which the head office of every subsidiary undertaking in the group is situated; and

(c) EIOPA.

(4) The PRA—

(a) must permit the supervisory authorities of significant branches and related undertakings to participate in the college of supervisors, provided that their participation is limited to achieving an efficient exchange of information;

(b) must ensure that the processes for cooperation, exchange of information and consultation between the PRA and the other supervisory authorities concerned are effectively applied in accordance with Title 3 of the Solvency 2 Directive, with a view to promoting the convergence of their respective decisions and activities;

(c) may agree with the other supervisory authorities concerned that some activities of the college be carried out by a reduced number of supervisory authorities where the effective functioning of the college of supervisors requires it;

(d) must conclude co-ordination arrangements with the other supervisory authorities concerned for the establishment and functioning of the college of supervisors.

(5) The arrangements referred to in paragraph (4)(d) must specify procedures for—

(a) the decision-making process among the supervisory authorities in accordance with Articles 231, 232 and 247 of the Solvency 2 Directive; and

(b) consultation under Articles 218(5) and 248(4) and of the Solvency 2 Directive.

(6) Where the PRA has received advice from EIOPA in relation to the establishment and functioning of the college of supervisors, it must, after consulting the other supervisory authorities concerned, duly consider such advice before the end of the period of two months beginning with the date the advice was received before taking its final decision.

(7) Where the PRA makes a decision regarding the establishment and functioning of the college of supervisors, the PRA must—

(a) ensure the decision contains a statement setting out in full the reasons for the decision and explaining any significant deviation from any advice given by EIOPA; and

(b) send a copy of the decision to the other supervisory authorities concerned.

(8) The PRA must send EIOPA any information on the functioning of the college of supervisors and any difficulties encountered that are relevant for EIOPA's reviews of the operational functioning of colleges of supervisors.

Cooperation and exchange of information between supervisory authorities U.K.

29.—(1) Where the PRA is the group supervisor of a group, the PRA must provide the other supervisory authorities concerned and EIOPA with the following information regarding the group—

(a) information received by the PRA under rules implementing the last sub-paragraph of Article 19, Article 51(1) and Article 254(2) of the Solvency 2 Directive;

(b) information regarding the legal, governance and organisational structure of the group.

(2) Where the PRA is a member of the college of supervisors for a group, the PRA must—

(a) cooperate closely with the other supervisory authorities concerned, in particular in cases where an insurance undertaking or reinsurance undertaking in the group encounters financial difficulties;

(b) provide the other supervisory authorities concerned with relevant information so as to allow and facilitate the exercise of their supervisory tasks under the Solvency 2 Directive;

(c) communicate all relevant information to the other supervisory authorities concerned without delay as soon as such information becomes available or exchange such relevant information on request; and

(d) call immediately for a meeting of all supervisory authorities concerned where—

(i) the PRA becomes aware that an individual insurance undertaking or reinsurance undertaking in the group has breached the solvency capital requirement in a significant way;

(ii) the PRA becomes aware that an individual insurance undertaking or reinsurance undertaking in the group has breached the minimum capital requirement;

(iii) the PRA becomes aware that the group has breached the solvency capital requirement at group level in a significant way; or

(iv) other exceptional circumstances occur.

Consultation between supervisory authorities U.K.

30.—(1) Except where paragraph (3) applies, the PRA must consult the other members of the college of supervisors before taking a decision which is of importance to the supervisory tasks of another supervisory authority with regard to—

(a) changes in the shareholder, organisational or management structure of insurance undertakings or reinsurance undertakings in the group, which require the approval or authorisation of the other supervisory authority;

(b) a decision on the extension of the recovery period under rules implementing Articles 138 (3) and (4) of the Solvency 2 Directive; or

(c) the imposition of a capital add-on, a limitation on the use of an internal model for calculating the solvency capital requirement, or any other major sanctions or exceptional measures taken by the other supervisory authority.

(2) Where the PRA consults another supervisory authority on a matter referred to in paragraph (1)(b) or (1)(c) and the PRA is not the group supervisor, the PRA must also consult the group supervisor on that matter.

(3) Paragraph (1) does not apply in cases of urgency or where consultation may jeopardise the effectiveness of the PRA's decision, provided the PRA informs the other supervisory authorities concerned without delay.

(4) The PRA must also consult a supervisory authority before taking a decision based on information received from that supervisory authority.

Access to information U.K.

31.—(1) Before requesting information from an insurance undertaking or reinsurance undertaking in a group, the PRA must satisfy—

(a) condition 1; and

(b) if the PRA is the group supervisor of the group to which the undertaking belongs and the information is referred to in rules implementing Article 254(2) of the Solvency 2 Directive, condition 2.

(2) In this regulation—

(a) condition 1 is that the information has been requested from the insurance undertaking or reinsurance undertaking subject to group supervision and has not been supplied by that undertaking within a reasonable period of time; and

(b) condition 2 is that the PRA has, if possible, requested the information from all the other supervisory authorities to which the information has been provided and none of those supervisory authorities has provided the information to the PRA.

Verification of information U.K.

32.—(1) Where the PRA receives a request for verification from another supervisory authority in accordance with Article 255(2) of the Solvency 2 Directive, the PRA must carry out the verification directly, allow an auditor or expert to carry out the verification, or allow the other supervisory authority to carry out verification itself.

(2) Where the PRA is not the group supervisor, the PRA must inform the group supervisor of the action it takes.

Group solvency and financial condition report U.K.

33.  Where the PRA is the group supervisor of a group and the PRA has received a request from—

(a) an insurance undertaking which is a participating undertaking;

(b) a reinsurance undertaking which is a participating undertaking;

(c) an insurance holding company;

(d) a mixed financial holding company,

to provide a single solvency and financial condition report in accordance with rules implementing Article 256 of the Solvency 2 Directive, the PRA must consult and duly take into account any views and reservations of the other members of the college of supervisors before agreeing to the request.

Enforcement measures U.K.

34.—(1) In this regulation, a “ relevant event” means—

(a) an insurance undertaking or reinsurance undertaking in a group does not comply with a requirement referred to in—

(i) Articles 218 to 246, or 265, of the Solvency 2 Directive; or

(ii) a third country supervisory regime which is equivalent to Title 3 of the Solvency 2 Directive;

(b) the solvency of an insurance undertaking or reinsurance undertaking in a group is jeopardised; or

(c) an intra-group transaction or risk concentration is a threat to the financial position of an insurance undertaking or reinsurance undertaking in a group.

(2) Where—

(a) the PRA is the group supervisor of a group;

(b) the group contains an insurance holding company, a mixed financial holding company or a mixed-activity insurance holding company with its head office in an EEA State other than the United Kingdom; and

(c) a relevant event occurs in relation to such a company,

the PRA must inform the supervisory authority of that EEA State with a view to enabling the supervisory authority to take any necessary measures in accordance with Article 258(1) of the Solvency 2 Directive.

(3) Where—

(a) the PRA is the group supervisor of a group;

(b) a relevant event occurs in relation to an insurance undertaking or reinsurance undertaking in the group; and

(c) that undertaking has its head office in an EEA State other than the United Kingdom,

the PRA must inform the supervisory authority of the EEA State with a view to enabling the supervisory authority to take the necessary measures in accordance with Article 258(1) of the Solvency 2 Directive.

(4) The PRA must, where appropriate, coordinate any measures it may take with the other supervisory authorities concerned.

CHAPTER 7 U.K. Third countries

Non-EEA solvency 2 parent undertakings: equivalence U.K.

35.—(1) Schedule 3 applies where the parent undertaking of an insurance undertaking or reinsurance undertaking established in the EEA has its head office in a third country.

(2) Where the PRA is required to rely on supervision exercised by a supervisory authority in a third country which has a supervisory regime which is equivalent to Title 3 of the Solvency 2 Directive, regulations 26 to 34 apply in relation to cooperation with those supervisory authorities.

Parent undertaking outside the EEA: absence of equivalence U.K.

36.—(1) This regulation applies where—

(a) a parent undertaking of an insurance undertaking or reinsurance undertaking established in the EEA has its head office in a third country; and

(b) both of the following conditions are satisfied—

(i) the Commission has not adopted a delegated act under Article 260(3) of the solvency 2 directive determining that the prudential regime of the third county is equivalent to Title 3 of the Solvency 2 Directive; and

(ii) either—

(aa) the Commission has not adopted a delegated act under Article 260(5) of the Solvency 2 Directive determining that the prudential regime of the third country is temporarily equivalent to Title 3 of the Solvency 2 Directive; or

(bb) if such a delegated act has been adopted, the group contains an insurance undertaking or reinsurance undertaking in an EEA State with a balance sheet total that exceeds the balance sheet total of the parent undertaking situated in the third country.

(2) The PRA must apply either of the following methods of supervision to the group—

(a) rules implementing Articles 218 to 235, and 244 to 258, of the Solvency 2 Directive; or

(b) any other method which—

(i) ensures appropriate supervision of the insurance undertakings and reinsurance undertakings in the group; and

(ii) ensures the objectives of group supervision (as set out in Title 3 of the Solvency 2 Directive) are achieved.

(3) Where the PRA applies the rules referred to in paragraph (2)(a)—

(a) the rules must be applied at the level of the insurance holding company, mixed financial holding company, third-country insurance undertaking or third-country reinsurance undertaking; and

(b) for the sole purpose of the group solvency calculation, the parent undertaking must be treated as if it were an insurance undertaking or reinsurance undertaking subject to the conditions as laid down in Subsections 1, 2 and 3 of Section 3 of Chapter 6 of Title 1 of the Solvency 2 Directive as regards—

(i) the own funds eligible for the solvency capital requirement; and

(ii) either of—

(aa) a solvency capital requirement determined in accordance with the principles of Article 226 of the Solvency 2 Directive where the parent undertaking is an insurance holding company; or

(bb) a solvency capital requirement determined in accordance with the principles of Article 227 of the Solvency 2 Directive where the parent undertaking is a third-country insurance undertaking or third-country reinsurance undertaking.

(4) The reference in paragraph (2)(b) to any other method includes—

(a) requiring the group to establish an insurance holding company or mixed financial holding company with its head office in the EEA State; and

(b) applying the requirements of Title 3 of the Solvency 2 Directive to the insurance undertakings and reinsurance undertakings in the group headed by that insurance holding company or mixed financial holding company.

(5) Before applying another method under paragraph (2)(b), the PRA must—

(a) consult the other supervisory authorities concerned in the supervision of the group; and

(b) where the PRA is not acting as the group supervisor, agree the method with the supervisor acting as the group supervisor.

(6) Where the PRA applies another method under paragraph (2)(b), the PRA must notify the European Commission and the other supervisory authorities concerned.

CHAPTER 8 U.K. Mixed-activity insurance holding companies

Intra-group transactions U.K.

37.—(1) This regulation applies where—

(a) the parent undertaking of one or more insurance undertakings or reinsurance undertakings in the group is a mixed-activity insurance holding company; and

(b) the PRA supervises one or more of the insurance undertakings or reinsurance undertakings in the group.

(2) The PRA must exercise general supervision over transactions between—

(a) the mixed-activity holding company and its related undertakings; and

(b) the insurance undertakings or reinsurance undertakings supervised by the PRA.

PART 4 U.K. Approvals

Modifications etc. (not altering text)

C1 Pt. 4 modified (7.11.2018) by The EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018 (S.I. 2018/1149), regs. 1(2), 25 (with regs. 4, 22, 26(3))

C2 Pt. 4 modified by S.I. 2018/1149, reg. 72 (as inserted (1.3.2019) by The Financial Services Contracts (Transitional and Saving Provision) (EU Exit) Regulations 2019 (S.I. 2019/405), regs. 1(2), 6)

CHAPTER 1 U.K. Procedure: applications

Meaning of “approval”, “group application”, “protected item” and “branch” U.K.

38.—(1) In this Part and in Schedules 4 and 5—

“approval” means an approval granted by the PRA under this Part;

“group application” means an application for permission to calculate any of the following matters in accordance with an internal model—

(i)

the consolidated group solvency capital requirement for a group and the solvency capital requirements for the insurance undertakings and reinsurance undertakings in the group in accordance with method 1 M7 ;

(ii)

the aggregated group solvency capital requirement in relation to group solvency determined in accordance with method 2 M8 ; and

“protected item” has the same meaning as in section 413 of FSMA.

(2) In regulations 40, 50 and 51, “branch” has the meaning given in Article 162 of the Solvency 2 Directive.

Marginal Citations

M7 See Article 231 of the Solvency 2 Directive.

M8 See Article 233(5) of the Solvency 2 Directive.

Applications: eligibility, process, information and documents U.K.

39.—(1) This regulation applies to an application to the PRA for—

(a) the grant of an approval; or

(b) a variation of an existing approval.

(2) An insurance undertaking, reinsurance undertaking or third-country insurance undertaking may apply for an approval under regulations 41 to 48, 53 and 54 only if it is authorised under Part 4A of FSMA.

(3) Subject to paragraph (9) an application must—

(a) be made in such manner as the PRA may direct; and

(b) contain, or be accompanied by, such other information or documents as the PRA may reasonably require.

(4) At any time after receiving the application and before determining it, the PRA may require the undertaking to provide it with such further information or documents as it may reasonably require.

(5) The PRA may require any information provided under this regulation to be provided in such form and verified in such manner as it may reasonably require.

(6) The PRA may require any documents provided under this regulation to be produced at such place and authenticated in such manner as it may reasonably require.

(7) Different directions may be given, and different requirements imposed, in relation to different applications or categories of application.

(8) The powers conferred on the PRA by this regulation—

(a) must be exercised in accordance with any directly applicable regulation made under the Solvency 2 Directive; and

(b) may not be used to require the production of a protected item.

(9) An application under regulation 50 (approval of third-country insurance undertakings in more than one EEA State) is valid only if the following requirements are satisfied—

(a) the same application is also made to the supervisory authorities in all the EEA States in which the undertaking is authorised or has applied for authorisation;

(b) the application states the supervisory authority which is to supervise the solvency of the entire business of the undertaking's branches; and

(c) the application gives reasons for the choice of supervisory authority referred to in sub-paragraph (b).

(10) Where an application has been made to the PRA under regulation 43 (volatility adjustment), paragraphs (3)(b) and (4) may only be used to require—

(a) a liquidity plan projecting the incoming and outgoing cash flows in relation to the assets and liabilities subject to the volatility adjustment;

(b) where the disapplication of the volatility adjustment would result in the undertaking failing to meet the solvency capital requirement, an analysis of the measures the undertaking could apply to re-establish the level of own funds covering the solvency capital requirement or reduce its risk profile to restore compliance with the solvency capital requirement;

(c) the undertaking's written policy on risk management;

(d) an assessment of the undertaking's compliance with the capital requirements specified in Sections 4 and 5 of Chapter 6 of Title 1 of the Solvency 2 Directive—

(i) when the volatility adjustment is applied; and

(ii) when the volatility adjustment is not applied.

Additional process: applications from groups and applications to more than one supervisory authority U.K.

40.—(1) Where the PRA receives an application referred to in the first column of Table 2, the PRA must follow the additional procedural requirements specified in the second column of Table 2.

Table 2

Application	Additional procedural requirements
An application by a parent undertaking for permission for a subsidiary undertaking to be subject to national laws implementing Articles 238 and 239 of the Solvency 2 Directive M9 .	Schedule 4 applies.
A group application.	Schedule 5 applies.
An application by a third-country insurance undertaking under regulation 50 (approval of third-country insurance undertakings in more than one EEA State).	Where the PRA grants an approval and the application states that the PRA is to be the solvency supervisor, the PRA must notify the supervisory authorities referred to in regulation 50(2) of the date on which the approval is to take effect.
	Where the PRA grants approval and the application states that another supervisory authority is to be the solvency supervisor, the approval must take effect on the date on which the solvency supervisor is to supervise the solvency of the entire business of the undertaking's branches (“the relevant date”) or, if later, the date on which the PRA is notified of the relevant date.
	“Solvency supervisor” has the meaning given in regulation 50(11).

Marginal Citations

M9 Referred to in Articles 236(e) and 237 of the Solvency 2 Directive.

CHAPTER 2 U.K. Specific Approvals

Verification that the Solvency 2 Directive does not apply U.K.

41.—(1) An insurance undertaking may apply to the PRA for verification that the conditions specified in Article 4(4) of the Solvency 2 Directive are satisfied.

(2) Where the PRA receives an application under paragraph (1), the PRA may approve the application.

(3) The PRA may revoke an approval granted under paragraph (2) where the conditions specified in Article 4(4) of the Solvency 2 Directive cease to be satisfied.

Matching adjustment U.K.

42.—(1) An insurance undertaking, reinsurance undertaking or third-country insurance undertaking may apply to the PRA for permission to apply a matching adjustment to a risk-free interest rate term structure in order to calculate the best estimate of a portfolio of life insurance or reinsurance obligations.

(2) The PRA must approve an application made under paragraph (1) if the conditions specified in paragraph (4) would be satisfied if approval were granted.

(3) The PRA must revoke an approval granted under paragraph (2) if an undertaking fails to comply with a condition specified in sub-paragraphs (a) to (k) of paragraph (4) in relation to that approval for a period of two months or more.

(4) The conditions referred to in paragraphs (2) and (3) are—

(a) the undertaking assigns a portfolio of assets, consisting of bonds or other assets with similar cash flow characteristics, to cover the best estimate of the portfolio of insurance or reinsurance obligations;

(b) the undertaking maintains the assignment referred to in sub-paragraph (a) over the lifetime of the obligations, except for the purpose of maintaining the replication of expected cash flows between assets and liabilities where the cash flows have materially changed;

(c) the portfolio of insurance or reinsurance obligations to which the matching adjustment is applied and the assigned portfolio of assets are—

(i) identified; and

(ii) organised and managed separately from the other activities of the undertaking;

(d) the assigned portfolio of assets referred to in sub-paragraph (c) cannot be used to cover losses arising from the other activities of the undertaking;

(e) the expected cash flows of the assigned portfolio of assets replicate each of the expected cash flows of the portfolio of insurance or reinsurance obligations in the same currency;

(f) any mismatch between the expected cash flows referred to in sub-paragraph (e) does not give rise to risks which are material in relation to the risks inherent in the insurance business to which the matching adjustment is applied;

(g) the contracts underlying the portfolio of insurance or reinsurance obligations do not give rise to future premium payments;

(h) the only underwriting risks connected to the portfolio of insurance or reinsurance obligations are longevity risk, expense risk, revision risk or mortality risk;

(i) where the underwriting risk connected to the portfolio of insurance or reinsurance obligations includes mortality risk, the best estimate of the portfolio of insurance or reinsurance obligations does not increase by more than 5% under a mortality risk stress that is calibrated in accordance with rules implementing paragraphs (2) to (5) of Article 101 of the Solvency 2 Directive;

(j) the contracts underlying the insurance or reinsurance obligations include—

(i) no options for the policyholder; or

(ii) only a surrender option with a surrender value not exceeding the value of the assets, valued in accordance with rules implementing, and any directly applicable regulation made under, Article 75 of the Solvency 2 Directive, covering the insurance or reinsurance obligations at the time the surrender option is exercised;

(k) the cash flows of the assigned portfolio of assets are—

(i) fixed and cannot be changed by the issuers of the assets or any third parties; or

(ii) fixed except for a dependence on inflation, and the assets replicate the cash flows of the portfolio of insurance or reinsurance obligations that depend on inflation;

(l) the undertaking does not apply a volatility adjustment to the risk free interest rate term structure in accordance with an approval granted under regulation 43;

(m) the undertaking does not apply a transitional measure to the risk free interest rates in accordance with an approval granted under regulation 53;

(n) the undertaking has not ceased to apply a matching adjustment to the risk-free interest rate term structure in the 24 months prior to the application.

(5) For the purposes of paragraph (4), the insurance or reinsurance obligations of an insurance or reinsurance contract must not be split into different parts when composing the portfolio of insurance or reinsurance obligations.

(6) For the purposes of sub-paragraph (4)(k)(i), where issuers or third parties have the right to change the cash flows of an asset, that right does not disqualify the asset from admissibility to the assigned portfolio, provided the investor receives sufficient compensation to allow it to obtain the same cash flow by re-investing the compensation in assets of an equivalent or better quality.

(7) In this regulation, “life insurance and reinsurance obligations”—

(a) includes annuities stemming from non-life insurance or reinsurance contracts;

(b) in the case of a third-country insurance undertaking which has not been granted an approval under regulation 50, refers only to insurance and reinsurance obligations assumed in the United Kingdom; and

(c) in the case of a third-country insurance undertaking for which the PRA is the supervisory authority responsible for supervising the solvency of the entire business of the undertaking's branches pursuant to an approval granted under regulation 50, refers to insurance and reinsurance obligations assumed in relation to the entire business which it pursues within the EEA.

Volatility adjustment U.K.

43.—(1) An insurance undertaking, reinsurance undertaking or third-country insurance undertaking may apply to the PRA for permission to apply a volatility adjustment to the relevant risk-free interest rate term structure in order to calculate the best estimate referred to in Article 77(2) of the Solvency 2 Directive.

(2) The PRA must approve an application made under paragraph (1) if the proposed application of the volatility adjustment would satisfy all the conditions specified in paragraph (4).

(3) The PRA must revoke an approval granted under paragraph (2) where the application of the volatility adjustment does not satisfy a condition specified in paragraph (4).

(4) The conditions referred to in paragraphs (2) and (3) are—

(a) the volatility adjustment is applied correctly to the relevant risk-free interest rate term structure in order to calculate the best estimate;

(b) the undertaking does not breach a relevant requirement as a result or consequence of applying the volatility adjustment;

(c) the application of the volatility adjustment does not create an incentive for the undertaking to engage in pro-cyclical investment behaviour.

(5) In paragraph (4)(b), a “ relevant requirement” is—

(a) a requirement imposed by or under FSMA in pursuance of the Solvency 2 Directive; or

(b) a requirement of a directly applicable regulation made under the Solvency 2 Directive.

Supervisory approval of ancillary own-funds U.K.

44.—(1) An insurance undertaking, reinsurance undertaking or third-country insurance undertaking may apply to the PRA for permission to take the amount of an ancillary own-fund item into account when determining its own funds in accordance with rules implementing Article 90 of the Solvency 2 Directive and any directly applicable regulations made under Article 92.

(2) Where the PRA receives an application under paragraph (1), the PRA must approve—

(a) a monetary amount for each ancillary own-fund item; or

(b) a method by which each ancillary own-fund item may be determined for a specified period of time.

(3) Where the PRA grants approval under paragraph (2)—

(a) the undertaking may apply to vary that approval; and

(b) the PRA may vary that approval.

(4) The PRA must base its approval or variation of approval on an assessment of—

(a) the status of the counterparties concerned, in relation to their ability and willingness to pay;

(b) the recoverability of the funds, taking account of the legal form of the ancillary own-fund item and any conditions which would prevent the item from being successfully paid in or called up; and

(c) any information on the outcome of past calls which insurance undertakings, reinsurance undertakings and third-country insurance undertakings have made for ancillary own fund items they have paid in or called up, to the extent that such information can be reliably used to assess the expected outcome of future calls.

Eligible own funds for an intermediate insurance holding company U.K.

45.—(1) This regulation applies where the PRA is the group supervisor of a group which includes an intermediate insurance holding company or an intermediate mixed financial holding company.

(2) The intermediate insurance holding company or an intermediate mixed financial holding company may apply to the PRA for permission to include eligible own funds in the calculation of group solvency.

(3) Where the PRA receives an application under paragraph (2) , the PRA must approve—

(a) a monetary amount for each ancillary own-fund item; or

(b) a method by which each ancillary own-fund item may be determined for a specified period of time.

(4) Where the PRA grants approval under paragraph (3)—

(a) the undertaking may apply to vary that approval; and

(b) the PRA may vary that approval.

(5) The PRA must base its approval or variation of approval on an assessment of—

(a) the status of the counterparties concerned, in relation to their ability and willingness to pay;

(b) the recoverability of the funds, taking account of the legal form of the ancillary own-fund item and any conditions which would prevent the item from being successfully paid in or called up; and

(c) any information on the outcome of past calls which intermediate insurance holding companies and intermediate mixed financial holding companies have made for each ancillary own-fund item, to the extent that information can be reliably used to assess the expected outcome of future calls.

Classification of funds U.K.

46.—(1) This regulation applies to an own-fund item which is not included in the list of own-fund items referred to in Article 97(1) of the Solvency 2 Directive.

(2) An insurance undertaking, reinsurance undertaking or third-country insurance undertaking may apply to the PRA for approval of its assessment and classification of an own-fund item referred to in paragraph (1).

(3) The PRA may approve an application made under paragraph (2).

(4) Where the PRA grants approval under paragraph (3)—

(a) the undertaking may apply to vary the approval;

(b) the PRA may vary the approval; or

(c) the PRA may revoke the approval.

(5) The PRA must base its decision to grant, vary or revoke approval on the criteria referred to in Article 94 of the Solvency 2 Directive.

Basic Solvency Capital Requirement U.K.

47.—(1) This regulation applies where an insurance undertaking, reinsurance undertaking or third-country insurance undertaking uses the standard formula to calculate its basic solvency capital requirement.

(2) In order to calculate its life, non-life and health underwriting risk modules, the undertaking may apply to the PRA for approval to use a subset of parameters specific to the undertaking instead of a subset of parameters of the standard formula.

(3) The PRA may only approve an application made under paragraph (2) when—

(a) the parameters the undertaking has applied to use are calibrated on the basis of the internal data of the undertaking concerned, or on the basis of data which are directly relevant to the operations of that undertaking using standardised methods; and

(b) the PRA has verified the completeness, accuracy and appropriateness of the data used.

(4) Where the PRA grants approval under paragraph (3)—

(a) the undertaking may apply to vary the approval;

(b) the PRA may vary the approval provided sub-paragraphs (a) and (b) of paragraph (3) continue to be satisfied; or

(c) the PRA may revoke the approval.

Models U.K.

48.—(1) An insurance undertaking, reinsurance undertaking or third-country insurance undertaking may apply to the PRA for approval of—

(a) a full or partial internal model;

(b) major changes to an approved internal model; or

(c) the policy for changing an approved internal model.

(2) The PRA may require an undertaking to run its internal model—

(a) on relevant benchmark portfolios; or

(b) using assumptions based on external rather than internal data,

in order to verify the calibration of the internal model and to check that its specification is in line with generally accepted market practice.

(3) The PRA must approve an application made under paragraph (1) if—

(a) the internal model complies with the requirements of rules implementing Article 112 of the Solvency 2 Directive;

(b) the internal model complies with the requirements of any directly applicable regulations made under Article 127 of the Solvency 2 Directive;

(c) the systems of the undertaking for identifying, measuring, monitoring, managing and reporting risk are adequate; and

(d) in the case of a partial internal model, the model fulfils the requirements of rules implementing Article 113 of the Solvency 2 Directive and any directly applicable regulation made under Article 114 of the Solvency 2 Directive.

(4) The PRA must give a decision on an application made under paragraph (1) within six months of its receipt of the completed application.

(5) Where the PRA grants approval under paragraph (3), the PRA may—

(a) vary the approval;

(b) revoke the approval.

(6) In this regulation “internal model” includes a partial internal model.

Group applications U.K.

49.—(1) An insurance undertaking or reinsurance undertaking may make a group application to the PRA where the PRA is the group supervisor for the group to which the undertaking belongs.

(2) Where the PRA receives a group application, it may grant the approval in accordance with the procedure specified in Schedule 5.

(3) Where the PRA grants an approval under paragraph (2), the approval may include conditions to which the approval is subject.

(4) The PRA may revoke an approval granted under paragraph (2).

Third-country insurance undertakings: approval of supervision in more than one EEA State U.K.

50.—(1) A third-country insurance undertaking which is authorised, or has applied for authorisation, under national laws implementing Article 162(1) of the Solvency 2 Directive from more than one EEA State may apply to the PRA for permission to—

(a) calculate its solvency capital requirement—

(i) in relation to the entire business which it pursues within EEA States; and

(ii) taking account only of operations effected by its branches established in EEA States;

(b) lodge the deposit required under Article 162(2)(e) of the Solvency 2 Directive in only one of those EEA States in which it is authorised, or has applied for authorisation; and

(c) hold the assets required to satisfy the minimum capital requirement in any one of the EEA States in which it pursues its activities.

(2) The PRA may only approve an application made under paragraph (1) if the supervisory authorities of all of the EEA States in which the undertaking is authorised, or has applied for authorisation, agree that the undertaking should benefit from the approval.

(3) On granting the approval, the PRA must require the undertaking to lodge the deposit referred to in paragraph (1)(b) in the EEA State of the solvency supervisor.

(4) Where the PRA is the solvency supervisor it must request any information that is necessary for the supervision of the overall solvency of the undertaking's branches established in EEA States from the other authorising supervisory authorities.

(5) Where another authorising supervisory authority is the solvency supervisor the PRA must take reasonable steps to provide it with any information necessary to supervise the solvency of all of the undertaking's branches in the United Kingdom.

(6) Subject to paragraph (7), the PRA may vary an approval granted under paragraph (2) where all of the authorising supervisory authorities agree that the undertaking should benefit from the proposed variation.

(7) The PRA may not vary an approval granted under paragraph (2) to permit the undertaking to benefit from a permission to take one of the steps in paragraphs (1)(a) to (1)(c) but not the others.

(8) The PRA may revoke an approval granted under paragraph (2) where it considers the approval should be revoked.

(9) The PRA must revoke an approval granted under paragraph (2) where revocation is requested by another authorising supervisory authority.

(10) Before the PRA revokes an approval granted under paragraph (2), the PRA must—

(a) where the approval is revoked under paragraph (8), ask all the other authorising supervisory authorities to withdraw the advantages referred to in Article 167(1) of the Solvency 2 Directive which have been granted to the undertaking;

(b) take reasonable steps to ensure that the approval is revoked at the same time as the other authorising supervisory authorities withdraw those advantages from the undertaking.

(11) In this regulation, “solvency supervisor” means the supervisory authority which is specified in the application under paragraph (1) as being responsible for supervising the solvency of the entire business of the undertaking's branches established in EEA States.

(12) In this regulation, “authorising supervisory authority” means a supervisory authority that agreed under paragraph (2) that the undertaking should benefit from the approval.

Withdrawal of authorisation for third-country insurance undertakings authorised in more than one EEA State U.K.

51.—(1) Where a third-country insurance undertaking has been granted an approval under regulation 50—

(a) the PRA must notify the supervisory authorities in the other EEA States where that undertaking operates if—

(i) the PRA is the supervisory authority responsible for supervising the solvency of the entire business of the undertaking's branches; and

(ii) the PRA cancels the undertaking's Part 4A permission;

(b) the PRA must cancel the undertaking's Part 4A permission if—

(i) another supervisory authority is responsible for supervising the solvency of the entire business of the undertaking's branches;

(ii) that supervisory authority notifies the PRA that it has withdrawn the undertaking's authorisation given under national laws implementing Article 162 of the Solvency 2 Directive; and

(iii) the reason given for the withdrawal is the inadequacy of the undertaking's overall state of solvency as determined by the supervisory authorities referred to in regulation 50(2).

Subsidiaries: application of Articles 238 and 239 of the Solvency 2 Directive U.K.

52.—(1) Where the PRA is a member of a college of supervisors responsible for supervising a subsidiary undertaking, the parent undertaking may apply to the PRA for permission to apply rules implementing Articles 238 and 239 of the Solvency 2 Directive to the subsidiary undertaking.

(2) The PRA may approve an application referred to in paragraph (1) in accordance with the procedure specified in Schedule 4.

(3) Where the PRA has granted approval in accordance with paragraph (2), it must revoke approval where—

(a) the subsidiary undertaking is no longer included in group supervision carried out by the group supervisor at the level of the parent undertaking in accordance with Title 3 of the Solvency 2 Directive;

(b) the risk management processes and internal control mechanisms of the parent undertaking have failed to cover the subsidiary undertaking and the group has failed to rectify the failure within an appropriate period of time;

(c) the parent undertaking has failed to manage the subsidiary undertaking prudently, and the group has failed to rectify the problem in a reasonable period of time;

(d) the group supervisor revokes the agreement referred to in the third sub-paragraph of Article 246(4) of the Solvency 2 Directive; or

(e) the group supervisor revokes the agreement referred to in the first sub-paragraph of Article 256(2) of the Solvency 2 Directive.

Transitional measures on risk-free interest rates U.K.

53.—(1) An insurance undertaking, reinsurance undertaking or third-country insurance undertaking may apply to the PRA for permission to apply a transitional adjustment to a risk-free interest rate term structure with respect to admissible insurance or reinsurance obligations.

(2) Admissible insurance or reinsurance obligations are insurance or reinsurance obligations that meet all of the following requirements—

(a) the contracts that give rise to the insurance or reinsurance obligations are concluded before 1st January 2016;

(b) the technical provisions for the insurance and reinsurance obligations are determined in accordance with rules implementing Article 20 of Directive 2002/83/EC of the European Parliament and of the Council of 5th November 2002 concerning life assurance M10 until 1st January 2016;

(c) the insurance or reinsurance obligations are not subject to a matching adjustment in accordance with an approval granted under regulation 42.

(3) For the purposes of paragraph (2)(a), the renewal of a contract does not give rise to a new contract.

(4) The PRA must approve an application made under paragraph (1) if the condition specified in paragraph (6) would be satisfied if the approval is granted.

(5) Where the PRA grants approval under paragraph (4)—

(a) the undertaking may apply to vary the approval;

(b) the PRA must vary the approval on an application made under sub-paragraph (a) if the condition specified in paragraph (6) would be satisfied in relation to the approval as varied;

(c) the PRA must revoke the approval if the condition specified in paragraph (6) ceases to be satisfied;

(d) the PRA must revoke the approval if the condition specified in paragraph (7) is satisfied.

(6) The condition referred to in paragraphs (4), (5)(b) and (5)(c) is that the transitional adjustment is calculated in accordance with rules implementing Article 308c of the Solvency 2 Directive.

(7) The condition referred to in paragraph (5)(d) is that a progress report submitted to the PRA under rules implementing Article 308e of the Solvency 2 Directive shows that it is unrealistic to expect compliance with the solvency capital requirement by 2032.

Marginal Citations

M10 OJ No L345, 19.12.02, p 1.

Transitional measures on technical provisions U.K.

54.—(1) An insurance undertaking, reinsurance undertaking or third-country insurance undertaking may apply to the PRA for permission to—

(a) apply a transitional deduction to its technical provisions or to such of its technical provisions as are contained within an homogenous risk group; or

(b) recalculate the amount of those technical provisions (and any matching adjustment or volatility adjustment to those technical provisions) at periods of 24 months or less.

(2) The PRA must approve an application made under paragraph (1)(a) if—

(a) conditions 1 and 2 are satisfied; and

(b) condition 3 is satisfied or would be satisfied if the amount of the approved deduction were limited.

(3) The PRA must approve an application made under paragraph (1)(b) if condition 4 is satisfied.

(4) The PRA may also grant the approval referred to in paragraph (1)(b) other than on an application under that paragraph if condition 4 is satisfied.

(5) Where the PRA approves an application under paragraph (2), the PRA may—

(a) make the approval subject to a condition limiting the amount of the approved deduction; or

(b) at any time after granting approval, vary the approval so that—

(i) the approval is subject to a condition limiting the amount of the approved deduction; or

(ii) if the approval is already subject to a condition imposed under sub-paragraph (a) or (b)(i), amend the condition to change the limit.

(6) A limit specified in a condition imposed under paragraph (5) must be no larger than is necessary to ensure that condition 3 is satisfied.

(7) Where the PRA grants approval under paragraph (2), (3) or (4) the undertaking may apply to vary the approval.

(8) Paragraphs (2) to (6) apply to an application to vary an approval under paragraph (7) as they would apply to an application for the approval as varied.

(9) The PRA must revoke an approval granted under paragraph (2) if—

(a) condition 1 or 2 is not satisfied;

(b) condition 3 cannot be satisfied by imposing a condition limiting the amount of the approved deduction; or

(c) condition 5 is satisfied.

(10) In this regulation—

(a) “GENPRU 1.2.26R” means the rule known as GENPRU 1.2.26R (requirement to have adequate financial resources) in the PRA's General Prudential Sourcebook as at 31st December 2015, treated as having been made by the PRA on 7th March 2013 under the Financial Services Act 2012 (Transitional Provisions) (Rules and Miscellaneous Provisions) Order 2013 M11 ;

(b) “INSPRU 7” means the rules and guidance known as INSPRU 7 (individual capital assessment) in the PRA's Prudential Sourcebook for Insurers as at 31st December 2015, made or treated as having been made by the PRA on 7th March 2013 under FSMA and the Financial Services Act 2012 (Transitional Provisions) (Rules and Miscellaneous Provisions) Order 2013; and

(c) conditions specified in the first column of Table 3 have the meaning given in the second column of Table 3.

Table 3

Condition	Meaning
1	The transitional deduction satisfies the following condition for all TN—
	where—
	TN is the amount of the transitional deduction in the year N, so that T0 is the transitional deduction in 2016, T1 is the transitional deduction in 2017, T2 is the transitional deduction in 2018 and continuing until T16 which is the transitional deduction in 2032.
	XN is the amount of the technical provisions to which the approval or application for approval relates, calculated for the year N, less the amount recoverable (if any) from reinsurance contracts and special purpose vehicles. The technical provisions for the year N must be calculated in accordance with rules implementing Article 76 of the Solvency 2 Directive, applied as at the last date (“the relevant date”) before the year N at which technical provisions may be recalculated in accordance with an approval granted under paragraph (1)(b) or, if no such approval has been granted, as at 1st January 2016. Where a matching adjustment or volatility adjustment was applied to those technical provisions on 1st January 2016 in accordance with an approval granted under regulation 42 or 43 (as the case may be), the calculation must take into account the matching adjustment or volatility adjustment, recalculated for the relevant date in accordance with an approval granted under paragraph (1)(b) (if any).
	YN is the amount of the technical provisions to which the approval or application for approval relates, calculated for the year N, less the amount recoverable (if any) from reinsurance contracts. The technical provisions for the year N must be calculated in accordance with INSPRU 7, applied as at the last date before the year N at which technical provisions may be recalculated in accordance with an approval granted under paragraph (1)(b) or, if no such approval has been granted, as at 31st December 2015.
	N represents the years from 2016 to 2032. N takes integer values from 0 to 16, so that 2016 is year 0, 2017 is year 1, 2018 is year 2, and continuing until 2032 which is year 16.
2	A transitional deduction is not applied in any year after 2032.
3	The transitional deduction does not result in the financial resources which the undertaking is required to maintain in accordance with requirements imposed by or under FSMA in pursuance of the Solvency 2 Directive being less than the financial resources which the undertaking would be required to maintain in accordance with GENPRU 1.2.26R if GENPRU 1.2.26R still applied to the undertaking.
4	The risk profile of the undertaking has changed materially.
5	A progress report submitted to the PRA under rules implementing Article 308e of the Solvency 2 Directive shows that it is unrealistic to expect compliance with the solvency capital requirement by 2032.

Marginal Citations

M11 S.I. 2013/161.

CHAPTER 3 U.K. Procedure: decisions, appeals and notices

Decisions: written notices U.K.

55.—(1) On determining an application for the grant of an approval, the PRA must give the undertaking a written notice stating—

(a) its decision;

(b) the conditions (if any) to which the approval is subject;

(c) the reasons on which the decision is based; and

(d) if the approval is granted, the date on which the approval takes effect.

(2) Where the PRA varies or revokes an approval, it must give the undertaking concerned a written notice stating—

(a) that the approval is varied or revoked;

(b) the reasons on which the decision to vary or revoke the approval is based;

(c) if the approval is varied, the conditions (if any) to which the approval is subject; and

(d) the date on which the variation or revocation takes effect.

(3) Where the PRA gives a direction under regulation 58(2), it must give the undertaking concerned a written notice stating—

(a) the direction;

(b) the reasons on which the decision to give the direction is based; and

(c) the date on which the direction takes effect.

(4) Where the PRA varies or revokes a direction under regulation 58(3), it must give the undertaking concerned a written notice stating—

(a) that the direction is varied or revoked;

(b) the reasons on which the decision to vary or revoke the direction is based; and

(c) the date on which the variation or revocation takes effect.

(5) The date on which an approval takes effect under paragraph (1)(d) must not be before 1st January 2016.

Appeals U.K.

56.—(1) An undertaking may refer the matter to the Tribunal where it is aggrieved at—

(a) the determination by the PRA of an application for the—

(i) grant of an approval to an undertaking; or

(ii) variation of an approval granted to an undertaking;

(b) in respect of an approval that was granted to that undertaking, the exercise by the PRA of a power to—

(i) vary the approval; or

(ii) revoke the approval.

(2) Part 9 of FSMA (hearings and appeals) applies to a reference to the Tribunal under this regulation as it applies to a reference to the Tribunal under FSMA.

Publication of written notices U.K.

57.—(1) Subject to paragraph (2), the PRA must publish a relevant notice in the way appearing to the PRA to be best calculated for bringing it to the attention of—

(a) persons likely to be affected by it; and

(b) persons who are, in the opinion of the PRA, likely to make an application for a similar approval.

(2) Paragraph (1) does not apply—

(a) if the relevant notice relates to an application for an approval which has been refused;

(b) if the PRA is satisfied that it is inappropriate or unnecessary to publish the relevant notice; or

(c) to the extent that such publication would be incompatible with an obligation imposed on the PRA by a directly applicable regulation made under the Solvency 2 Directive.

(3) In deciding whether it is satisfied of the matters mentioned in paragraph (2)(b), the PRA must consider whether publication of the relevant notice—

(a) would prejudice, to an unreasonable degree, the commercial interests of the undertaking concerned or any other member of the undertaking's immediate group;

(b) without mentioning the identity of the undertaking concerned might avoid any adverse consequence of publication.

(4) In this regulation, “relevant notice” means a written notice—

(a) given under regulation 55 in relation to a decision or direction of the PRA; or

(b) stating that an event referred to in paragraph (5) has occurred in relation to such a decision.

(5) The events mentioned in paragraph (4)(b) are—

(a) the decision has been referred to the Tribunal;

(b) the decision has been suspended by the Tribunal;

(c) any suspension of the decision has been revoked by the Tribunal;

(d) the reference has been dismissed by the Tribunal.

CHAPTER 4 U.K. Rule waivers

Modification or waiver of rules U.K.

58.—(1) In this regulation, “ rule” means a rule made by the PRA under Part 9A of FSMA.

(2) Where the PRA approves an application from an insurance undertaking, reinsurance undertaking or third-country insurance undertaking under regulation 42, 43, 53 or 54, the PRA must direct that any rule to which the undertaking is subject—

(a) is not to apply to that undertaking; or

(b) is to apply to that undertaking with modifications,

to the extent necessary to give effect to that approval.

(3) Where the approval referred to in paragraph (2) is varied or revoked, the PRA must vary or revoke the direction referred to in paragraph (2) to the extent necessary to give effect to the variation or revocation of the approval.

(4) This regulation is without prejudice to the generality of section 138A of FSMA.

PART 5 U.K. Amendments

Amendments U.K.

59.  Schedule 1, which contains amendments to primary legislation, has effect.

60.  Schedule 2, which contains amendments to secondary legislation, has effect.

David Evennett

John Penrose

Two of the Lords Commissioners of Her Majesty's Treasury