Content Options

View Options

Status: You are viewing the version of the handbook as on 2009-03-31.

GENPRU 2.3 Application of GENPRU 2 to Lloyd's

Application of GENPRU 2.1

GENPRU 2.3.1R

GENPRU 2.1 applies to the Society in accordance with INSPRU 8.1.2 R.

GENPRU 2.3.2R
GENPRU 2.3.3G

GENPRU 2.1.13 R requires the Society to ensure, in relation to each member's insurance business, that capital resources equal to or in excess of the member's capital resources requirement (CRR) are maintained. GENPRU 2.1 sets out the overall framework of the CRR. INSPRU 1.1 sets out the calculation of the components of the general insurance capital requirement and the long-term insurance capital requirement.

GENPRU 2.3.4G

Managing agents are required to calculate the ECR for the purposes of carrying out syndicate ICAs under INSPRU 7.1. As with-profits insurance business is not carried on through any syndicate, the calculation of the with-profits insurance capital component will not be applicable. INSPRU 1.3 is not applied to Lloyd's.

Calculation of the MCR

GENPRU 2.3.5R

For the purposes of GENPRU 2.1.24 R, the Society must calculate the MCR in respect of the general insurance business of each member as the higher of:

  1. (1)

    the member's share of the base capital resources requirement in respect of general insurance business for the members in aggregate; and

  2. (2)

    the general insurance capital requirement for the members, calculated according to GENPRU 2.3.11 R.

GENPRU 2.3.6R

For the purposes of GENPRU 2.3.5R (1), the Society must determine the member's share by apportioning the base capital resources requirement in respect of general insurance business for the members in aggregate between members in proportion to the result for each member of GENPRU 2.3.11 R.

GENPRU 2.3.7R

For the purposes of GENPRU 2.1.25 R, the Society must calculate the MCR in respect of the long-term insurance business of each member as the higher of:

  1. (1)

    the member's share of the base capital resources requirement in respect of long-term insurance business for the members in aggregate; and

  2. (2)

    the sum of, for each member:

    1. (a)

      the long-term insurance capital requirement; and

    2. (b)

      the resilience capital requirement.

GENPRU 2.3.8R

For the purposes of GENPRU 2.3.7R (1), the Society must determine the member's share by applying to the aggregate long-term business base capital resources requirement the ratio of the result for the member of GENPRU 2.3.7R (2) to the aggregate of the results of GENPRU 2.3.7R (2) for all members.

Calculation of the base capital resources requirement

GENPRU 2.3.9R

The amount of the base capital resources requirement for the members in aggregate is:

  1. (1)

    for general insurance business, €3.2 million; and

  2. (2)

    for long-term insurance business, €3.2 million.

Calculation of the general insurance capital requirement

GENPRU 2.3.10R

For the purposes of GENPRU 2.1.34 R, the Society must calculate the general insurance capital requirement for the members in aggregate as the higher of:

  1. (1)

    the aggregate for all members of the higher of, for each member, the result of the premiums amount and the claims amount; and

  2. (2)

    the brought forward amount.

GENPRU 2.3.11R

The Society must determine the general insurance capital requirement for each member by apportioning the result of GENPRU 2.3.10 R between members on a fair and reasonable basis, provided that the general insurance capital requirement for a member must not be less than the higher of the result of the premiums amount and the claims amount for that member.

GENPRU 2.3.12G

The Society should calculate the premiums amount and the claims amount for each member on the basis of the member's own general insurance business, including insurance business that attaches to the reinsuring member for the purposes of GENPRU following an approved reinsurance to close (see INSPRU 8.2.16 R).

GENPRU 2.3.13R

The Society must calculate the general insurance capital requirement it would have to determine under GENPRU 2.1.34 R if it were an insurer carrying on all the general insurance business carried on by its members, but eliminating inter-syndicate reinsurance (the Society GICR).

GENPRU 2.3.14G

For the purpose of GENPRU 2.3.13 R the Society may make appropriate approximations, taking reasonable care to avoid underestimating the Society GICR.

GENPRU 2.3.15R

The Society must determine each member's share of the Society GICR by allocating the Society GICR between the members in proportion to the result for each member of GENPRU 2.3.11 R.

Application of GENPRU 2.2

GENPRU 2.3.16R

Subject to GENPRU 2.3.18 R, GENPRU 2.3.19 R and GENPRU 2.3.21 R, GENPRU 2.2 applies to managing agents and to the Society in accordance with:

  1. (1)

    for managing agents, INSPRU 8.1.4 R; and

  2. (2)

    for the Society, INSPRU 8.1.2 R.

GENPRU 2.3.17G

GENPRU 2.1 sets out minimum capital resources requirements for a firm and for Lloyd's members. GENPRU 2.2 sets out how, for the purpose of these requirements, capital resources are defined and measured. GENPRU 2.2 applies:

  1. (1)

    to managing agents for their calculation of the capital resources managed by them in respect of each syndicate they manage (by reference, where there is a change in the underlying capital provision, to each open syndicate year); and

  2. (2)

    to the Society for its calculation of:

    1. (a)

      each member's capital resources; and

    2. (b)

      its own capital resources.

GENPRU 2.3.18R

GENPRU 2.2.32 R to GENPRU 2.2.41 R (Limits on the use of different forms of capital) do not apply to managing agents.

GENPRU 2.3.19R

GENPRU 2.2.32 R to GENPRU 2.2.41 R (Limits on the use of different forms of capital) do apply to the Society with respect to:

  1. (1)

    the capital resources requirements for the members in aggregate; and

  2. (2)

    the aggregate capital resources supporting the insurance business of all the members.

GENPRU 2.3.20R

GENPRU 2.2.74 R does not apply to the Society or to managing agents.

GENPRU 2.3.21R

In this section (GENPRU 2.3), "the aggregate capital resources supporting the insurance business of all the members" are:

  1. (1)

    the aggregate of all the members' capital resources calculated under GENPRU 2.3.25 R; and

  2. (2)

    the Society's capital resources excluding callable contributions.

Calculation of capital resources

GENPRU 2.3.22R

The capital resources table applies with the modifications that:

  1. (1)

    Core tier one capital includes Lloyd's members' contributions in accordance with GENPRU 2.3.34 R, subject, in the case of letters of credit, guarantees and verifiable sums arising out of life assurance policies, to compliance with GENPRU 1.5.8 G to GENPRU 1.5.12 R; and

  2. (2)

    the Society may also recognise and value callable contributions, pursuant to GENPRU 2.3.24 R.

GENPRU 2.3.23G

Lloyd's member's contributions are admissible assets under GENPRU 2.3.34 R and include letters of credit, guarantees and verifiable sums arising out of life assurance policies held as funds at Lloyd's. Assets that may be valued as part of capital resources under PRU are not necessarily, however, permitted investments for members under the terms of any Lloyd's trust deed.

GENPRU 2.3.24R

In calculating its capital resources, the Society may, subject to GENPRU 1.5.13 R to GENPRU 1.5.14 R, recognise and value callable contributions.

GENPRU 2.3.25R

The Society must calculate each member's capital resources as the sum of:

  1. (1)

    a member's proportionate share of the capital resources held at syndicate level for each syndicate in which the member participates; and

  2. (2)

    the value of a member's funds at Lloyd's after deducting liabilities in compliance with GENPRU 1.5.18 R.

GENPRU 2.3.26R

In order to comply with GENPRU 2.1.13 R the Society must ensure at all times that:

  1. (1)

    each member's capital resources requirement is covered by:

    1. (a)

      that member's capital resources, calculated according to GENPRU 2.3.25 R; and

    2. (b)

      to the extent that (a) is insufficient, by the Society's own capital resources; and

  2. (2)

    the Society GICR is covered by the aggregate capital resources supporting the insurance business of all the members.

GENPRU 2.3.27R

For the purposes of GENPRU 2.3.26R (1)(b), the Society must maintain at all times capital resources sufficient to meet the aggregate of, for each member, the amount, if any, by which the member's capital resources fall short of the member's capital resources requirement.

GENPRU 2.3.28R

The Society must calculate each member's share of the amount of capital resources required to comply with GENPRU 2.2.33 R as the higher of:

  1. (1)

    1/3 of the long-term insurance capital requirement for the members in aggregate; and

  2. (2)

    the base capital resources requirement;

allocated between the members in proportion to the result for each member of GENPRU 2.3.7R (2).

GENPRU 2.3.29R

For the purposes of GENPRU 2.2.34 R, the Society must ensure that the aggregate capital resources supporting the insurance business of all the members meet the higher of:

  1. (1)

    1/3 of the general insurance capital requirement for the members in aggregate;

  2. (2)

    1/3 of the Society GICR; and

  3. (3)

    the base capital resources requirement;

with the sum of the items listed in GENPRU 2.2.34 R.

GENPRU 2.3.30R

The Society must calculate each member's share of the amount of capital resources required to comply with GENPRU 2.2.34 R as the higher of:

  1. (1)

    1/3 of the general insurance capital requirement for the members in aggregate;

  2. (2)

    1/3 of the Society GICR; and

  3. (3)

    the base capital resources requirement;

allocated between the members in proportion to the result for each member of GENPRU 2.3.11 R.

Characteristics of tier one capital

GENPRU 2.3.31R

A Lloyd's member's contribution may be included in tier one capital resources to the extent that:

  1. (1)

    the proceeds are immediately and fully available in respect of the member's insurance business at Lloyd's;

  2. (2)

    (except in relation to letters of credit), it complies with GENPRU 2.2.64R (3) or cannot be repaid to a member until all of the member's liabilities in respect of its insurance business at Lloyd's have been extinguished, covered or reinsured by an approved reinsurance to close;

  3. (3)

    it otherwise complies with GENPRU 2.2.64R (5) to GENPRU 2.2.64R (10).

Adjustments for related undertakings

GENPRU 2.3.32R

GENPRU 2.2.256 R (Adjustment for regulated related undertakings other than insurance undertakings) applies to the Society with the modification that the Society must also value its insurance undertakings in accordance with GENPRU 2.2.256 R.

GENPRU 2.3.33R

If a related undertaking is an insurance undertaking which has a deficit in the capital resources available to cover its capital resources requirement, the Society must make provision for:

  1. (1)

    its proportionate share of that deficit; or

  2. (2)

    in the case of a subsidiary undertaking, the whole of that deficit.

Modification of GENPRU 2 Annex 7R for Lloyd's

GENPRU 2.3.34R

In the case of members, Lloyd's members' contributions are included in GENPRU 2 Annex 7 and include:

  1. (1)

    letters of credit;

  2. (2)

    guarantees; and

  3. (3)

    verifiable sums arising out of life assurance policies;

held as funds at Lloyd's.

GENPRU 2.3.35GRP

The effect of GENPRU 2.3.34 R is that Lloyd's members' contributions, including letters of credit, guarantees and life assurance policies, are admissible assets.