This may not be what you’d like to focus on in a new year, especially with year-end upon firms, but the PRA finalised its solvent exit planning rules just prior to Christmas (18th December 2024). While the PRA is introducing more obligations, they are proposing that a firm may draw on and adapt its work under other existing regulatory requirements for meeting the solvent exit policy. A firm should ensure that its solvent exit preparations are consistent with and complementary to its work in other areas such as capital management, and recovery and resolution planning.
The PRA sees solvent exit planning as the appropriate mechanism for firms to leave the market in an orderly way, avoiding insolvency or a failed recovery, and in so doing, benefiting policyholders by avoiding unnecessary problems.
All in-scope insurers will be required to prepare what is termed a Solvent Exit Analysis (“SEA”), and for a smaller cohort, i.e. those who are in the position of having a reasonable prospect of a solvent exit facing them, to prepare a more detailed Solvent Exit Execution Plan (“SEEP”). This is distinct from the Solvency II requirement for a recovery plan or a finance plan after a breach of SCR or MCR respectively.
Solvent Exit Analysis
This is now considered to be a business-as-usual activity and will need to be updated at least every three years, or when a material change occurs. The PRA has stated that insurers can be asked to provide this to the PRA on request.
Its content should cover when, and how, an insurer would exit from their insurance business while still solvent. The level of detail, as usual, should be structured to be proportional to the nature, scale and complexity of the firm.
The PRA has set out that a firm’s SEA includes, at a minimum, solvent exit actions, solvent exit indicators, potential barriers and risks, resources and costs, communications, governance and decision-making, and assurance.
Solvent Exit Execution Plan
This is the next level of detail, when a firm is closer to needing to action a solvent exit. The PRA is telling us that they will set a timescale for individual insurers on a case-by-case basis.
The SEEP should show whether and how the insurer could successfully navigate and execute a solvent exit.
Its contents should over as a minimum, actions and timelines, identification and mitigation of barriers and risks, communication plans for impacted stakeholders, detailed action plan for the execution of the solvent exit, assessment of the financial and non-financial resources required, and how the firm will maintain and monitor these resources, its governance arrangements, and details of its organisation's structure, operating model and internal processes.
All of this will come into force on 30 June 2026, so only 18 months away.
Here at Brighter Consultancy, we advocate preparation so you don’t get caught short later on. We have already helped organisations prepare what were previously known as the “Wind Down Plan” requirements, so if you are not sure what to do, or need some support with what is yet another regulatory requirement that will pull on your already stretched resources, please reach out for a confidential conversation.
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