The government is consulting on a proposed new methodology for insurers to segregate life and non-life business, following the implementation of the EU ‘Solvency 2’ directive. This methodology is intended to meet the original policy aim of ensuring that firms only make distributions out of realised profits, whilst drawing on the Solvency 2 regulatory framework.
A change in the Prudential Regulation Authority rulebook following the introduction of the directive means that the concept of a ‘long-term fund’, as contained in Companies Act 2006, can no longer be used. Previously, firms were able to maintain life funds within a long-term fund, which allowed for segregation of the often illiquid assets held for the purpose of settling liabilities spanning multiple financial periods.
The first step in the new approach will begin with an insurance firm’s assets and then deduct the firm’s liabilities. The second step will be to deduct the value of certain assets of the firm which cannot reasonably be considered distributable, such as where there are regulatory restrictions, a surplus in a defined-benefit pension scheme, or the valuation of undertakings.
The consultation, which includes a set of draft regulations, will run until 15 November 2016. See here.
The government is consulting on a proposed new methodology for insurers to segregate life and non-life business, following the implementation of the EU ‘Solvency 2’ directive. This methodology is intended to meet the original policy aim of ensuring that firms only make distributions out of realised profits, whilst drawing on the Solvency 2 regulatory framework.
A change in the Prudential Regulation Authority rulebook following the introduction of the directive means that the concept of a ‘long-term fund’, as contained in Companies Act 2006, can no longer be used. Previously, firms were able to maintain life funds within a long-term fund, which allowed for segregation of the often illiquid assets held for the purpose of settling liabilities spanning multiple financial periods.
The first step in the new approach will begin with an insurance firm’s assets and then deduct the firm’s liabilities. The second step will be to deduct the value of certain assets of the firm which cannot reasonably be considered distributable, such as where there are regulatory restrictions, a surplus in a defined-benefit pension scheme, or the valuation of undertakings.
The consultation, which includes a set of draft regulations, will run until 15 November 2016. See here.
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