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April 12, 2018

PRA published a letter to CEOs of insurance firms in run-off, reminding them that they should closely consider the supervisory statement SS4/14 on capital extractions by run-off firms within the general insurance sector when preparing a request for capital extraction for submission to PRA. The SS4/14 sets out the PRA expectations of firms, along with its approach to reviewing the capital extraction requests. This letter seeks to provide further clarity on such expectations and is not intended to supersede SS4/14.

Firms in run-off have limited ability to generate new capital. PRA expects firms to be prudent and ensure that policyholders would maintain an adequate level of protection following any suggested capital extraction. PRA expects firms to demonstrate clearly in their application how the board has satisfied itself that the request is appropriate and meets the expectations in SS4/14. The letter also includes examples of the types of information expected to accompany a capital extraction request such as an analysis of the underlying exposures and an assessment of the expected duration of run-off; a Standard Formula Appropriateness assessment; and a set of robust stress tests that demonstrate the resilience of the capital position post extraction.

PRA frequently reviews capital extraction requests from insurance firms in run-off. During the last two years, it has been observed that the quality of the accompanying information for some of these requests has been inadequate. Particular areas where firms are typically falling short against the PRA expectations are in the provision of information related to stress tests and reserving. This inevitably leads to delays in the PRA assessment and an inefficient use of resources for both, PRA and the firms.

 

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Keywords: Europe, UK, Insurance, Capital Extraction, Run-off, SS4/14, Stress Testing, PRA

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