PRA Extends Policyholder Protection for Building Guarantee Policies
PRA published the policy statement PS21/20 that contains a rule change to increase protection for eligible policyholders of building guarantee policies or BGPs. As part of this amendment, protection will be extended to 100% for protected policyholders of building guarantee policies. PS21/20 amends the Policyholder Protection Part of the PRA Rulebook (Appendix). According to PRA, this instrument may be cited as "PRA Rulebook: Solvency II Firms: Non Solvency II Firms: Non Authorised Persons: FSCS Limit for Building Guarantee Insurance Instrument 2020." The rule change came into effect on October 08, 2020.
PRA is responsible for making rules that govern the operation of the Financial Services Compensation Scheme in relation to deposit-takers and insurers. Rules in relation to insurers are contained in the Policyholder Protection Part of the PRA Rulebook. In certain cases mentioned in the Policyholder Protection 17.2(1)(a), protected policyholders are covered for 100% of any benefit under their contract of general insurance. In all other cases, protected policyholders should receive at least 90% of any benefit under their contract of general insurance. PRA considers that 90% coverage for protected policyholders of a building guarantee policy no longer amounts to an appropriate degree of protection.
PRA defines building guarantee policy as a contract of general insurance providing building guarantee, construction warranty, and/or structural defects cover in relation to newly built, converted, or renovated residential property including, but not limited to, the risk of physical damage and/or defect arising from non-compliance with relevant building or fire regulations or standards. PRA also notes that the ultimate beneficiaries of building guarantee policies have little choice in the selection of their insurer, as the policy is usually provided to property owners by the builder and the policy is transferred to policyholders in onward sales. Under rule changes set out in PS21/20, protection will be extended to 100% for protected policyholders of building guarantee policies.
The policy set out in PS21/20 has been designed in the context of withdrawal of UK from EU and entry into the transition period, during which time UK remains subject to European law. PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework at the end of the transition period, including those arising once any new arrangements with EU take effect. PRA has assessed that the policy would not need to be amended under the EU (Withdrawal) Act 2018.
Related Links
Effective Date: October 08, 2020
Keywords: Europe, UK, Insurance, Solvency II, PRA Rulebook, Policyholder Protection, Building Guarantee Policy, PRA
Featured Experts
Adam Koursaris
Asset and liability management expert; capable modeler; risk and capital specialist
Cassandra Hannibal
IFRS 17 subject matter expert; actuary; risk management and capital projection specialist
Jerome Ogrodzki
Insurance asset and liabilities modeling specialist; stochastic modeling expert
Related Articles
Regulators Fine Goldman Sachs for Risk Management Failures
FCA and PRA in the UK, FED in the US, and the authorities in Singapore have fined Goldman Sachs for risk management failures in connection with the 1Malaysia Development Berhad (1MDB).
Canada Hosts International Conference of Banking Supervisors
BCBS announced that OSFI and the Bank of Canada hosted the 21st International Conference of Banking Supervisors (ICBS) virtually on October 19-22, 2020.
FCA Proposes More Measures to Help Insurance Customers Amid Crisis
FCA proposed guidance on how firms should continue to seek to help customers who hold insurance and premium finance products and may be in financial difficulty because of COVID-19, after October 31, 2020.
EBA Issues Opinion to Address Risk Stemming from Legacy Instruments
EBA issued an opinion on prudential treatment of the legacy instruments as the grandfathering period nears an end on December 31, 2021.
ESRB Publishes Non-Bank Financial Intermediation Risk Monitor for 2020
ESRB published the fifth issue of the EU Non-bank Financial Intermediation Risk Monitor 2020 (NBFI Monitor).
HM Treasury Publishes Policy Statement Amending Benchmarks Regulation
HM Treasury announced that the new Financial Services Bill has been introduced in the Parliament.
APRA Initiates Action Against a Bank for Liquidity Compliance Breach
APRA announced that it has increased the minimum liquidity requirement of Bendigo and Adelaide Bank for failing to comply with the prudential standard on liquidity.
PRA Consults on Implementation of Certain Provisions of CRD5 and CRR2
PRA published the consultation paper CP17/20 to propose changes to certain rules, supervisory statements, and statements of policy to implement elements of the Capital Requirements Directive (CRD5).
US Agencies Finalize Rule to Reduce Impact of Large Bank Failures
US Agencies adopted a final rule that applies to advanced approaches banking organizations and aims to reduce interconnectedness in the financial system as well as to reduce contagion risks associated with the failure of a global systemically important bank (G-SIB).
US Agencies Finalize Rule on Net Stable Funding Ratio Requirements
US Agencies (FDIC, FED, and OCC) adopted a final rule that implements the net stable funding ratio (NSFR) for certain large banking organizations.
