Prudential Regulation Authority Rulebook

2.1

A UK ISPV must ensure that at all times:

1. (1) it is fully funded; and
2. (2) if it is a multi-arrangement special purpose vehicle, each group of cells (if any) is fully funded.

2.2

In order to be considered fully funded a UK ISPV must satisfy all of the following requirements:

1. (1) the assets of the UK ISPV are recognised and valued in accordance with Valuation 2;
2. (2) the UK ISPV has at all times assets the value of which is equal to or exceeds the aggregate maximum risk exposure and the UK ISPV is able to pay the amounts it is liable for as they fall due; and
3. (3) the proceeds of the debt issuance or other financing mechanism are fully paid-in.

2.3

A UK ISPV must satisfy the requirements in 2.2 taking into account all of the following:

1. (1) the liquidity risk of the UK ISPV;
2. (2) the quantifiable risks of the UK ISPV; and
3. (3) the arrangements for holding assets in the UK ISPV.

2.4

The UK ISPV must:

1. (1) report on the matters referred to in 2.3(1) and 2.3(2) and demonstrate to the PRA that it satisfies the requirements set out in 2.2, in the report referred to in 5A.2; and
2. (2) be able to demonstrate to the PRA that it satisfies the requirements set out in 2.2, if requested to do so.

2.5

Payments relating to existing contracts of insurance and reinsurance contracts, that are expected to be received in the future by the UK ISPV from the undertaking that has transferred risk to the UK ISPV, may be included in the assets of the UK ISPV, provided that all of the following requirements are met:

1. (1) the future liabilities of the UK ISPV to the providers of debt or finance only arise subject to the receipt of the payments from the undertaking that has transferred risk to the UK ISPV;
2. (2) where the undertaking which has transferred risks to the UK ISPV is:
   1. (a) a UK Solvency II firm or Lloyd’s, there is no scenario under which the basic own funds of the undertaking would be negatively affected by the payment not being received by the UK ISPV;
   2. (b) a third country insurance undertaking, there is no scenario under which the basic own funds of the undertaking  determined as if it were a UK Solvency II firm, would be negatively affected by the payment not being received by the UK ISPV;
3. (3) the UK ISPV continues to meet the conditions set out in 2.2 in the event that the payments from the undertaking that has transferred risk to the UK ISPV are not received; and
4. (4) the payments do not relate to expenses that are excluded from the aggregate maximum risk exposure.

2.6

A UK ISPV must invest all its assets in accordance with all of the following requirements:

1. (1) with respect to the whole portfolio of assets, UK ISPV shall only invest in assets and instruments whose risk the UK ISPV can properly identify, measure, monitor, manage, control and report;
2. (2) assets shall be invested in such a manner as to ensure the security, quality, liquidity and profitability of the portfolio as a whole. In addition, the localisation of those assets shall be such as to ensure their availability;
3. (3) all assets shall be invested in a manner appropriate to the nature and duration of the UK ISPV's liabilities. All assets shall be invested in the best interest of the undertakings transferring risks to the UK ISPV;
4. (4) the use of derivative instruments shall be possible insofar as they contribute to a reduction of risks or facilitate efficient portfolio management;
5. (5) investments and assets which are not admitted to trading on a regulated market shall be kept to prudent levels;
6. (6) assets shall be properly diversified in such a way as to avoid excessive reliance on any particular asset, issuer or group of undertakings, or geographical area and excessive accumulation of risk in the portfolio as a whole; and
7. (7) investments in assets issued by the same issuer, or by issuers belonging to the same group, shall not expose the UK ISPV to excessive risk concentration.