PS20/24 – Solvent Exit Planning for Insurers
Pictured: Gareth Truran, Executive Director for Insurance Supervision at the Bank of England. Responsible for supervising UK insurance companies and international insurers.
Overview of PS20/24
On 18 December 2024, the PRA published a policy statement with feedback to responses to CP2/24 – Solvent exit planning for insurers. It also contains the PRA’s final policy, as follows:
preparations for Solvent Exit Part of the PRA Rulebook (Appendix 1); and
supervisory statement (SS) 11/24 – Solvent exit planning for insurers (Appendix 2).
Context
The PRA identified in 2021 and reiterated in its business plan for 2022/23, that it would do more in the coming years to increase confidence that firms can exit the market with minimal disruption, in an orderly way, and without having to rely on the backstop of an insolvency or resolution process.
Content
The PRA has made several changes to the final policy and further clarified the PRA’s expectations including the following:
Preparations for Solvent Exit Part of the PRA Rulebook (Rule 1.1) and SS11/24 (paragraph 1.2): the PRA has decided to exclude Lloyd’s managing agents from the scope of the policy.
SS11/24 (paragraph 1.2): the PRA clarifies that the Insurance Resolution Regime (IRR), if introduced, may impact the policy.
SS11/24 (paragraph 1.3, 1.4 and 2.7): the PRA provides further clarity and elaboration on a firm’s solvent exit planning; the relevance of policyholder liabilities and other liabilities; the expectation that a firm’s SEA should include an option of a run-off of the firm’s policyholder liabilities; and the removal of a firm’s Part 4A permission.
SS11/24 (paragraph 1.5): the PRA clarifies how solvent exit could help a firm to manage its exit relative to other circumstances.
SS11/24 (paragraph 1.6, 2.4, 2.11, 2.14 and 2.20): the PRA clarifies that a firm can draw on and adapt its work on Own Risk and Solvency Assessment (ORSA), capital management plan, or recovery and resolution planning to meet the expectations in a firm’s SEA.
SS11/24 (paragraph 2.3): the PRA clarifies that a SEA can be set out as a separate document; or as a discrete section in a firm’s ORSA, capital management plan, or recovery and resolution plan if appropriate.
SS11/24 (paragraph 2.9): the PRA clarifies that a firm’s solvent exit indicators vary based on a firm’s solvent exit option.
SS11/24 (Box B): the PRA updates the examples of potential barriers and risks to the execution of an insurer’s solvent exit.
SS11/24 (paragraph 2.20 and 3.14): the PRA provides more examples of relevant stakeholders, as well as legal and regulatory requirements, in a firm’s solvent exit planning.
SS11/24 (paragraph 2.26): the PRA clarifies that a firm’s assurance activities can be performed internally, or externally as the firm considers appropriate.
SS11/24 (paragraph 3.3): the PRA removes the timing expectation of one month for a firm to produce a SEEP, and instead the PRA will set a timescale for the firm to provide its SEEP to the PRA.
SS11/24 (paragraph 3.7): the PRA clarifies the meaning of ‘projections to ultimate’ in a firm’s SEEP.
The PRA has also made some editorial amendments to SS11/24 to enhance clarity and consistency.
Businesses affected
UK Solvency II firms, non-Directive firms and the Society of Lloyd’s. This PS is not relevant to firms in passive run-off and UK branches of overseas insurers.
Conclusion
The PRA’s final policy statement offers significant guidance for insurers preparing for a solvent exit. The clarifications and changes to the policy will help firms better understand their obligations and expectations, ensuring an orderly and well-managed exit process. For further details, read the full policy statement here.
