CP2/24 – Solvent exit planning for insurers

PRA / Bank of England

25 January 2024

This week, PRA have released their consultation paper "CP2/24 – Solvent exit planning for insurers" in which they set out their proposed rules requiring insurers to prepare for a solvent exit as part of their BAU activities. The proposals are relevant all PRA-regulated insurers, including UK Solvency II and non-Directives, Society of Lloyd's and Managing Agents and mutuals and friendly societies, except for firms in passive run-off and UK branches of overseas insurers.

The proposals will require insurers to produce and maintain a Solvent Exit Analysis ("SEA"). The SEA will document a firm’s preparations for a solvent exit and is to be updated at least every 3 years (sooner if a material change takes place). The PRA can request a firm's SEA at any time.

The SEA should provide insurers with the appropriate level of understanding of when, and how, they might be likely to exit the market, crucially, while still solvent. The SEA should set out the indicators, barriers and risks to be considered in deciding to stop writing new business, and the timing of those decisions in order to achieve a solvent exit.

SEA's should be proportionate to the nature, scale and complexity of the firm. The SEA may be included within an existing capital management or recovery plan if one is already in place. There is likely to be a large range of circumstances under which a firm may need to consider a solvent exit and Chapter 2 of the CP sets out some examples of plausible scenarios that could be considered.

Once a solvent exit looks likely, the PRA will expect firms to produce a Solvent Exit Execution Plan ("SEEP"). This will form the blueprint for executing the solvent exit and will need to be produced within one month of a solvent exit becoming likely. The SEEP will need to be submitted to the PRA, and firms will be expected to keep the PRA and other interested stakeholders informed whilst the solvent exit is being executed.

As part of the consultation , PRA have released drafts of the PRA Rulebook instrument and Supervisory Statement. The closing date for responses is Friday 26 April 2024 and PRA intends to publish its Policy Statement during the second half of the year with implementation in Q4 2025.

CP2/24 – Solvent exit planning for insurers | Bank of England

Cara Spinks

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Cara Spinks
Head of Insurance Consulting

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