The PRA has published a consultation paper which contains proposed updates to its approach and expectations in relation to the authorisation and supervision of insurance special purpose vehicles (ISPVs).

The main points of interest are the clarification of when third party opinions will (or will not) be required by the PRA, of when "roll-over" funding can be used, and of the PRA's expectations on risk transfer requirements.

The consultation paper1 is informed by the PRA's experience of authorising and supervising ISPVs since the UK's insurance linked securities regime was introduced in December 2017. The PRA is proposing to change its Supervisory Statement 8/17 on the authorisation and supervision of ISPVs2.

The key changes which the PRA is proposing are:

  1. The PRA will understand that final application and transaction documents will not always be available when an application for authorisation is made to the PRA, so the PRA will adjust its expectations regarding documents accordingly.
  2. The PRA will generally not expect to see third party opinions (in particular legal opinions), except where it would be difficult for the PRA to assess the application without an opinion, e.g. where the transaction contains complex or novel features.
  3. The PRA wants to enable "roll-over" funding mechanisms to be used, although it will not be possible to use funds to meet the funding requirements of two consecutive risk transfer arrangements at the same time.
  4. The amended Supervisory Statement will include a section setting out the PRA's expectations on risk transfer requirements. In particular, this will cover the number and type of risk transfer arrangements an ISPV may assume. The PRA is proposing that a stand-alone ISPV, and a single cell of a PCC, may take on only a single risk, from a single cedant.

The consultation will be open until 3 December 2019. The consultation paper sets out the proposed amendments to SS8/17 which will, subject to responses, be adopted upon the consultation closing.