Prudential Regulation Authority Rulebook

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 MCR

means a capital requirement calculated in accordance with the Minimum Capital Requirement Part of the PRA Rulebook but taking account only of the operations effected by the third country branch.

branch scheme of operations

means a scheme containing the information required in 5.1.

branch SCR

means a capital requirement calculated in accordance with the SCR Rules but taking account only of the operations effected by the third country branch.

branch technical provisions

means the technical provisions established in accordance with the Technical Provisions Part of the PRA Rulebook to cover the insurance and reinsurance obligations assumed by a third country branch undertaking in the UK.

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.

EEA MCR

means a capital requirement calculated in accordance with the Minimum Capital Requirement Part of the PRA Rulebook but taking account only of the operations effected by the third country branch and all the third country undertaking EEA branches.

EEA SCR

means a capital requirement calculated in accordance with the SCR Rules but taking account only of the operations effected by the third country branch and all the third country undertaking EEA branches.

EEA technical provisions

means the technical provisions established in accordance with the Technical Provisions Part of the PRA Rulebook to cover the insurance and reinsurance obligations assumed by a UK-deposit insurer in the EEA.

EEA-deposit insurer

means a third country branch undertaking that has made a deposit in an EEA State (other than the UK) under Article 162(2)(e) of the Solvency II Directive in accordance with Article 167 of the Solvency II Directive.

pre-Solvency II branch MCR

means the minimum capital requirement referred to in INSPRU 1.5.42R of the PRA Handbook that applied to the third country branch undertaking as at 31 December 2015.

third country branch undertaking SCR

means

1. (1) for a UK-deposit insurer, EEA SCR;
2. (2) for an EEA-deposit insurer, its solvency capital requirement calculated according to the relevant Solvency II EEA implementing measures in the EEA State that supervises the solvency of the entire business of the branches within the EEA in accordance with Article167 of the Solvency II Directive;
3. (3) for all other third country branch undertakings, the branch SCR.

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; and
2. (2) if it is a UK-deposit insurer, the activities carried out from all the third country undertaking EEA branches.

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

3.1

A third country branch undertaking (except a UK-deposit insurer, an EEA-deposit insurer and a third country branch undertaking that has a third country pure reinsurance branch) must hold assets required to cover the branch SCR as follows:

1. (1) in the UK, assets representing the branch SCR up to the amount of the branch MCR; and
2. (2) in any EEA State, assets representing the amount of the branch SCR in excess of the amount of the branch MCR.

3.2

A UK-deposit insurer must hold assets required to cover the EEA SCR as follows:

1. (1) in any of the EEA States where the UK-deposit insurer pursues its activities, assets representing the EEA SCR up to the amount of the EEA MCR; and
2. (2) in any EEA State, assets representing the amount of the EEA SCR in excess of the amount of the EEA MCR.

3.3

A third country branch undertaking (except an EEA-deposit insurer and a third country branch undertaking that has a third country pure reinsurance branch) must hold on deposit as security in the UK with a CRD credit institution assets of an amount equal to at least one quarter of the absolute floor of the MCR set out in Minimum Capital Requirement 3.2.

[Note: Art. 162(2), Art. 166(4), Art. 167(1) and (2) of the Solvency II Directive]

4.1

A third country branch undertaking (except a UK-deposit insurer and an EEA-deposit insurer) must:

1. (1) calculate a branch SCR; and
2. (2) cover the branch SCR with eligible own funds.

4.2

A third country branch undertaking (except a UK-deposit insurer and an EEA-deposit insurer) must:

1. (1) calculate a branch MCR; and
2. (2) cover the branch MCR with eligible own funds.

4.3

For the purposes of the calculations referred to in 4.1(1) and 4.2(1), the third country branch undertaking must take account only of the operations effected by the third country branch.

4.4

A UK-deposit insurer must:

1. (1) calculate an EEA SCR; and
2. (2) cover the EEA SCR with eligible own funds.

4.5

A UK deposit insurer must:

1. (1) calculate an EEA MCR; and
2. (2) cover the EEA MCR with eligible own funds.

4.6

For the purposes of the calculations referred to in 4.4(1) and 4.5(1), the UK-deposit insurer must take account only of the operations effected by the third country branch and all the third country undertaking EEA branches.

[Note: Art. 166(1), (2) and (3) and Art. 167(1) of the Solvency II Directive]

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) estimates of the future branch SCR on the basis of a forecast balance sheet, as well as the calculation methods used to derive those estimates;
4. (4) estimates of the future branch MCR, on the basis of a forecast balance sheet, as well as the calculation method used to derive those estimates;
5. (5) the state of the eligible own funds with respect to the branch SCR and branch MCR;
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 branch technical provisions, branch MCR and branch SCR;
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.

[Note: Art. 162(2) and Art. 163(1) and (2) of the Solvency II Directive]

6.1

A third country branch undertaking (except a UK-deposit insurer and an EEA-deposit insurer) must establish adequate branch technical provisions.

6.2

A UK-deposit insurer must establish adequate EEA technical provisions.

6.3

A third country branch undertaking (except an EEA-deposit insurer) must value assets and liabilities in accordance with the Valuation Part of the PRA Rulebook for the purposes of establishing the branch technical provisions (or, in the case of a UK-deposit insurer, the EEA technical provisions).

6.4

A third country branch undertaking (except an EEA-deposit insurer) must determine and classify its third country branch undertaking own funds for the purposes of complying with its branch SCR and branch MCR (or, in the case of a UK-deposit insurer, its EEA SCR and EEA MCR) in accordance with the Own Funds Part of the PRA Rulebook as if it were a UK Solvency II firm.

6.5

A third country branch undertaking (except an EEA-deposit insurer) must fulfil the requirements in Own Funds 5 for the purposes of complying with its branch SCR and branch MCR (or, in the case of a UK-deposit insurer, its EEA SCR and EEA MCR) as if it were a UK Solvency II firm.

[Note: Art. 165, Art. 166(1), (2) and (3) and Art. 167(1) of the Solvency II Directive]

7.1

A third country branch undertaking must fulfil the following requirements in the Conditions Governing Business Part of the PRA Rulebook, as modified by 7.2, 7.3 and 7.4:

1. (1) Conditions Governing Business 1;
2. (2) Conditions Governing Business 2.2 to 2.6; and
3. (3) Conditions Governing Business 3 to 7.

7.2

1. (1) A reference to “SCR” is to be interpreted as a reference to “third country branch undertaking SCR”.
2. (2) A reference to “MCR” is to be interpreted as a reference to:
1. (a) for a UK-deposit insurer, the EEA MCR;
2. (b) for an EEA-deposit insurer, its minimum capital requirement calculated in accordance with the relevant Solvency II EEA implementing measures in the EEA State that supervises the solvency of the entire business of the branches within the EEA in accordance with Article 167 of the Solvency II Directive;
3. (c) for all other third country branch undertakings, the branch MCR.
3. (3) A reference to “technical provisions” is to be interpreted as a reference to:
1. (a) for a UK-deposit insurer, the EEA technical provisions;
2. (b) for an EEA-deposit insurer, its technical provisions calculated in accordance with the relevant Solvency II EEA implementing measures in the EEA State that supervises the solvency of the entire business of the branches within the EEA in accordance with Article 167 of the Solvency II Directive;
3. (c) for all other third country branch undertakings, the branch technical provisions.
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) A reference to “internal model” is to be interpreted as a reference to any internal model used by a third country branch undertaking to calculate the third country branch undertaking SCR.

7.3

A third country branch undertaking (except a UK-deposit insurer) 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

A UK-deposit insurer must apply the requirements referred to in 7.1 taking account only of matters relevant to the operations effected by the third country branch and all the third country undertaking EEA branches.

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

8.1

A third country branch undertaking must fulfil the requirements laid down in the Investments Part of the PRA Rulebook, as modified by 8.2 to 8.4.

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 (except a UK-deposit insurer) must fulfil the requirements in the Investments Part of the PRA Rulebook taking account only of the operations effected by the third country branch.

8.4

A UK-deposit insurer must fulfil the requirements in the Investments Part of the PRA Rulebook taking account only of the operations effected by the third country branch and all the third country undertaking EEA branches.

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

9.1

A third country branch undertaking must fulfil the requirements laid down in Reporting 2.1 to 2.5 as modified by 9.2 and 9.3.

9.2

A third country branch undertaking (except a UK-deposit insurer) must fulfil the requirements referred to in 9.1 taking account only of matters relevant to the operations effected by the third country branch.

9.3

A UK-deposit insurer must fulfil the requirements referred to in 9.1 taking account only of matters relevant to the operations effected by the third county branch and all the third country undertaking EEA branches.

[Note: Art. 168 of the Solvency II Directive]

10.1

A third country branch undertaking (except an EEA-deposit insurer) must fulfil the requirements laid down in Undertakings in Difficulty 2 to 5 as modified by 10.2.

10.2

1. (1) A reference to “SCR” is to be interpreted as a reference to the branch SCR or, for a UK-deposit insurer, to the EEA SCR.
2. (2) A reference to “MCR” is to be interpreted as a reference to the branch MCR or, for a UK-deposit insurer, to the EEA MCR.
3. (3) A reference to “technical provisions” is to be interpreted as a reference to the branch technical provisions or, for a UK- deposit insurer, to the EEA technical provisions.

[Note: Art. 168 of the Solvency II Directive]

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 to 4 as modified by 11.2.
2. (2) Composites 3 and 4 do not apply to EEA-deposit insurers.

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 and, in the case of a UK-deposit insurer, the operations effected by the third country branch and all the third country undertaking EEA branches.
2. (2) The reference to “SCR” in Composites 4.6 is to be interpreted as a reference to the branch SCR and, for a UK-deposit insurer, the EEA SCR.
3. (3) The notional life MCR, notional non-life MCR, the notional life SCR and notional non-life SCR referred to in the Composites Part of the PRA Rulebook shall be calculated taking account only of the operations effected by the third country branch and, in the case of a UK-deposit insurer, the operations effected by the third country branch and all the third country undertaking EEA branches.

[Note: Art. 169 of the Solvency II Directive]

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

The following provisions in the Transitional Measures Part of the PRA Rulebook apply to third country branch undertakings with the modifications set out in 14.2:

1. (1) Transitional Measures 1.2
2. (2) Transitional Measures 3.1;
3. (3) Transitional Measures 3.3;
4. (4) Transitional Measures 4 to 7; and
5. (5) Transitional Measures 10 to 12.

14.2

The modifications referred to in 14.1 are:

1. (1) any modification set out in this Part to any Parts referred to in the Transitional Measures Part of the PRA Rulebook;
2. (2) the modifications set out in 10.2;
3. (3) any reference to “pre-Solvency II MCR” is to be interpreted as a reference to pre-Solvency II branch MCR; and
4. (4) any other necessary modification.

15.1

A third country branch undertaking that has a third country pure reinsurance branch must comply with the Solvency II Regulations as at 1 January 2016 in the same way as they apply to a third country branch undertaking that has a third country insurance branch.

15.2

In complying with requirements imposed on it in the Solvency II Firms Sector of the PRA Rulebook, a third country branch undertakingmust ensure that any provisions of the Solvency II Regulations relevant to the third country branch or, for a UK-deposit insurer, all the third country undertaking EEA branches, is applied in order to achieve the same effect as that provision of the Solvency II Regulations would have (that is, complying with the requirements of the relevant provision) when applied to a UK Solvency II firm.