Insurance Special Purpose Vehicles

1.1

Unless otherwise stated, this Part applies to a UK ISPV.

1.2

In this Part, the following definitions shall apply:

assumption of risk notification

means a notification by a UK protected cell company of the assumption of a risk required under regulation 60 of the Risk Transformation Regulations.

group of cells

has the meaning given in regulation 3 of the Risk Transformation Regulations.

group of cells notification form

means the form in rule 6.2.

inter-cell arrangement notification

means a notification by a UK protected cell company of:

1. (1) the creation of an arrangement within a group of cells, as required by regulation 69 of the Risk Transformation Regulations; or
2. (2) the amendment or cancellation of an arrangement within a group of cells, as required by regulation 70 of the Risk Transformation Regulations.

MISPV new risk assumption notification form

means the form in 6.1.

multi-arrangement special purpose vehicle

means a UK ISPV which assumes risks under more than one separate contractual arrangement from one or more undertakings.

qualifying holding

means a direct or indirect holding in an undertaking which represents 10% or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of that undertaking.

Risk Transformation Regulations

means the Risk Transformation Regulations 2017 (2017/1212).

UK protected cell company

means a protected cell company formed under the Risk Transformation Regulations.

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.

2A.1

A UK ISPV must ensure that the following conditions are satisfied at all times:

1. (1) the UK ISPV only assumes risks from an undertaking through reinsurance contracts or assumes insurance risks through similar arrangements;
2. (2) where the UK ISPV assumes risks from more than one undertaking, the solvency of the UK ISPV is not adversely affected by winding-up proceedings of any one of those undertakings; and
3. (3) the UK ISPV has not determined, on the basis of an assessment carried out in accordance with 2C.5, that any shareholder or member having a qualifying holding in the UK ISPV fails to satisfy the criteria set out in 2C.5(1) to 2C.5(4).

2A.2

A UK ISPV must be able to demonstrate to the PRA that it meets the requirements set out in 2.1 to 2.6, 2A.1, Chapter 2B, 2C.1 to 2C.6, 2C.8 to 2C.10 and 5A.1 to 5A.5.

2B.1

A UK ISPV must ensure that the contractual arrangements relating to the transfer of risk from an undertaking to the UK ISPV ensure that the UK ISPV is at all times fully funded in accordance with 2.2 to 2.5.

2B.2

A UK ISPV must ensure that the contractual arrangements relating to the transfer of risk from an undertaking to the UK ISPV and from the UK ISPV to the providers of debt or financing shall ensure all of the following:

1. (1) the transfer of risk is effective in all circumstances; and
2. (2) the extent of risk transfer is clearly defined and incontrovertible.

2B.3

The transfer of risk shall not be effective in all circumstances where there are connected transactions which could undermine the effective transfer of risk.

2B.4

A UK ISPV must ensure that the contractual arrangements relating to the transfer of risk from an undertaking to the UK ISPV and from that UK ISPV to the providers of debt or finance shall ensure all of the following:

1. (1) the claims of the providers of debt or financing mechanisms are at all times subordinated to the payment obligations of the UK ISPV to the undertaking;
2. (2) no payments are made to the providers of debt or financing, if following those payments, the UK ISPV would no longer be fully funded;
3. (3) the providers of debt or finance to the UK ISPV have no rights of recourse to the assets of the undertaking; and
4. (4) the providers of debt or finance to the UK ISPV have no rights to apply for the winding-up of the UK ISPV.

2C.1

A UK ISPV must ensure that all persons who effectively run the UK ISPV shall at all times fulfil the requirements set out in Insurance – Fitness and Propriety 2.1, 2.2 and 2.3(1).

2C.2

A UK ISPV must notify the PRA of the identity of the persons who effectively run the UK ISPV and must be able to demonstrate to the PRA that those persons meet the requirements set out in Insurance – Fitness and Propriety 2.1, 2.2 and 2.3(1).

2C.3

A UK ISPV must notify the PRA of any changes in the identity of the persons who effectively run the UK ISPV and provide the PRA with all information needed to assess whether any new persons appointed to run the UK ISPV are fit and proper in accordance with the requirements in Insurance – Fitness and Propriety 2.1, 2.2 and 2.3(1).

2C.4

A UK ISPV must notify the PRA if any of the persons who effectively run a UK ISPV have been replaced because they no longer fulfil the requirements set out in Insurance – Fitness and Propriety 2.1, 2.2 and 2.3(1).

2C.5

A UK ISPV must take reasonable steps to keep under assessment whether shareholders or members having a qualifying holding in that UK ISPV are fit and proper, taking into account all of the following criteria:

1. (1) the reputation and integrity of the shareholder or member having a qualifying holding in the UK ISPV;
2. (2) the financial soundness of the shareholder or member having a qualifying holding in the UK ISPV;
3. (3) the level of influence that the shareholder or member having a qualifying holding in the UK ISPV will exercise over the UK ISPV; and
4. (4) whether there are reasonable grounds to suspect that, in connection with the qualifying holding of the shareholder or member having a qualifying holding in the UK ISPV, money laundering or terrorist financing within the meaning of regulation 3(1) of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 is being or has been committed or attempted, or that the qualifying holding could increase that risk.

2C.6

A UK ISPV must notify the PRA of the identity of the persons who are its shareholders or members having a qualifying holding.

2C.7

A UK ISPV must notify the PRA as soon as it becomes aware that any shareholder or member having a qualifying holding may not be fit and proper, taking into account the criteria in 2C.5.

2C.8

A UK ISPV must have an effective system of governance which provides for the sound and prudent management of the UK ISPV and which is appropriate to the nature, scale and complexity of the risks it assumes and the regulated activity for which it is authorised.

2C.9

The system of governance of a UK ISPV must include:

1. (1) written policies:
   1. (a) in relation to at least risk management, internal control, administrative and accounting procedures and, where relevant, outsourcing;
   2. (b) including policies relating to the areas set out in Conditions Governing Business 3.1(2)(c) to the extent that these are relevant taking into account the regulated activity for which the UK ISPV is authorised;
2. (2) effective internal controls to ensure that the mandatory contract conditions in Chapter 2B and the requirements in 2.2 to 2.6 are fulfilled on an ongoing basis; and
3. (3) an effective risk-management system comprising processes and reporting procedures necessary to identify, measure, monitor, manage and report, on an ongoing basis the risks to which the UK ISPV could be exposed.

2C.10

A UK ISPV must ensure that the policies referred to in 2C.9(1) are implemented effectively.

3.1

[Deleted.]

3.1A

[Deleted.]

4.1

This Chapter only applies to a multi-arrangement special purpose vehicle.

4.2

A multi-arrangement special purpose vehicle must be a UK protected cell company.

4.3

An assumption of risk notification must be submitted using the MISPV new risk assumption notification form.

4.4

An inter-cell arrangement notification must be submitted using the group of cells notification form.

4.5

A multi-arrangement special purpose vehicle must be able to demonstrate to the PRA on request that its solvency cannot be adversely affected by the winding-up proceedings of any one of the undertakings transferring risks to it and that the multi-arrangement special purpose vehicle can maintain the solvency requirement referred to in 2.2 to 2.5 at all times.

4.6

When demonstrating that the multi-arrangement special purpose vehicle's solvency cannot be adversely affected by the winding-up proceedings of any one of the undertakings transferring risk to it, the multi-arrangement special purpose vehicle must provide sufficient supporting evidence to allow the PRA to assess the multi-arrangement special purpose vehicle's overall aggregate maximum risk exposure and the aggregate maximum risk exposure of each individual contractual arrangement relating to the transfer of risk from an undertaking.

4.7

A multi-arrangement special purpose vehicle must be able to demonstrate to the PRA on request sufficient supporting evidence that it satisfies the conditions set out in 2.2 to 2.5 and Chapter 2B taking into account each individual contractual arrangement in order to determine whether the multi-arrangement special purpose vehicle complies with the solvency requirements.

5.1

A UK ISPV must not engage in any activities other than insurance risk transformation and activities directly arising from insurance risk transformation.

5A.1

A UK ISPV must submit to the PRA such information as is necessary for the purposes of the PRA’s supervision of the UK ISPV.

5A.2

A UK ISPV must report all of the following information to the PRA:

1. (1) the value of the assets of the UK ISPV valued in accordance with Valuation 2, distinguished by material class and a description of the basis, methods and assumptions used for their valuation;
2. (2) the aggregate maximum risk exposure of the UK ISPV and a description of the basis, methods and assumptions used for the determination of the aggregate maximum risk exposure;
3. (3) conflicts of interest between the UK ISPV, the undertakings and the providers of debt or finance; and
4. (4) significant transactions entered into by the UK ISPV during the last reporting period.

5A.3

A UK ISPV must submit the report referred to in 5A.2 at least annually.

5A.4

A UK ISPV must submit the report referred to in 5A.2 no later than 14 weeks after the UK ISPV's financial year end.

5A.5

A UK ISPV must immediately inform the PRA of any changes that could affect the compliance by the UK ISPV with 2.2 to 2.6, Chapter 2A, Chapter 2B, 2C.1 to 2C.6 and 2C.8 to 2C.10.

5A.6

As part of the reporting referred to in 5A.2 , a UK ISPV must submit annually to the PRA quantitative information using the templates set out in 6.3 and in accordance with the instructions in 6.4, and comprising:

1. (1) content of submission, as specified in template SPV.01.01, according to the instructions under the reference SPV.01.01;
2. (2) basic information on the UK ISPV, as specified in template SPV.01.02, according to the instructions under the reference SPV.01.02;
3. (3) balance sheet data of the UK ISPV, distinguishing the material classes of assets, liabilities and equity items, including debt or other financing mechanism issued, as specified in template SPV.02.01, according to the instructions under the reference SPV.02.01;
4. (4) off-balance sheet data of the UK ISPV, as specified in template SPV.02.02, according to the instructions under the reference SPV.02.02;
5. (5) risks assumed regarding each individual contractual arrangement relating to the transfer of risk from an undertaking, as specified in template SPV.03.01, according to the instructions under the reference SPV.03.01; and
6. (6) list of debt securities or other financing mechanism issued regarding each individual contractual arrangement relating to the transfer of risk from an undertaking, as specified in template SPV.03.02, according to the instructions under the reference SPV.03.02.

5A.7

As part of the reporting referred to in 5A.2, a UK ISPV must submit annually to the PRA qualitative information covering the following:

1. (1) an adequate description of the basis, methods and assumptions used for the valuation of the assets;
2. (2) an adequate description of the basis, methods and assumptions used for the determination of the aggregate maximum risk exposure;
3. (3) details of any conflicts of interest between the UK ISPV, the undertakings transferring risk to the UK ISPV and the providers of debt or finance;
4. (4) details of any significant transactions entered into by the UK ISPV during the last reporting period;
5. (5) information to demonstrate that the UK ISPV continues to be fully funded, including:
   1. (a) a description of the risks, including liquidity risks and quantifiable risks, assumed by the UK ISPV; and
   2. (b) information on the debt instruments issued or other financing mechanism entered into;
6. (6) if the UK ISPV has not continuously complied with the requirement to be fully funded during the reporting period, the UK ISPV shall report any relevant information on that non-compliance and its rectification in order to comply with 2.2 to 2.5 during the reporting period; and
7. (7) qualitative information on any changes that could affect the UK ISPV's compliance with the requirements set out in 2.2to 2.6, Chapter 2A, Chapter 2B, 2C.1 to 2C.6 and 2C.8 to 2C.10.

5A.8

When describing the risks assumed, as required by 5A.7, a UK ISPV must provide information on:

1. (1) whether the risks assumed are mainly risks under contracts of long-term insurance or risks under contracts of general insurance;
2. (2) what types of trigger events apply to those risks;
3. (3) whether a trigger event occurred in the reporting period, triggering a claim against the UK ISPV's assets;
4. (4) whether any amounts arising from a claim were paid out in the reporting period, and if that is the case, how much has been paid out to date and whether the trigger event has negatively affected the UK ISPV's liquidity; and
5. (5) whether the UK ISPV's risk profile has changed materially since the previous reporting period or from the original terms and conditions as communicated to the PRA upon authorisation.

5A.9

When providing information on debt instruments issued or other financing mechanism entered into as required by 5A.7, a UK ISPV must report on the following:

1. (1) the proceeds of the debt issuance or other financing mechanism and whether they have been fully paid-in regarding each individual contractual arrangement relating to the transfer of risk from an undertaking;
2. (2) the types of tiers of the financing mechanism, specifying the tranches or tiers, including information on external ratings received or internal ratings used for issued debt instruments and which, if any, external credit assessment institutions were used;
3. (3) the reasons why the financial arrangements are regarded as sufficiently robust to ensure continued protection of potential claims of the undertaking transferring risk to the UK ISPV, to maintain its ability to meet amounts it is liable for as they fall due and to ensure the pay-out structure of debt or financing mechanisms; and
4. (4) any debt instruments that have been cancelled, bought back or redeemed, partially or in full, since those instruments were issued and separately for the current reporting period.

5A.10

A UK ISPV must submit the quantitative content of the report referred to in 5A.6, and the qualitative content of the report referred to in 5A.7, to the PRA in an electronic format.

5A.11

A UK ISPV must submit all monetary data from the report referred to in 5A.6 in the UK ISPV's currency of reporting. For that purpose, other currencies shall be converted into the currency of reporting, using the applicable exchange rate at the end of the reporting period.

5A.12

A UK ISPV must submit numeric values as facts according to the following formats:

1. (1) data points with the data type ‘Monetary’ shall be reported using a minimum precision equivalent to units; and
2. (2) data points with the data type ‘Integer’ shall be reported using no decimals and a precision equivalent to units.

6.1

The MISPV new risk assumption notification form can be found here.

6.2

The group of cells notification form can be found here.

6.3

The templates referred to in 5A.6 are the following:

1. (1) template SPV.01.01 can be found here;
2. (2) template SPV.01.02 can be found here;
3. (3) template SPV.02.01 can be found here;
4. (4) template SPV.02.02 can be found here;
5. (5) template SPV.03.01 can be found here; and
6. (6) template SPV.03.02 can be found here.

6.4

The instructions referred to in 5A.6 can be found here.