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:

  1. ‘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;
  2. 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.
  3. 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.
  4. 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.