Solvency II ring-fenced fund (RFF) regime


The Solvency II Regulations contain provisions which affect both the determination of own funds and the solvency capital requirement (SCR), where RFFs arise. The assessment of whether an arrangement gives rise to a RFF is based on the restrictions which apply to the use of certain assets or own funds. These restrictions may arise from the particular characteristics of the arrangement, contract or product.4



Restrictions on assets and own funds result from the nature of, and regulatory regime for, with-profits insurance business in the United Kingdom. As communicated in SS1/14, the PRA expects that such restrictions will generally mean that each with-profits fund displays the characteristics of a RFF. A Solvency II firm will therefore be required to reflect the lack of availability of assets and own funds within the with-profits fund to cover the risks of the rest of the firm.5



Where a firm operates sub-funds within a with-profits fund, it will need to determine whether any or all of those sub-funds should be treated as separate with-profits funds as provided for in the FCA’s Conduct of Business Sourcebook chapter 20 (COBS 20). If the arrangements governing a sub-fund mean that the fund needs to be treated as a separate with-profits fund then the PRA expects that each such fund would be treated as a RFF under Solvency II.