Prudential Regulation Authority Rulebook

3.1

A firm must calculate the required margin of solvency in respect of classes III and VII in accordance with 3.2 to 3.4.

3.2

If and in so far as a firm bears an investment risk, the calculation in 2.2 must be applied.

3.3

If and in so far as a firm bears no investment risk and if the allocation to cover management expenses in the relevant contract:

1. (1) has a fixed upper limit which is effective as a limit for a period exceeding five years, the calculation in 2.2 must be applied, but as if 2.2(1) contained a reference to 1% instead of 4%; or
2. (2) does not have a fixed upper limit which is effective as a limit for a period exceeding five years, the required margin of solvency is an amount equivalent to 25% of the preceding financial year’s net administrative expenses pertaining to such business.

3.4

Where a firm covers a death risk, a sum arrived at by applying the calculation in 2.3 (but excluding for these purposes 2.3(4) and (5)) must be added to the required margin of solvency, including a required margin of solvency of zero, arrived at under any of 3.2 and 3.3.