Broadstone has outlined four main actions for insurers in response to the Prudential Regulation Authority’s (PRA) upcoming changes to solvent exit planning, as detailed in the recent consultation CP2/24.
Earlier this year, the PRA released a consultation, CP2/24, clarifying new expectations for insurers on solvent exit planning. The proposed changes aim to support insurers in identifying early exit requirements, addressing barriers to exit in advance, and enhancing governance, monitoring, and communication throughout the exit process.
Insurers will be expected to undertake a Solvent Exit Analysis (SEA), which must be reported on and updated regularly. This new requirement is expected to support orderly exits with minimal market disruption and without reliance on insolvency or resolution processes.
The consultation period concluded in April 2024, and the final PRA Policy Statement is anticipated in H2 2024, with implementation scheduled for Q4 2025. This timeline leaves insurers under 15 months to prepare for compliance with the new requirements, including recommended preparatory actions termed “no regrets” activities.
Broadstone advises insurers to focus on four key areas to align with the PRA’s proposed changes.
Firstly, insurers should evaluate the effectiveness of current risk frameworks and recovery and resolution mechanisms. This includes examining whether existing trigger points for management actions are sufficient for detecting when a solvent exit might be necessary or whether additional indicators are needed.
The SEA will likely require dedicated resources to ensure its accuracy and ongoing management, potentially impacting other routine activities.
Broadstone also notes that effective SEAs require clear governance structures, including a senior manager responsible for SEA preparation, review, and approval. Stakeholders across the business must be informed about solvent exit planning, ensuring alignment and understanding of solvent exit indicators and monitoring protocols.
These governance frameworks are expected to support the development and, if necessary, implementation of a Solvent Exit Execution Plan (SEEP).
Insurers should also account for both financial and non-financial resources needed for a solvent exit, it was suggested. This includes strategies for communication with customers, employees, and other stakeholders, as well as evaluating potential operational impacts on suppliers and other third parties. Financial considerations should cover key metrics such as solvency coverage and liquidity positions.
The PRA also expects firms to validate their SEAs through internal audit or external assurance processes. A senior manager will oversee the SEA’s preparation, approval, and ongoing monitoring, with board-level approval required to ensure the SEA is rigorously challenged within the company’s governance framework.
Broadstone’s actuarial director, Ewen Tweedie (pictured above), emphasised that the impending Q4 2025 implementation leaves less than 15 months for firms to prepare for compliance, with final PRA guidance still forthcoming.
“There is a lot to do, including reviewing their existing suite of recovery and resolution plans and producing a suitable Solvent Exit Analysis to satisfy internal governance processes, any additional assurance required, and ultimately the regulator,” Tweedie said.
Tweedie said firms can take proactive measures, including “reviewing their existing suite of recovery and resolution plans and producing a suitable Solvent Exit Analysis to satisfy internal governance processes.”
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