November 01, 2017

PRA and FCA published their final approach and expectations in relation to the authorization and supervision of Insurance Special Purpose Vehicles (ISPVs), subject to the Risk Transformation Regulations 2017 (RTR) being passed through parliament. PRA published the policy statement PS26/17 on authorization and supervision of ISPVs, which provides feedback to responses to the consultation paper CP42/16 on this topic. FCA also published the policy statement PS17/24 titled “Handbook changes to reflect the new regulatory framework for Insurance-Linked Securities – Feedback to CP16/34 and CP17/3 and near-final rules.”

PS26/17 includes the supervisory statement SS6/17 on authorization and supervision of ISPVs; amendments to the ISPVs Part of the PRA Rulebook; an application form in relation to the authorization and supervision of ISPVs; and two sets of notification forms for multi-arrangement ISPVs (MISPVs). PS26/17 is relevant to all parties who wish to apply to PRA for, or have obtained authorization as, an ISPV. It is also relevant to insurers and reinsurers seeking to use UK ISPVs as risk mitigation in accordance with Solvency II.

PS17/24 covers the response of FCA to the feedback received to CP16/34 and a near-final “FCA Statement – authorizing and supervising ISPVs”, along with the FCA response to the feedback received to CP17/3 and the near-final rules that incorporate the new regulated activity of insurance risk transformation into its Handbook. This policy statement applies to ISPVs; firms that undertake (outsourced) activities on behalf of ISPVs; professional advisers to ISPVs; firms considering becoming involved in setting up ISPVs or issuing ILS; and insurers seeking to use ISPVs as part of their risk mitigation strategy.

Once the RTRs have passed through Parliament, the rules will be made and the supervisory statement and forms will be formally adopted. ISPVs will issue insurance-linked securities (ILS), which are risk-transfer instruments whose value is affected by an insured loss event such as catastrophe bonds and collateralized reinsurance arrangements. The framework will apply equally to MISPVs, which take on multiple ILS contracts from one or more parties.

 

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Keywords: Europe, UK, Insurance, ISPV, Solvency II, PS26/17, PS17/24, ILS, MISPV, FCA, PRA

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