GIM10150 - Non-resident insurers: scope of UK taxing rights: section 11 ICTA & Article 7 OECD Model: attribution of the investment return: regulatory guidance

Regulatory authorities and the market expect an entity with insurance business to have a substantial margin of income-producing assets above its liabilities to policyholders and more than the absolute minimum statutory solvency margin. The position here is evolving. The current set of Directives, pending the introduction (expected in 2012) of a new EU framework (Solvency II), is known as Solvency I. In the UK, the Financial Services Authority (FSA) introduced interim standards from 1 January 2005 based on a consultation paper CP190 바카라 사이트˜Enhanced capital requirements and individual capital assessments for non-life insurers바카라 사이트™ (July 2003).

Solvency I

A 바카라 사이트˜required minimum margin바카라 사이트™ (RMM), a proportion of the technical provisions, is added to the provisions. The result is larger than the absolute minimum capital, the 바카라 사이트˜minimum guarantee fund바카라 사이트™ (MGF). CP190 made public the FSA바카라 사이트™s 바카라 사이트˜informal supervisory rule of thumb바카라 사이트™ that required at least twice the RMM to be added to the provisions.

CP190

Under the 바카라 사이트˜three pillar바카라 사이트™ approach to regulation, originally developed for banking under the Basel Accord

  • Pillar 1 is a set of harmonised valuation standards and minimum capital requirements
  • Pillar 2 is a supervisory review process, with active regulator participation, ensuring insurers have good processes and adequate capital, involving 바카라 사이트˜individual capital guidance바카라 사이트™ (ICG) input from the regulator
  • Pillar 3 is market disclosure and discipline, allowing comparison across institutions.

The new risk-based regulatory requirement (enhanced capital requirement, or ECR) for Pillar 1 and individual capital adequacy standards (ICAS) regime are steps towards the standards being developed for Solvency II The CP190 proposals are now reflected in INSPRU, in succession to PRU (see GIM3120).

Solvency II

Pillars 1 - 3 will be in place across the EU. The MGF will be replaced by a 바카라 사이트˜minimum capital requirement바카라 사이트™ (MCR) and the ECR by a 바카라 사이트˜solvency capital requirement바카라 사이트™ (SCR), a risk based level of solvency capital which may be topped up (바카라 사이트˜adjusted SCR바카라 사이트™) through the ICAS process. A Community wide regulatory reporting process will be in place. It is expected that this will comprise

  • A public Solvency and Financial Condition Report (SFCR), and
  • A private Report to Supervisors (RTS).

These reports will include quantitative and narrative information supporting the regulatory process, including (for Pillar 2) what is known as an Own Risk and Solvency assessment (ORSA). The information contained will be useful in assessing capital requirements (while bearing in mind that the supervisory view is not conclusive).

GIM10160+ discusses the relevance of these regulatory capital standards in the light of OECD developments.