Prudent Person Principle: General Principles


A firm must invest its assets in accordance with the following requirements:

  1. (1) the firm must only invest in assets and instruments the risks of which it can properly identify, measure, monitor, manage, control and report and appropriately take into account in the assessment of its overall solvency needs in accordance with Conditions Governing Business 3.8(2)(a);
  2. (2) all the assets of the firm must be:
    1. (a) invested in such a manner as to ensure the security, quality, liquidity and profitability of the portfolio of assets of the firm as a whole; and
    2. (b) localised such as to ensure their availability; and
  3. (3) in the case of a conflict of interest, the firm must, or must procure that any third party which manages its assets will ensure that the investment of assets is made in the best interest of policyholders.

[Note: Art. 132(1) – (2) of the Solvency II Directive]