The PRA recently published a Policy Statement (PS13/20)1 on its approach to the authorisation and supervision of ISPVs. The Policy Statement also provides feedback to the PRA’s Consultation Paper (CP 19/19)2 and sets out its final policy.
The changes are primarily to update Supervisory Statement 8/17 ‘Authorisation and supervision of insurance special purpose vehicles’.3 The main changes, effective from 22 May 2020, are:
- ‘documentation requirements’ section provides that whilst the PRA understands that some outstanding commercial terms may only be finalised post-approval, this must be communicated in the documentation prior to approval being granted. Independent third-party opinions will not always be required, but may be necessary where they would assist the PRA in assessing the conditions for authorisation;
- the ‘funding arrangements’ section describes the PRA’s expectations where there may be changes to an ISPV’s risk and/or funding (e.g. ‘roll-over’ mechanisms). Notably, when ‘roll-over’ funding is used, it will not be possible to use the same funds to meet the funding requirements of two consecutive risk transfer arrangements simultaneously.
- the ‘risk transfer requirements’ section elaborates on the PRA’s expectations on risk transfers. Importantly, a stand-alone ISPV, and a single cell of a PCC, may only take on a single contract for risk transfer from a single cedant.
- greater readability and detail on how the Scope of Permission (SOP) may be used in practice; how similar ‘repeat’ transactions will be treated to minimise duplication; and a reminder that the PRA may require an accounting consolidation assessment where an ISPV is consolidated into a group.
Firms who wish to apply for, or have obtained authorisation as ISPVs and (re)insurers seeking to use ISPVs as a risk mitigation will need to comply with these rules. The PRA has stated that it intends to keep the Policy Statement under review amidst changes in the UK regulatory framework.