Third Country Branches

1.1

Unless otherwise stated, this Part applies to third country branch undertakings, except Swiss general insurers.

1.2

In this Part, the following definitions shall apply:

branch assets

means, in respect of a third country branch, the assets that the third country branch undertaking has allocated to the operations of that third country branch.

composite third country branch

means a third country branch (except a third country pure reinsurance branch) that carries on both long-term insurance business and general insurance business in the UK.

location of the claim

means, in respect of third country insurance branch obligations, the location of:

1. (1) the policyholder;
2. (2) the insured risk; or
3. (3) the place where the contract was signed with the third country branch undertaking (including whether the business was transacted through the third country branch or the head office of the third country branch undertaking).

preferred claims

means the following categories of claim:

1. (1) claims by employees arising from employment contracts and employment relationships (including in respect of contributions to occupational pension schemes);
2. (2) claims by public bodies on taxes;
3. (3) claims by social security systems; and
4. (4) claims on assets subject to rights in rem.

third country branch insurance obligations

means the insurance (but not reinsurance) obligations assumed by a third country branch.

2.1

A third country branch undertaking must maintain at a place of business in the UK all records relating to:

1. (1) the activities carried on from its third country branch.
2. (2) [deleted.]

[Note: Art. 162 (2) of the Solvency II Directive]

2.2

A third country branch undertaking must maintain records including the following information:

1. (1) the location of all branch assets; and
2. (2) sufficient information to enable any person charged with the winding up of the third country branch undertaking or third country branch to take control of those branch assets.

2.3

A third country branch undertaking must produce and keep management accounts relating to the whole balance sheet of the third country branch, including:

(1) all branch assets that are available for the purposes of 6.1H;
(2) any other branch assets; and 
(3) all liabilities in respect of the third country branch’s operations.

3.1

3.1A

The requirements in 3.3 and 3.4 do not apply to a third country branch undertaking that has a third country pure reinsurance branch.

3.2

[Deleted.]

3.3

A third country branch undertaking must hold on deposit as security in the UK with a CRD credit institution assets of an amount equal to at least:

1. (1) £600,000 for a third country insurance branch whose insurance business is limited to general insurance business, except in the case where all or some of the general insurance business classes 10 to 15 are covered, in which case the amount must be at least £875,000;
2. (2) £875,000 for a third country insurance branch whose insurance business is limited to long-term insurance business; or
3. (3) the sum of the amounts set out in (1) and (2) for a third country insurance branch that is a composite third country branch.

3.4

A third country branch undertaking must ensure that the assets held on deposit as security in accordance with 3.3 are of low volatility and are not subject to significant fluctuations in price or value as a result of changing market conditions.

4.1

[Deleted]

4.2

4.3

[Deleted]

4.4

[Deleted.]

4.5

[Deleted.]

4.6

[Deleted.]

5.1

The branch scheme of operations must set out the following:

1. (1) the nature of the risks or commitments which the third country branch undertaking proposes to cover;
2. (2) the guiding principles as to reinsurance;
3. (3) [deleted]
4. (4) [deleted]
5. (5) [deleted]
6. (6) estimates of the cost of setting up the administrative services and the organisation for securing business, the financial resources to meet those costs and, where the risks to be covered are classified under paragraph 18 of Part 1 of Schedule 1 to the Regulated Activities Order, the resources available for the provision of assistance;
7. (7) information on the structure of the system of governance; and
8. (8) for the first three financial years:
1. (a) a forecast balance sheet;
2. (b) estimates of the financial resources intended to cover the provisions referred to in 6.1;
3. (c) for general insurance business:
1. (i) estimates of management expenses other than installation costs, in particular current general expenses and commissions;
2. (ii) estimates of premiums or contributions and claims under any contract of insurance; and
4. (d) for long-term insurance business:
5. a plan setting out detailed estimates of income and expenditure in respect of direct business, reinsurance acceptances and reinsurance cessions.

6.1

A third country branch undertaking must establish adequate provisions to cover the insurance and reinsurance obligations assumed by the third country branch undertaking in the UK, calculated in accordance with 6.1A to 6.1E.

6.1A

A third country branch undertaking must calculate the provisions referred to in 6.1:

1. (1) such that the calculation makes use of and is consistent with information provided by the financial markets and generally available data on underwriting risks (market consistency);
2. (2) in a prudent, reliable and objective manner;
3. (3) taking into account the principles set out in Valuation 2 and 3; and
4. (4) subject to 6.1B, in accordance with:
   1. (a) 6.1C to 6.1F;
   2. (b) Technical Provisions 9 to 12;
   3. (c) Technical Provisions 14;
   4. (d) Technical Provisions – Further Requirements 2 to 5;
   5. (e) Technical Provisions – Further Requirements 10 to 12;
   6. (f) Technical Provisions – Further Requirements 23 and 24; and
   7. (g) Technical Provisions – Further Requirements 26 and 27
   8. where a reference to ‘technical provisions’ is to be interpreted as the provisions referred to in 6.1.

6.1B

In Technical Provisions – Further Requirements 2.1, the reference to ‘and the risk margin’ is to be disregarded.

6.1C

The insurance and reinsurance obligations referred to in 6.1 must be calculated using the branch best estimate unless 6.1E applies, in which case they must be calculated in accordance with 6.1E.

6.1D

The branch best estimate must be calculated in accordance with:

1. (1) Technical Provisions 3;
2. (2) Technical Provisions 5;
3. (3) the Matching Adjustment Part;
4. (4) Technical Provisions – Further Requirements 6 to 9 (other than 7.2);
5. (5) Technical Provisions – Further Requirements 13 to 21; and
6. (6) Technical Provisions – Further Requirements 25,

where a reference to ‘best estimate’ is to be interpreted as branch best estimate and a reference to ‘technical provisions’ is to be interpreted as the provisions referred to in 6.1.

6.1E

Where:

1. (1) future cash-flows associated with insurance or reinsurance obligations can be replicated reliably;
2. (2) that replication is provided using financial instruments; and
3. (3) those financial instruments have a reliable market value which is observable,

then the value of those future cash-flows must be determined on the basis of the market value of those financial instruments, and calculated in accordance with Technical Provisions – Further Requirements 22, where references to ‘Technical Provisions 2.5(2)(a)’ is to be interpreted as a reference to ‘6.1E of the Third Country Branches Part’ and references to ‘technical provisions’ are to be interpreted as the provisions referred to in 6.1.

6.1F

1. (1) A third country branch undertaking must ensure that the branch best estimate, and the assumptions underlying the calculation of the branch best estimate, are regularly compared against experience.
2. (2) Where the comparison in (1) identifies that a systematic deviation exists between the branch best estimate calculations and experience, the third country branch undertaking must make appropriate adjustments to the actuarial methods being used and/or the assumptions being made to ensure that the branch best estimate is calculated in accordance with 6.1A to 6.1D.

6.1G

A third country branch undertaking must hold branch assets in respect of the provisions referred to in 6.1.

6.1H

In addition to complying with 6.1G, a third country branch undertaking must, in respect of any third country branch insurance obligations, hold branch assets that are available, as set out in 6.1I.

6.1I

Subject to 6.1J, a branch asset is only available for the purposes of 6.1H if, in the event of a winding up of the third country branch undertaking or third country branch, as the case may be:

1. (1) either:
   1. (a) all of the third country branch undertaking’s assets are available to meet its insurance obligations (including its third country branch insurance obligations) in priority to other creditors (other than creditors with preferred claims); or
   2. (b) it is an asset representing ‘technical provisions’ (or the equivalent concept) and is available to meet the insurance obligations of the third country branch undertaking (including its third country branch insurance obligations) in priority to any other creditors
      and, in either case, distribution of the asset would be made on a basis that does not differentiate according to the location of the claim; or
2. (2) it is an asset that the third country branch undertaking has made exclusively available to meet its third country branch insurance obligations.
   

6.1J

An asset is not prevented from being available for the purposes of 6.1I(1) if the whole or part of the expenses arising from the applicable winding up procedure would take priority over insurance obligations.

6.2

[Deleted.]

6.3

A third country branch undertaking must value assets and liabilities (other than the insurance and reinsurance obligations referred to in 6.1) in accordance with the Valuation Part where, except for Valuation 9.4(2)(a), a reference to ‘technical provisions’ is to be interpreted as the provisions referred to in 6.1, a reference to the ‘Technical Provisions Part’ is to be interpreted as a reference to ‘Third Country Branches 6’ and a reference to the ‘Solvency Capital Requirement – General Provisions Part’ can be disregarded.

6.4

6.5

[Note: Art. 165 of the Solvency II Directive]

7.1

A third country branch undertaking must fulfil the following requirements in the Conditions Governing Business Part, as modified by 7.2 to 7.12:

1. (1) Conditions Governing Business 1;
2. (1A) Conditions Governing Business 1A;
3. (2) Conditions Governing Business 2.2 to 2.6 (other than 2.2(3)(e));
4. (2A) Conditions Governing Business 2A (other than 2A.4);
5. (3) Conditions Governing Business 3 (other than 3.1(2)(b), 3.1A(8), 3.3, 3.5(3)(a), 3.5(3)(b), 3.8(2)(b)(i), 3.8(2)(c), 3.8(4), 3.8(5), 3.12(3) and 3.12(4));
6. (3A) Conditions Governing Business 3A;
7. (4) Conditions Governing Business 4 to 7; and
8. (5) Conditions Governing Business 11A, 11B, 11C, 11D, 11E and 11F.

7.2

1. (1) [Deleted]
2. (2) [Deleted]
3. (3) A reference to ‘technical provisions’ is to be interpreted as a reference to:
   1. (a) [deleted]
   2. (b) [deleted]
   3. (c) the provisions referred to in 6.1 of this Part.
4. (4) A reference to ‘function’ is to be interpreted as a reference to the functions performed in relation to the operations effected by the third country branch and includes the function of authorised UK representative.
5. (5) [Deleted]
6. (6) A reference to ‘best estimate’ is to be interpreted as ‘branch best estimate’.
7. (7) A reference to ‘the Technical Provisions Part’ should be read as a reference to 6.1 of this Part.
8. (8) A reference to ‘the Investments Part’ should be read as a reference to 8.3 of this Part.
9. (9) A reference to ‘the Valuation Part’ should be read as a reference to 6.3 of this Part.

7.3

A third country branch undertaking must apply the requirements referred to in 7.1 taking account only of matters relevant to the operations effected by the third country branch.

7.4

[Deleted]

7.5

1. (1) In Conditions Governing Business 1.2, the reference to ‘UK Solvency II firm’ in the definition of ‘concentration risk’ is to be interpreted as ‘third country branch undertaking’.
2. (2) In Conditions Governing Business 1A.1 references to the following defined terms are to be disregarded:
   1. (a) ‘own funds’;
   2. (b) ‘SCR’; and
   3. (c) ‘MCR’.
3. (3) In Conditions Governing Business 3.2, references to ‘and eligible own funds’ are to be disregarded.
4. (4) In Conditions Governing Business 3.5(2)(c) reference to ‘the firm as a whole’ should be read as ‘the third country branch’.
5. (5) In Conditions Governing Business 3.6, 3.6A and 3.6B to 3.6F references to the SCR are to be disregarded.
6. (6) In Conditions Governing Business 3.8A(1)(b) a reference to ‘own funds item’ is to be interpreted as a reference to the provisions referred to in 6.1 of this Part.
7. (7) In Conditions Governing Business 6.1(1)(i), reference to ‘the risk modelling underlying the calculation of the SCR and MCR’ is to be disregarded.

7.6

In Conditions Governing Business 2.2(3)(b), the reference to Conditions Governing Business 3 to 7 is to be interpreted with reference to 7.1(3) and the modifications set out in 7.2 and 7.5.

7.7

A firm must submit the assessments referred to in Conditions Governing Business 3.2 (as modified by 7.2 to 7.6) as part of the information reported annually in accordance with Reporting 2.

7.8

In Conditions Governing Business 4.2(1) ‘to the extent that these apply to third country branches in accordance with the Third Country Branches Part’ should be added after ‘deriving from FSMA that apply to UK Solvency II firms’.

7.9

In Conditions Governing Business 7.1 ‘to the extent that these apply to third country branches in accordance with the Third Country Branches Part’ should be added after ‘deriving from FSMA that apply to UK Solvency II firms’.

7.10

In Conditions Governing Business 11B.1(1) reference to Technical Provisions 13 should be interpreted as a reference to 6.1F of this Part.

7.11

In Conditions Governing Business 11B.1(2)(g) the references to Chapter 14 and rules 2.1 to 2.3 of the Technical Provisions Part should be interpreted as references to 6.1 of this Part.

7.12

In Conditions Governing Business 11B.1(2)(a) to (e), 11C.2(2) and 11C.3(8) the references to Technical Provisions - Further Requirements should be interpreted in accordance with Chapter 6 of this Part.

8.1

A third country branch undertaking that has a third country insurance branch must fulfil the requirements laid down in the Investments Part, as modified by 8.2 and 8.3.

8.2

A reference to “technical provisions” is to be interpreted as laid down in 7.2(3).

8.3

A third country branch undertaking must comply with 8.1 taking account only of the operations effected by the third country insurance branch.

8.4

[Deleted.]

9.1

A third country branch undertaking must fulfil the applicable requirements laid down in the Reporting Part.

9.2

9.3

[Deleted.]

10.1

A third country branch undertaking must fulfil the requirements laid down in Undertakings in Difficulty 2.

10.2

[Deleted]

11.1

1. (1) A third country insurance undertaking that has a composite third country branch must fulfil the requirements laid down in Composites 2 and 3, as modified by 11.2.
2. (2) [deleted.]

11.2

1. (1) The requirements referred to in 11.1 must be fulfilled taking account only of the operations effected by the third country branch.
2. (2) [Deleted]
3. (3) [Deleted]
4. (4) The reference to ‘technical provisions’ in Composites 3.3 is to be interpreted as a reference to the provisions in 6.1.

12.1

A third country branch undertaking except a pure reinsurer must not carry on any commercial business other than insurance business and activities directly arising from that business.

12.2

A third country branch undertaking that is a pure reinsurer must not carry on any business other than the business of reinsurance and related operations.

13.1

A third country branch undertaking must maintain adequate worldwide financial resources, to ensure that there is no significant risk that its liabilities cannot be met as they fall due.

14.1

[Deleted]

14.2

15.1

 [Deleted]

15.2

[Deleted]