PRA issues proposals to assist understanding around ISPVs

Written by Adam Cadle

03/09/2019

The PRA has today issued proposals designed to assist parties in better understanding the regulator’s approach and expectations in relation to the authorisation and supervision of insurance special purpose vehicles (ISPVs), consistent with Solvency II requirements.

Proposals revolve around funding arrangements, and the regulator said it wishes to add additional detail to provide examples of where there may be changes to the risk transferred and/or funding of the ISPV. In its document published today, the PRA said: “The PRA is aware that some ILS market participants are keen to understand the circumstances in which techniques such as the ‘roll-over’ of funding may be used in a manner which complies with the Solvency II requirement for ISPVs to remain fully funded at all times (Article 319 of the Solvency II Delegated Regulation).

“The Solvency II requirements on fully funded have not changed since the original policy statement was published prior to the commencement of the UK regime in 2017.9 However the PRA considers it should be possible for market participants to structure mechanisms under the UK ILS regime which include provisions to ‘roll-over’ funding, while meeting the fully funded requirement.”

The regulator has also issued proposals around risk transfer requirements. Its new expectations on risk transfer requirements. Those expectations would cover the number and type of risk transfer arrangements an ISPV may assume, the specific requirements with which these must comply, and the information an applicant must submit to satisfy these requirements.

“The proposed changes should enable applicants to better understand how they may demonstrate compliance against the Solvency II risk transfer requirements, in particular where a ‘similar arrangement’ is being contemplated," the regulator said.

In addition the PRA stated: “The additional information should help applicants and prospective applicants when using, or contemplating using the UK ILS regime. By providing more clarity on the PRA’s approach and elaborating on its expectations of ISPVs the proposals aim to help ensure that the quality of applications is satisfactory, and therefore help to make the ISPV authorisation and supervision process more efficient for all parties.”

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