Prudential Regulation Authority Rulebook

3.1

The PRA expects insurers to have business plans that are consistent with their risk appetite and risk tolerance limits, and which show how they intend to generate revenue and earnings each year. Such plans should reflect achievable capital generation and a capacity for dividend payouts in accordance with their risk appetite. Insurers should identify and understand the drivers of their profitability, and potential balance sheet volatility, together with the significant risks relating to their business plans, and consider reasonably foreseeable adverse scenarios. Insurers should have plans for the maintenance of capital resources in line with their risk appetite, that take account of each of these factors, as well as the insurer’s intended levels and mix of business growth.

3.2

The PRA expects regular management information (MI) to be maintained, and provided to both relevant senior managers and the board, to show how the insurer is performing against its plans. Frequency of MI generation should reflect the volatility of drivers of capital surplus and calculations should, if approximate, reflect the main drivers well enough to provide useful information to management.

3.3

The PRA expects this MI to include information about whether any deviation from these plans is, and is likely to continue to be, over the planning timescale, within its risk appetite and/or risk tolerance limits. Any material deviations that are not within appetite should result in appropriately timed action to limit the insurer’s exposures to the relevant risks, as well as revisions to the business and financial plans to bring these in line with its risk appetite.

3.4

The PRA expects insurers to consider how they will address the risks and vulnerabilities to their business plans consistently with their risk appetite, including through an appropriate allocation of capital and through their risk management framework and controls.

3.5

As explained in more detail in SS5/17⁹, the PRA expects general insurance firms, along with insurance composites and groups undertaking general insurance business to consider in advance, in a proportionate manner, the possible implications of a ‘market turning event’ on their business, including what steps might reasonably be taken in advance to enable them to respond appropriately and to meet their regulatory obligations.

3.6

The insurer’s own risk and solvency assessment (ORSA) should help to ensure there are effective links between an insurer’s business plan, risk appetite, and capital management plans. Chapters 5 and 6 in SS19/16¹⁰ provide further detail on how insurers are expected to address risks to their business strategy and plans through their ORSA, and through the development of appropriate plans and management actions for managing the ongoing levels of capital resources within the business.

3.7

The PRA expects insurers and groups to identify and analyse potential management actions, in response to stress scenarios, that are realistic, credible, consistent with regulatory expectations, and achievable. The potential management actions and the analysis of them should be approved by the relevant board. Insurers should also consider whether any of the actions identified should be taken (or facilities established) in advance as precautionary measures, or whether they would be relevant or desirable only in the stress scenario.

3.8

The PRA expects insurers to understand any dependencies for the implementation of their identified management actions on third parties or external market conditions, and monitor those dependencies so that the effectiveness of those actions is not undermined.

3.9

Insurers should consider the circumstances under which their identified management actions might be applied. In particular, they should consider and establish suitable trigger points at which they would intend to implement any planned management actions that they take into account in the calculation of their technical provisions or the SCR.

3.10

Any planned reliance by an insurance firm on support from its group should be assessed carefully, after consultation with the group board, to consider whether such support would be readily available, taking account of: (a) the potential effect of any stressed conditions on the group as a whole, as well as on other individual members of the group; (b) the group’s likely appetite to provide such support; and (c) any other potential barriers to the provision of such support (eg legal or regulatory requirements, or practical difficulties in transferring funds between currencies or countries).