Solvent exit planning for insurers

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In January, the PRA published CP2/24 – Solvent exit planning for insurers.  This consultation paper (CP) outlines the Prudential Regulation Authority’s (PRA) proposals for PRA-regulated insurers to:

  • prepare for an orderly ‘solvent exit’ as part of business-as-usual activities, through a Solvent Exit Analysis (SEA), and
  • be able to execute a solvent exit if needed, including a requirement for a detailed Solvent Exit Execution Plan (SEEP) within one month of a solvent exit becoming reasonably likely.

The proposals in this CP would, if implemented, add a new Preparations for Solvent Exit Part to the PRA Rulebook and introduce a new supervisory statement applicable to those insurers that are in scope of the proposed new rules.

The SEA would need to be updated whenever a material change took place and at least every three years.  The PRA states that it expects the reduction in costs of exit planning due to the earlier preparation to be greater than the costs of preparing and updating the SEA as this can leverage existing work.  This is less likely to be the case for smaller insurers who are not currently required to have formal resolution plans.   We note that the PRA has estimated the cost for small firms of preparing and updating the SEA to be £105k, made up of £12k initial work and £3k pa for updates. For the smallest firms in particular, this is a significant cost, and in mutuals all costs are effectively borne by policyholders.  This may also be an underestimate as many small firms will not have the appropriate resources to do the work in-house.

This consultation closes on Friday 26 April 2024. The PRA invites feedback on the proposals set out in this consultation.