Published on 28 March 2018
International insurers: the Prudential Regulation Authority’s approach to branch authorisation and supervision - PS4/18
Overview
This Prudential Regulation Authority (PRA) Policy Statement (PS) provides feedback to responses to Consultation Paper (CP) 30/17 ‘International insurers: the Prudential Regulation Authority’s approach to branch authorisation and supervision’. The PRA received 24 responses to the CP. One material change has been made to the draft supervisory statement following consultation.
The new Supervisory Statement (SS2/18) ‘International insurers: the Prudential Regulation Authority’s approach to branch authorisation and supervision’ is included as a link in the Appendix. SS2/18 introduces new factors to be considered alongside the PRA’s current requirements for third-country branch authorisation. SS44/15 ‘Solvency II: third-country insurance and reinsurance branches’ remains unchanged.
This statement is relevant to all existing and prospective insurance firms carrying out regulated activities, but not headquartered, in the UK that are not able to benefit from passporting rights. The new SS does not apply to Swiss General Insurers, as defined in the PRA Rulebook, to which different requirements apply pursuant to the Swiss Treaty Agreement (No. 91/370/EEC).
Background
CP30/17 set out two additional factors that would be considered in combination with the factors described in SS44/15 and ‘The PRA’s approach to insurance supervision’ when reviewing an application to authorise a firm to operate a third-country branch in the UK. The new factors the PRA proposed it also considers were the:
- scale of UK branch activity covered by the Financial Services Compensation Scheme (FSCS) with a view to being satisfied that the protected amount covered by the FSCS can be absorbed by insurers liable to contribute to the FSCS. The PRA proposed a threshold of £200 million of FSCS-protected liabilities over which a firm would be expected to operate as a subsidiary rather than conducting business through a third-country branch; and
- impact of the failure of a firm with a UK branch on the wider insurance market and financial system.
Changes to proposals
The PRA has made one material change to the draft SS following the consultation which is to increase the FSCS-protected liabilities threshold from £200 million to £500 million. Compared with the cost benefit analysis set out in the CP, this change will reduce the cost to the industry. The risk to the FSCS will rise, however the cost of a single firm with a UK branch failing remains below the maximum FSCS levies that could be absorbed by the industry having regard to the caps on FSCS annual levies. These changes do not affect mutuals or other firms differently from the original proposal and in the PRA’s opinion, the impact of SS2/18 on mutuals is expected to be no different from the impact on other firms.
The PRA has made a number of minor amendments to the draft SS in light of the feedback received to add further clarity. These changes are explained in the following chapter.
When the new approach comes into effect
The new approach comes into effect from 29 March 2018. For European Economic Area (EEA) firms currently branching into the UK under ‘passporting’ arrangements and intending to apply for PRA authorisation in order to continue operating in the UK after the UK’s withdrawal from the European Union (EU),this approach would be relevant to authorisations for this purpose.
The PRA will keep the policy under review to assess whether any changes will be required due to changes in the UK financial system or regulatory framework, including those arising once any new arrangements with the EU take effect.
Policy Statement 4/18Appendix
Published on 20 December 2018
International insurers: the Prudential Regulation Authority’s approach to branch authorisation and supervision - CP30/17
Overview
In this consultation paper (CP), the Prudential Regulation Authority (PRA) seeks feedback on its proposed approach to authorising and supervising third-country insurers that carry on (or are considering carrying on) insurance business in the United Kingdom through a branch or by forming a subsidiary. The purpose of the proposals is to support the interpretation of the PRA Rulebook on third-country branches and to explain the PRA’s policy towards authorising and supervising third-country insurers or those contemplating establishing a branch or subsidiary in the United Kingdom.
The proposals are relevant to all existing and prospective insurance firms carrying out regulated activities, but not headquartered, in the United Kingdom that are not able to benefit from passporting rights. The PRA’s approach to branch supervision for EEA firms that are currently branching into the United Kingdom under the passporting arrangements remains unchanged until the United Kingdom withdraws from the European Union. They would then be treated in the same way as other insurance branches.
At the time of this consultation, the proposals do not apply to Swiss General Insurers, as defined in the PRA Rulebook, to which different requirements apply pursuant to the Swiss Treaty Agreement (No. 91/370/EEC).
Implementation
The PRA proposes to publish a supervisory statement to set out factors that would be considered relevant when considering authorisation as a third-country branch or a subsidiary (see appendix). Supervisory Statement (SS) 44/15 ‘Solvency II: third-country insurance and pure reinsurance branches’ will remain unchanged.
Summary of Proposals
The PRA proposes new factors to be considered alongside its current requirements for third-country branch authorisation.
When considering applications from a firm for authorisation as a third-country branch, the PRA’s approach is anchored in its statutory objectives and includes an assessment of regulatory equivalence and the supervisability of the insurer that seeks to operate in the United Kingdom through a branch. The PRA already considers, and needs to be satisfied that: the home jurisdiction’s prudential supervision regime is ‘broadly equivalent’; the firm is capable of being supervised effectively by the home supervisor; the whole firm is able to meet the Threshold Conditions; there is sufficient supervisory cooperation with the home supervisor; UK policyholders of the firm will be given the appropriate priority in an insolvency and that there is no discrimination against policyholders whose business is written in the United Kingdom in the event of a winding up; and the firm is able to meet relevant PRA rules, including the Senior Insurance Manager Regime (SIMR) rules applicable to the relevant individuals responsible for the branch.
Responses and next steps
This consultation closed on Tuesday 27 February 2018. The PRA invites feedback on the proposals set out in this consultation. Please address any comments or enquiries to CP30_17@bankofengland.co.uk.
The proposals in this CP have been designed in the context of the current UK and EU regulatory framework. The PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework, including those arising once any new arrangements with the EU take effect.