Article 275(3) of the Solvency II Regulation provides for the application of the proportionality principle with the ‘internal organisation of the insurance or reinsurance undertaking, and the nature, scale and complexity of the risks inherent in its business’ to be taken into account when designing the remuneration policy.


The PRA takes the view that for smaller insurers (the majority of which operate in one locality or niche market) to seek to meet the expectations set out in this SS would have a disproportionate cost impact on these firms. Conversely, larger firms with complex risk profiles should seek to meet (or exceed) the PRA’s expectations as set out in this SS in complying with the regulatory requirements. The PRA therefore considers it appropriate to limit the application of the expectations as set out in this SS to significant firms only (Category 1 and 2 PRA-regulated firms).9



The PRA will still expect smaller firms (Category 3-4 PRA regulated firms) to comply appropriately with the Solvency II Regulation when setting their remuneration policies. The application of proportionality under Article 275(3) does not equate to smaller firms being able to disapply the Solvency II Regulation requirements. These firms should be exercising appropriate judgement to ensure that the specific arrangements for Solvency II staff contained in Article 275(2) are applied proportionality and modified where required to reflect the size and nature of their businesses.


The PRA will take a proportionate approach in assessing firms’ compliance with Article 275(2). The PRA will also seek, so far as possible, to limit the potential for outcomes that are disproportionately different across sectors. In this context, firms may be aware that, in respect of UK banking and asset management entities (subject to CRD, AIFMD and UCITS V), current PRA and FCA guidance10 provides for the prescriptive requirements on deferral to be disapplied if an individual has total remuneration of no more than £500,000 and has been awarded variable remuneration of no more than 33% of their total remuneration. While Article 275(2) does not provide for the disapplication of its provisions in these circumstances, the PRA will take this indicator of proportionality into account when assessing the specific arrangements that firms have put in place for Solvency II staff in order to comply with Article 275(2). For Solvency II staff performing activities for the firm for only part of the performance period, the quantitative threshold can be adjusted relative to the months for which services were performed.


  • 10. Rule 16.7, Remuneration Part of the PRA Rulebook, AIFMD Remuneration Code (SYSC 19B.1.13A G) and UCITS V Remuneration Code (SYSC 19E.2.17 G).