Prudential Regulation Authority Rulebook

3.1

For the purpose of Composites 2.2, the PRA would expect a composite firm to:

1. (a) comply with the governance rules set out in the Conditions Governing Business Part of the PRA Rulebook separately in respect of its general insurance business activities and its long-term insurance business activities to the extent that it is practicable to do so;
2. (b) separately identify the assets attributable to each of its long-term insurance business and its general insurance business on the basis of the accounts referred to in Composites 3.2; and
3. (c) maintain the assets attributable to its long-term insurance business and the assets attributable to its general insurance business separate from each other.

3.2

The firm should consider the appropriateness of the apportionment referred to in Composites 3.3(2), having regard to the requirements in Composites 2.2.

3.3

In order to comply with Composites 3.2 and Composites 3.3 the firm should prepare a notional balance sheet for each of its long-term insurance business and general insurance business, identifying the assets and liabilities relating to its long-term insurance business and its general insurance business, respectively.

3.4

For the purpose of Composites 4.2, firms should note that the Solvency II Regulations set out the method for calculating the notional minimum capital requirement (MCR).

3.5

In accordance with Article 74(6) of the Solvency II Directive, in the circumstances referred to in Composites 4.8 supervisory authorities may authorise the transfer of eligible own funds from one activity to the other. Therefore, if a composite firm that is in breach of either Composites 4.3(1) or 4.3(2) wishes, as part of its finance scheme referred to in Undertakings in Difficulty 4 of the Undertakings in Difficulty Part of the PRA Rulebook, to use eligible own funds attributable to its long-term insurance business to cover its notional non-life MCR or eligible own funds attributable to its general insurance business to cover its notional life MCR, it may only do so if it obtains a waiver of Composites 4.3 and 4.4 under section 138A of FSMA.

3.6

In deciding whether to grant a waiver to authorise the transfer of eligible own funds from one activity to the other on the basis of, the statutory tests under section 138A of FSMA, the PRA will have regard to whether the interests of policyholders of long-term insurance contracts would be prejudiced by a transfer of eligible own funds attributable to the long-term insurance business to cover the notional non-life MCR and whether the interests of policyholders of general insurance contracts would be prejudiced by a transfer of eligible own funds attributable to the general insurance business to cover the notional life MCR.

3.7

For the purposes of complying with its minimum financial obligations in Composites 4, a firm should consider whether it has any ring-fenced funds which would result in adjustments to its eligible own funds attributable to its long-term insurance business or to its general insurance business.