Related provisions for SUP App 2.14A.1

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COBS 20.2.1GRP
2(1) With-profits business, by virtue of its nature and the extent of discretion applied by firms in its operation, involves numerous potential conflicts of interest that might give rise to the unfair treatment of policyholders. Potential conflicts of interest may arise between shareholders and with-profits policyholders, between with-profits policyholders and non-profit policyholders within the same fund, between with-profits policyholders and the members of mutually-owned firms,
COBS 20.2.1ARRP
2A firm must take reasonable care to ensure that all aspects of its operating practice are fair to the interests of its with-profits policyholders and do not lead to an undisclosed, or otherwise unfair, benefit to shareholders or to other persons with an interest in the with-profits fund.
COBS 20.2.1CGRP
2When considering the provisions in this chapter a firm will need to ensure that, if applicable, it complies with the with-profits governance requirements in COBS 20.5.
COBS 20.2.3RRP
A firm must have good reason to believe that its pay-outs on individual with-profits policies are fair.
COBS 20.2.4GRP
In this section, maturity payments include payments made when a with-profits policy provides for a minimum guaranteed amount to be paid.
COBS 20.2.5RRP
(1) Unless a firm cannot reasonably compare a maturity payment with a calculated asset share, it must:(a) set a target range for the maturity payments that it will make on:(i) all of its with-profits policies; or(ii) each group of its with-profits policies;(b) ensure that each target range:(i) is expressed as a percentage of unsmoothed asset share; and(ii) includes 100% of unsmoothed asset share; and(c) manage its with-profits business, and the business of each with-profit fund,
COBS 20.2.6RRP
Notwithstanding that a firm must aim to make maturity payments that fall within the relevant target range, a firm may make a maturity payment that falls outside the target range if it has a good reason to believe that at least 90% of maturity payments on with-profits policies in that group have fallen, or will fall, within the relevant target range.
COBS 20.2.7GRP
If it is not fair or reasonable to calculate or assess a maturity payment using the prescribed asset share methodology, a firm may use another methodology to set bonus rates, if that methodology properly reflects its representations to with-profits policyholders and it applies that methodology consistently.
COBS 20.2.10RRP
If a firm calculates maturity payments using the prescribed asset share methodology, it must manage its with-profits business, and each with-profits fund, with the longer term aim that it will make aggregate maturity payments of 100% of unsmoothed asset share.
COBS 20.2.11GRP
A firm may use its own methodology to calculate surrender payments, but it should have good reason to believe that its methodology produces a result which, in aggregate across all similar policies, is not less than the result of the prescribed asset share methodology. A firm might, for example, test the surrender payments on a suitable range of specimen with-profits policies.
COBS 20.2.12RRP
If a firm calculates surrender payments using the prescribed asset share methodology, it must first calculate what the surrender payment would be if it was a maturity payment calculated by that methodology.
COBS 20.2.14GRP
Amounts that might be deducted include:(1) the firm's unrecovered costs, including any financing costs incurred in effecting or carrying out the surrendered with-profits policy to the date of surrender, including the costs that might have been recovered if the policy had remained in force;(2) costs that would fall on the with-profits fund, if the surrender value is calculated by reference to an assumed market value of assets which exceeds the true market value of those assets;(3)
COBS 20.2.15GRP
The provisions dealing with the calculation of surrender payments (COBS 20.2.11 G to COBS 20.2.12 R) do not prevent a firm from setting a target range for surrender payments where the top-end of the range is lower than the top-end of the relevant range for maturity payments.
COBS 20.2.16RRP
A firm must not, in so far as is reasonably practicable,2 make a market value reduction to the face value of the units of an accumulating with-profits policy unless:(1) the market value of the with-profits assets in the relevant with-profits fund is, or is expected to be, less than the assumed value of the assets on which the face value of the units of the policy has been based; and222(2) the market value reduction is no greater than is necessary to reflect the impact of the difference
COBS 20.2.16AGRP
2If a firm is able to satisfy COBS 20.2.16R (1), then the volume of surrenders, transfers, or other exits from the with-profits fund that there has been, or is expected to be, is a factor that a firm may take into account when it is considering whether to make a market value reduction, and if so, its amount, subject to the limit in COBS 20.2.16R (2).
COBS 20.2.16BGRP
5References to distributions in COBS 20 includes distributions of distributable profits arising, namely any permanent addition to policy benefits made at the firm's discretion based on the investment or other experience in the fund or more generally. Distributions include those relating to expected payments for which allowance has been made in the technical provisions or to a firm's other liabilities arising from its regulatory duty to treat customers fairly, and not just distributions
COBS 20.2.17RRP
A firm must ensure that the amount distributed to policyholders from a with-profits fund, taking into account any adjustments required by COBS 20.2.17A R,2 is not less than the required percentage of the total amount distributed.
COBS 20.2.17ARRP
(1) 2Where a firm adjusts the amounts distributed to policyholders, either by market value reduction or otherwise, in a way that would result in a distribution to policyholders of less than the required percentage, taking both the relevant distributions and the adjustment into account, then the firm must apply a proportionate adjustment to amounts distributed to shareholders so that the distribution to policyholders will not be less than the required percentage.(2) The adjustments
COBS 20.2.17CRRP
7A firm must not make a distribution from a with-profits fund, unless:55(1) if it is not a Solvency II firm, the whole of the cost of that distribution can be met without eliminating the regulatory surplus in that with-profits fund; and5(2) if it is a Solvency II firm:5(a) the whole of the cost of that distribution can be met without eliminating the with-profits fund surplus in that with-profits fund; and(b) following any distribution that is made to meet a liability for which
COBS 20.2.18RRP
A firm which is not a Solvency II firm5 must not make a distribution from a with-profits fund to any person who is not a with-profits policyholder, unless the whole of the cost of that distribution (including the cost of any obligations that will or may arise from the decision to make a distribution) can be met from the excess, if any,5 of the assets over the liabilities5 in that with-profits fund.55
COBS 20.2.19RRP
A distribution to a person who is not a with-profits policyholder includes a transfer of assets out of a with-profits fund that is not made to satisfy a liability of that fund.
COBS 20.2.19ARRP
5If a firm which is a Solvency II firm proposes to make a distribution from a with-profits fund to any person who is not a with-profits policyholder, where:(1) the distribution to with-profits policyholders is smaller than the ‘pre-notification to policyholder minimum’ calculated in accordance with COBS 20.2.19BR (1) then the firm must:(a) provide the FCA with written details of the proposed distribution at least two months prior to the proposed distribution, together with copies
COBS 20.2.19BRRP
(1) 5The ‘pre-notification to policyholder minimum’ referred to in COBS 20.2.19A R is as follows:wherea is the total amount available for with-profits distribution in the with-profits fund in question at the time of the most recent previous distribution;b is the amount of the most recent previous distribution to with-profits policyholders; andc is the total amount available for with-profits distribution in relation to the proposed distribution.(2) The ‘after the event notification
COBS 20.2.19CGRP
(1) 5If the circumstances in COBS 20.2.19AR (1) or (2) arise, the firm should also consider whether any reduction(s) in the proposed distribution and any previous distributions to with-profits policyholders over a period of at least the last five years are consistent with treating with-profits policyholders fairly and any other obligations of the firm under COBS 20.(2) When calculating the amounts distributed in COBS 20.2.19A R and COBS 20.2.19B R:(a) any amount allocated to with-profits
COBS 20.2.20RRP
If, on a distribution, a firm incurs a tax liability on a transfer to shareholders, it must not attribute that tax liability to a with-profits fund, unless:(1) the firm can show that attributing the tax liability to that with-profits fund is consistent with its established practice;(2) that established practice is explained in the firm's PPFM; and(3) that liability is not charged to asset shares.
COBS 20.2.21RRP
At least once a year (or, in the case of a non-directive friendly society, at least once in every three years) and whenever a firm is seeking to make a reattribution of its inherited estate,2 a firm'sgoverning body must determine whether the firm'swith-profits fund, or any of the firm'swith-profits fund, has an excess surplus.
COBS 20.2.23RRP
A firm must only charge costs to a with-profits fund1 which have been, or will be, incurred in operating the with-profits fund. This may include a fair proportion of overheads.1
COBS 20.2.24RRP
Subject to COBS 20.2.25 R, COBS 20.2.25A R and COBS 20.2.25B R, a1firm must not pay compensation or redress from a with-profits fund.11
COBS 20.2.25RRP
A proprietary1firm may pay compensation or redress due to a policyholder, or former policyholder, from assets attributable to shareholders, whether or not they are held within a long-term insurance fund or with-profits fund, as relevant.511
COBS 20.2.25ARRP
A mutual may pay compensation or redress due to a policyholder, or formerpolicyholder, from a with-profits fund, but may only pay from assets that would otherwise be attributable to asset shares if, in the reasonable opinion of the firm'sgoverning body, the compensation or redress cannot be paid from any other assets in the with-profits fund. 1
COBS 20.2.25BRRP
A payment or transfer of liabilities made to correct an error and which has the effect of restoring a policyholder, or former policyholder, and the with-profits fund to the position they would have been in if the error had not occurred (a “rectification payment”), is not a payment of compensation or redress for the purposes of COBS 20.2.24 R.1
COBS 20.2.26RRP
A proprietary firm must not charge to a with-profits fund any amounts paid or payable to a skilled person in connection with a report under section 166 of the Act (Reports by skilled persons) if the report indicates that the firm has, or may have, materially failed to satisfy its obligations under the regulatory system1.1
COBS 20.2.26ARRP
5A proprietary firm must not charge to a with-profits fund any financial penalty imposed on the firm by the appropriate regulator.
COBS 20.2.27RRP
A firm must not charge a contribution to corporation tax to a with-profits fund, if that contribution exceeds the notional corporation tax liability that would be charged to that with-profits fund if it were assessed to tax as a separate body corporate.
COBS 20.2.28RRP
A firm must not effect new contracts of insurance in an existing with-profits fund unless:22(1) the firm'sgoverning body is satisfied, so far as it reasonably can be, and can demonstrate, having regard to the analysis in (2), that the terms on which each type of contract is to be effected are likely to have no adverse effect on the interests of the with-profits policyholders whose policies are written into that fund; and2(2) the firm has:(a) carried out or obtained appropriate
COBS 20.2.28AGRP
(1) 2Writing new insurance business into a with-profits fund is not, of itself, automatically adverse to the interests of with-profits policyholders. For example, new insurance business which defers the emergence or distribution of surplus to a limited extent for a number of policyholders, or which leads to a marginal change in the equity backing ratio, may, subject to satisfying the guidance in COBS 20.2.60 G and COBS 20.2.29 G, reasonably be considered not to have an adverse
COBS 20.2.29GRP
In some circumstances, it may be difficult or impossible for a firm to mitigate the risk of an2 adverse effect on its existing, or new, with-profits policyholders, unless it establishes a new bonus series or with-profits fund. Circumstances that might cause a firm to establish a new bonus series or with-profits fund include:2(1) where the firm has a high level of guarantees or options in its existing with-profits policies, which might place an excessive burden on new with-profits
COBS 20.2.30GRP
2(1) When a firm prices the new insurance business that it proposes to effect in an existing with-profits fund, it should estimate the volume of new insurance business that it is likely to effect and then build in adequate margins that will allow it to recover any acquisition costs to be charged to the with-profits fund.2(2) COBS 20.2.28 R requires firms to obtain appropriate analysis and evidence and this should include at least a profitability analysis on a marginal cost ba
COBS 20.2.31GRP
When a firm sets a target volume for new insurance business in an existing with-profits fund, it should pay particular attention to the risk of disadvantage to existing with-profits policyholders. Those policyholders might be disadvantaged, for example, by the need to retain additional capital to support a rapid growth in new business, when that capital might have been distributed in the ordinary course of the firm's existing business.
COBS 20.2.32RRP
Unless COBS 20.2.32A R applies, a5firm carrying on with-profits business must not:5(1) make a loan to a connected person using assets in a with-profits fund; or(2) give a guarantee to, or for the benefit of, a connected person, where the guarantee will be backed using assets in a with-profits fund;unless that loan or guarantee:(3) will be on commercial terms;(4) will, in the reasonable opinion of the firm's senior management, be beneficial to the with-profits policyholders in
COBS 20.2.32BGRP
5Loans to a connected person using assets in a with-profits fund should be considered as investments of assets within the with-profits fund. As such, a Solvency II firm will need to ensure that: (1) such loans comply with the PRA Rulebook: Solvency II Firms: Investments having regard to COBS 20.2.35B G; and(2) where there is a conflict of interests, in the reasonable opinion of the firm's senior management, they are in the best interests of the with-profits policyholders in the
COBS 20.2.33GRP
(1) If a firm, or a connected person, provides support to a with-profits fund (for example, by a contingent loan), no reliance should be placed on that support when the firm assesses the with-profits fund's financial position unless there are clear and unambiguous criteria governing any repayment obligations to the support provider.(2) The degree of reliance placed on that support should depend on the subordination of the support to the fair treatment of with-profits policyholders
COBS 20.2.34GRP
Where assets from outside a with-profits fund are made available to support that fund (and there is no ambiguity in the criteria governing any repayment obligations to the support provider), a firm should manage the fund disregarding the liability to repay those assets, at least in so far as that is necessary for its policyholders to be treated fairly.
COBS 20.2.34ARRP
(1) 5A Solvency II firm must ensure that, in relation to any arrangements where assets outside a with-profits fund provide or may provide support to it, both the following requirements are met: (a) the precise terms and conditions on which those support asset arrangements operate and assets may become available, including whether and when they are repayable: (i) are adequately documented in the firm's records; and(ii) if the firm is required to produce a PPFM, are set out clearly
COBS 20.2.35GRP
When a firm, other than a Solvency II firm,5 determines its investment strategy, and the acceptable level of risk within that strategy, it should take into account:(1) the extent of the guarantee in its with-profits policies;(2) any representation that it has made to its with-profits policyholders;(3) its established practice; and(4) the amount of capital support available.
COBS 20.2.35BGRP
(1) 5A Solvency II firm is required to consider its investment strategy in relation to the assets in a with-profits fund, including any strategic investments, in accordance with the PRA Rulebook: Solvency II Firms: Investments. Firms are expected, in applying the PRA Rulebook: Solvency II Firms: Investments, to take into account the particular circumstances and requirements of the liabilities in the with-profits fund to which those assets relate. For example, a Solvency II firm
COBS 20.2.36RRP
A firm, other than a Solvency II firm,5 must not:2(1) use with-profits assets to finance the purchase of a strategic investment, directly or by or through a connected person; or2(2) retain an investment referred to in (1);2unless its governing body is satisfied, so far as it reasonably can be, and can demonstrate, that the purchase or retention is likely to have no adverse effect on the interests of its with-profits policyholders whose policies are written into the relevant f
COBS 20.2.36ARRP
2A firm must keep adequate records setting out the strategic purpose for which a strategic investment has been purchased or retained.
COBS 20.2.36BGRP
(1) 2In order for a firm to comply with COBS 20.2.36 R, a firm'sgoverning body should consider:(a) the size of the investment in relation to the with-profits fund;(b) the expected rate of return on the investment;(c) the risks associated with the investment, including, but not limited to, liquidity risk, the capital needs of the acquired business or investment and the difficulty of establishing fair value (if any);(d) any costs that would result from divestment;(e) whether the
COBS 20.2.37GRP
If a firm carries out non-profit insurance business in a with-profits fund, it should review the profitability of the non-profit insurance business regularly.
COBS 20.2.38GRP
If a firm has reinsured its with-profits insurance business into another insurance undertaking, it should take reasonable steps to discharge its responsibilities to its with-profits policyholders, in respect of the reinsured business. Those steps should include maintaining adequate controls.
COBS 20.2.39RRP
A firm must not enter into a material transaction relating to a with-profits fund unless, in the reasonable opinion of the firm'sgoverning body, the transaction is unlikely to have a material adverse effect on the interests of that fund's existing with-profits policyholders.
COBS 20.2.40RRP
A material transaction includes a series of related non-material transactions which, if taken together, are material.
COBS 20.2.41ARRP
2A firm must contact the FCA as soon as is reasonably practicable to make arrangements to discuss what actions may be required to ensure the fair treatment of with-profits policyholders if, in relation to any with-profits fund it operates:(1) the firm reasonably expects, or if earlier, there has been, a sustained and substantial fall in either the volume of new non-profit insurance contracts, or in the volume of new with-profits policies (effected other than by reinsurance), or
COBS 20.2.41BGRP
(1) 2The aim of the discussions in COBS 20.2.41A R is to:(a) allow the FCA to comment on the adequacy of the firm's planning; and(b) seek agreement with the firm on any other appropriate actions to ensure with-profits policyholders are treated fairly.(2) If the firm is no longer effecting a material volume of new with-profits policies (other than by reinsurance) into a with-profits fund; or if it is ceding by way of reinsurance most or all of the new with-profits policies which
COBS 20.2.42RRP
A firm that is seeking to make a reattribution of its inherited estate must:(1) first discuss with the FCA7 (as part of its determination under COBS 20.2.21 R):227(a) its projections for capital required to support existing business, which must include an assessment of:2(i) the firm's future risk appetite for the with-profits fund and other relevant business; and2(ii) how much of the margin for prudence can be identified as excessive and removed from the projected capital requirements;
COBS 20.2.44GRP
The precise role of the policyholder advocate in any particular case will depend on the nature of the firm and the reattribution proposed. A firm will need to discuss, with a view to agreeing,2 with the FCA the precise role of the policyholder advocate in a particular case (COBS 20.2.45 R). However, the role of the policyholder advocate should include:(1) negotiating with the firm, on behalf of the relevant with-profits policyholders, the benefits to be offered to them in exchange
COBS 20.2.49RRP
A firm must ensure that every policyholder that may be affected by the proposed reattribution is sent appropriate and timely information about:(1) the reattribution process, including the role of the policyholder advocate, the independent expert or reattribution expert, as the case may be, and other individuals appointed to perform particular functions;(2) the reattribution proposals and how they affect the relevant policyholders, including an explanation of any benefits they
COBS 20.2.51RRP
A firm must give relevant with-profits policyholders the option to:(1) individually accept or reject the final proposals for the reattribution; or(2) (if the legal process to be followed allows the majority of policyholders to bind the minority) vote on whether the firm should go ahead with those proposals.
COBS 20.2.53RRP
A firm must:(1) inform the appropriate regulator and its with-profits policyholders within 28 days; and(2) submit a run-off plan to the appropriate regulator as soon as reasonably practicable and, in any event, within three months;of first ceasing to effect new contracts of insurance in a with-profits fund.
COBS 20.2.54RRP
A firm will be taken to have ceased to effect new contracts of insurance in a with-profits fund:(1) when any decision by the governing body to cease to effect new contracts of insurance takes effect; or(2) where no such decision is made, when the firm is no longer:(a) actively seeking to effect new contracts of insurance in that fund; or(b) effecting new contracts of insurance in that fund, except by increment; or2(3) if the firm:2(a) (i) is no longer effecting a material volume
COBS 20.2.56RRP
The run-off plan required by COBS 20.2.53 R2 must:2(1) include an up-to-date plan to2 demonstrate how the firm will ensure a fair distribution of the closed with-profits fund, and its inherited estate (if any); and(2) be approved by the firm'sgoverning body.
COBS 20.2.58GRP
When a firm tells its with-profits policyholders that it has ceased to effect new contracts of insurance in a with-profits fund, it should also explain:(1) why it has done so;(2) what changes it has made, or proposes to make, to the fund's investment strategy (if any);(3) how closure may affect with-profits policyholders (including any reasonably foreseeable effect on future bonus prospects);(4) the options available to with-profits policyholders and an indication of the potential
COBS 20.2.59GRP
A firm may not be able to provide its with-profits policyholders with all of the information described above until it has prepared the run-off plan. In those circumstances, the firm should:(1) tell its with-profits policyholders that that is the case;(2) explain what is missing and give a time estimate for its supply; and(3) provide the missing information as soon as possible, and within the time estimate given.
COBS 20.2.60GRP
(1) If non-profit insurance business is written in a with-profits fund, a firm should take reasonable steps to ensure that the economic value of any future profits expected to emerge on the non-profit insurance business is available for distribution during the lifetime of the with-profits business.(1A) Where a with-profits fund contains assets which may not be readily realisable, the firm should take reasonable steps to ensure that the economic value of those assets is made available
COBS 20.2.61GRP
(1) 4A mutual operating a common fund may seek to undertake an exercise to identify that part of the fund to which the mutual considers it would be fair for relevant provisions in COBS 20 not to apply. (2) To give regulatory effect to the identification exercise, the FCA expects that a mutual will need to apply to the FCA to modify the relevant provisions in COBS 20 and elsewhere which are dependent on the definition of the with-profits fund. (3) A mutual will need to demonstrate
COBS 20.1A.1RRP
For the purposes of calculating any with-profits funds surplus and the rules and guidance in COBS 20, including COBS 20.1A.5 R, COBS 20.1A.6 R and COBS 20.2.17C R, a firm must include the following non-exhaustive list as ‘other liabilities’: (1) liabilities arising from its regulatory duty to treat customers fairly (where not already included in technical provisions); and(2) the value of any prospective future transfers out of the with-profits fund properly attributable to shareholders
COBS 20.1A.2RRP
(1) Where the firm:(a) identifies particular assets as forming a distinct part of its with-profits fund; and(b) restricts participation in the profits or other experience of that distinct part of the fund to a particular category of with-profits policies; then, provided that:(c) such identification and restriction is consistent with the considerations in (3), and(d) the firm treats each affected category of with-profits policyholder fairly, having regard to those considerations;each
COBS 20.1A.3RRP
(1) For a Solvency II firm operating a with-profits fund prior to 1 January 2016:(a) assets in the with-profits fund held in accordance with INSPRU on 31 December 2015 are deemed to be items in a with-profits fund for the purposes of COBS 20 from 1 January 2016, provided that any transfers out of, and any outgoings from, the fund up to 31 December 2015 were made in accordance with, and/or do not as at 31 December 2015, constitute, or continue to constitute, a breach of INSPRU
COBS 20.1A.4RRP
A Solvency II firm effecting or carrying out with-profits insurance business must identify the assets relating to all the business written in, or transferred into, each with-profits fund which it is required to hold under COBS 20.1A.5 R or PRA Rulebook: Solvency II firms: With Profits rule 2.1.
COBS 20.1A.5RRP
A Solvency II firm must ensure that it holds assets in each of its with-profits funds of a value at least sufficient to cover the "with-profits policy liabilities" defined in the PRA Rulebook: Glossary and as required by PRA Rulebook: Solvency II firms: With Profits rule 2.1, and any other liabilities in respect of all of the business written in, or transferred into, that with-profits fund.
COBS 20.1A.6RRP
A Solvency II firm must maintain separate accounting records for each of its with-profits funds. The accounting records must identify:(1) all of the assets of that with-profits fund;(2) the best estimate component of technical provisions for the with-profits policies written in, or transferred into, that with-profits fund;(3) the best estimate component of technical provisions for the non-profit insurance contracts written in, or transferred into, that with-profits fund;(4) any
COBS 20.1A.7GRP
A Solvency II firm must ensure that the assets in its with-profits funds are separately identified and allocated to the relevant with-profits fund at all times. Assets in external accounts (e.g. with banks, custodians, or brokers) should be segregated in the firm's books and records into separate accounts for with-profits insurance business and other business. Where a firm has more than one with-profits fund, separate accounting records must be maintained for each fund. Accounting
COBS 20.1A.8RRP
A Solvency II firm must not transfer assets out of a with-profits fund unless:(1) the assets represent any part of a with-profits fund surplus, or represent assets held in accordance with COBS 20.1A.5 R in relation to the part of a distribution that has been made which is properly attributable to shareholders, in accordance with COBS 20; and(2) no more than three months have passed since the actuarial investigation determining that surplus.
COBS 20.1A.9GRP
For the purposes of COBS 20.1A.8 R, an actuarial investigation is required to determine any with-profits fund surplus for the requirements in COBS 20 and remains in-date for three months from the date when the determination of the surplus was made. However, even where the investigation is still in-date, the firm should not make the transfer unless there is sufficient surplus at the time of the transfer to cover the value of the assets being transferred. The actuarial investigation
COBS 20.1A.10RRP
(1) A Solvency II firm must use or apply an asset in a with-profits fund only for the purpose of the business in the with-profits fund.(2) For the purpose of (1), applying or using an asset includes any obligation (even if only contingent) to apply or use that asset.
COBS 20.1A.11RRP
A Solvency II firm must not agree to, or allow, any mortgage or charge on the assets in any of its with-profits funds, other than in respect of, and for the purposes of, the business in the with-profits fund.
COBS 20.1A.12GRP
References in COBS 20.1A.10 R and COBS 20.1A.11 R to ‘the purposes of the business’ in the with-profits fund include the payment of claims, expenses and liabilities arising from that business, the acquisition of lawful access to fixed assets to be used in that business and the investment of assets. The payment of liabilities may include repaying a loan but only where that loan was incurred for the purpose of the business written into the with-profits fund. The purchase or investment
COBS 20.1A.13RRP
A Solvency II firm which is subject to contractual terms providing for payments under a capital instrument included in that insurer'sown funds, must:(1) manage any with-profits fund so that discretionary benefits under a with-profits policy are calculated and paid, disregarding, insofar as is necessary for its customers to be treated fairly, any requirements in such contractual terms whether or not they are absolute, contingent or at the discretion of the firm; and(2) disclose
COBS 20.1A.14GRP
(1) A Solvency II firm is expected to manage its with-profits fund so that amounts (whether interest, principal, or other outgoings) payable by the firm under a capital instrument included in that insurer'sown funds (as determined in accordance with the PRA Rulebook: Solvency II Firms: Own Funds) do not impact on the with-profits fund's assets or on the firm's ability to declare and pay under a with-profits policy discretionary benefits that are consistent with the firm's obligations
COBS 20.1A.15RRP
A Solvency II firm must ensure that it has adequate arrangements in place for ensuring that transactions affecting the assets of the firm operate fairly between with-profits policyholders and other persons interested in the other assets of the insurer and, where the firm has more than one with-profits fund, those transactions operate fairly between the with-profits policyholders in each of those funds.
SUP App 2.15.1GRP
The run-off plan required by COBS 20.2.53 R3 should include the information described in SUP App 2.15.2 G to SUP App 2.15.13 G in respect of the relevant with-profits fund.3
SUP App 2.15.2GRP
A firm's run-off plan should describe how the firm proposes to manage the run-off of the with-profits fund. That description should include:(1) details of the expected duration and costs of fully running off the fund's liabilities;(2) an explanation as to how a solvent run-off will be funded; and(3) details of the firm's future strategy for managing the risks associated with the run-off of the fund.
SUP App 2.15.3GRP
A firm's run-off plan should include an explanation of its future investment strategy, including:(1) its strategy for matching the with-profits fund's liabilities with appropriate assets; and(2) any changes it expects to make to the with-profits fund's investment strategy as a result of the closure of the with-profits fund, including any changes to the proportions of different types of investments.
SUP App 2.15.4GRP
A firm's run-off plan should include an explanation of its strategy for managing the with-profits fund's counterparty and credit risk, both within and external to the firm's group.
SUP App 2.15.5GRP
A firm's run-off plan should show how it will address any additional operational risks that may flow from the closure of the with-profits fund, including:(1) any changes that it proposes to make to staffing arrangements for the run-off;(2) an estimate of the cost of proposed operational changes, including redundancy costs; and(3) any material outsourcing arrangements it proposes to enter into, explaining how the firm will address any specific operational risks created by those
SUP App 2.15.6GRP
A firm's run-off plan should explain how it will use and manage reinsurance (if it will), including:(1) any new inwards or outwards reinsurance it proposes to enter into as a result of the closure of the with-profits fund identifying, in each case, the proposed counterparty and the counterparty's relationship to the firm's group (if any); and(2) how it will manage the risk that the reinsurance in (1) will not perform as expected.
SUP App 2.15.7GRP
A firm's run-off plan should include:(1) details of any changes that will be made to the firm's corporate governance arrangements as a consequence of closure;(2) an explanation of how costs charged to the with-profits fund may change in the light of closure;(3) an explanation of any changes it will make, as a consequence of closure, to any charges for guarantees, including:(a) the circumstances in which those charges may be varied in the future; or (b) the manner by which the
SUP App 2.15.8GRP
A firm, other than a Solvency II firm, should include in its run-off plan:44(1) a forecast summary revenue account for the with-profits fund, in the form of SUP App 2.15.9 G Table 1;(2) a forecast summary balance sheet and statement of solvency for the with-profits fund, which has been prepared in the form of SUP App 2.15.9 G Table 2 and on a regulatory basis; and(3) a forecast summary balance sheet and statement of solvency for the entire firm, which has been prepared in the
4A Solvency II firm should include the following information in its run off plan, except in the circumstances set out in SUP App 2.15.8B G:(1) a forecast summary revenue account for the with-profits fund, in accordance with SUP App 2.12.7 R;(2) a forecast summary balance sheet and “eligible own funds” as defined in the PRA Rulebook: Glossary and any notional SCR for the with-profits fund, in accordance with SUP App 2.12.8 R; and(3) “eligible own funds”, “MCR” (as those terms
SUP App 2.15.9GRP
These tables belong to SUP App 2.15.8 GTable 1 - forecast summary revenue account for the relevant with-profits fund(1)Premiums and claims (gross and net of reinsurance) analysed by major class of insurance business(2)Investment return(3)Expenses(4)Other charges and income(5)Taxation(6)Increase (decrease) in fund in financial year(7)Fund brought forward(8)Fund carried forwardTable 2 - forecast summary balance sheet and statement of solvency for the relevant with-profits fundAssets
The run-off plan of a firm to which INSPRU 7 applies4 should include:4(1) a revised individual capital assessment for the firm (see INSPRU 7.12), which reflects the impact of the closure of the relevant with-profits fund; or2(2) a statement that the firm is satisfied that the closure will not materially affect the firm's most recent assessment.
A firm's run-off plan should include details of any:(1) intra-group balances held by the with-profits fund;(2) groupcompany investments held by the with-profits fund; and(3) guarantees given by the firm;which, in each case, have a value in excess of 5% of the firm's gross technical provisions.
A firm's run-off plan should include any other information that the firm considers relevant to the run-off of the closed with-profits fund.
SUP 4.3.12ARRP
1A firm must take reasonable steps to ensure that an actuary who is to be, or has been, appointed under SUP 4.3.1 R or rule 6.1 of the PRA Rulebook: Solvency II firms: Conditions Governing Business, or in accordance with the PRA Rulebook: Solvency II Firms: Actuaries8:(1) does not perform the function of chairman or chief executive of the firm, or does not, if he is to perform the with-profits actuary function, become a member of the firm's governing body; and(2) does not perform
SUP 4.3.12BGRP
1Both the actuarial function and the with-profits actuary function may be performed by employees of the firm or by external consultants, and performing other functions on behalf of the firm will not necessarily give rise to a significant conflict of interest. However, being a director, or a senior manager responsible, say, for sales or marketing in a firm (or for finance in a proprietary firm), is likely to give rise to a significant conflict of interest for an actuary performing
SUP 4.3.16ARRP
1An actuary appointed to perform the with-profits actuary function must:(1) advise the firm's management, at the level of seniority that is reasonably appropriate, on key aspects of the discretion to be exercised affecting those classes of the with-profits business of the firm in respect of which he has been appointed;(2) [deleted]88(2A) where the firm is a Solvency II firm, advise the firm'sgoverning body as to whether the assumptions used to calculate the future discretionary
SUP 4.3.16BGRP
1In advising or reporting on the exercise of discretion, an actuary performing the with-profits actuary function should cover the implications for the fair treatment of the relevant classes of the firm's with-profits policyholders. His opinion on any communication or report to them should also take into account their information needs and the extent to which the communication or report may be regarded as clear, fair and not misleading. Aspects of the business that should normally
SUP 4.3.16CGRP
1The reports3 in SUP 4.3.16AR (3) and SUP 4.3.16AR (4)3should be proportionate to the nature of the with-profits business. For smaller firms with fewer products, the extent of reporting would be proportionately less.
SUP 4.3.16DGRP
1Firms should normally obtain advice, from the actuary appointed to perform the with-profits actuary function in respect of the affected class or classes of with-profits business, whenever they are preparing to make key decisions based on the exercise of discretion affecting their with-profits business. Firms should also have risk management processes in place to ensure that all relevant matters are referred to the actuary for advice.
SUP 4.3.17RRP
A firm must require and allow any actuary appointed to perform the with-profits actuary function1 to perform his duties and must1:11(1) keep him informed of the firm's business and other plans (including, where relevant, those of any related firm, to the extent it is aware of these);(2) provide him with sufficient resources (including his own time and access to the time of others);(3) hold such data and establish such systems as he reasonably requires;(4) request his advice about
SUP 4.3.18GRP
A firm's duty to keep an actuary appointed to perform the with-profits actuary function1 informed includes providing relevant information, even where the actuary1 does not ask for it. The firm needs to appreciate that the actuary1 may be unaware of certain business developments and so unable to request relevant information. 111
COBS 20.4.1RRP
A firm must:(1) on request, provide its PPFM, or the PPFM applicable to specified with-profits funds:(a) free of charge to its with-profits policyholders; or(b) for a reasonable charge to any person who is not its with-profits policyholder; and(2) if the firm publishes its PPFM on its website, prominently signpost its location there.
COBS 20.4.2RRP
A firm must send its with-profits policyholders who are affected by any change in its PPFM, written notice, setting out any:(1) proposed changes to the with-profits principles, three months in advance of the effective date; and(2) changes to the with-profits practices, within a reasonable time.
COBS 20.4.4RRP
In relation to any with-profits policyholder where the state of the commitment is2 the United Kingdom, an EEA insurer must:2(1) provide the information necessary to enable that policyholder properly to understand the insurer's commitment under the policy;2(2) ensure that the information provided is not narrower in scope or less detailed in content than the information required to be provided in the PPFM produced by a firm subject to COBS 20.3;2 and2(3) send the policyholder who
COBS 20.4.7RRP
A firm must produce an annual report to its with-profits policyholders, which must:(1) state whether, throughout the financial year to which the report relates, the firm believes it has complied with its obligations relating to its PPFM and setting out its reasons for that belief;(2) address all significant relevant issues, including the way in which the firm has:(a) exercised, or failed to exercise, any discretion that it has in the conduct of its with-profits business; and(b)
COBS 20.4.8GRP
The following documents should be annexed to the annual report in this section:(1) the report to with-profits policyholders made by a with-profits actuary in respect of each financial year (see SUP 4.3.16AR(4)); and(2) any statement or report provided by the person or committee who provides the independent judgement under the firm's governance arrangements for its with-profits business.
COBS 20.4.9GRP
In preparing the annual report to with-profits policyholders, a firm should take advice from a with-profits actuary.
COBS 20.4.10GRP
A firm should make the annual report available to with-profits policyholders within six months of the end of the financial year to which it relates. A firm should notify its with-profits policyholders in any annual statements how copies of the report can be obtained.
COBS 20.5.1RRP
1A firm must, in relation to each with-profits fund it operates:(1) appoint:(a) a with-profits committee; or(b) a with-profits advisory arrangement (referred to in this section as an ‘advisory arrangement’), but only if appropriate, in the opinion of the firm'sgoverning body, having regard to the size, nature and complexity of the fund in question;(2) ensure that the with-profits committee or advisory arrangement operates in accordance with its terms of reference; and(3) make
COBS 20.5.2GRP
(1) Ultimate responsibility for managing a with-profits fund rests with the firm through its governing body. The role of the with-profits committee or advisory arrangement is, in part, to act in an advisory capacity to inform the decision-making of a firm'sgoverning body. The with-profits committee or advisory arrangement also acts as a means by which the interests of with-profits policyholders are appropriately considered within a firm's governance structures. The with-profits
COBS 20.5.3RRP
A firm must ensure that the terms of reference contain, as a minimum, terms having the following effect:(1) the role of the with-profits committee or advisory arrangement is, as relevant, to assess, report on, and provide clear advice and, where appropriate, recommendations to the firm'sgoverning body on:(a) the way in which each with-profits fund is managed by the firm and, if a PPFM is required, whether this is properly reflected in the PPFM;(b) if applicable, whether the firm
COBS 20.5.4GRP
(1) The FCA expects that a with-profits committee will meet at least quarterly and ad hoc if required. (2) The FCA expects that, in general, a with-profits committee or advisory arrangement will work closely with the with-profits actuary, and obtain his opinion and input as appropriate.
COBS 20.5.5RRP
A firm must: (1) ensure that its governing body, in the context of its consideration of issues referred to in COBS 20.5.3R (1)(a) to (d) and (2)(b)(i) to (x):(a) obtains, as relevant, assessments, reports, advice and/or recommendations of the with-profits committee or advisory arrangement, if the governing body, the with-profits committee or advisory arrangement considers that significant issues concerning the interests of with-profits policyholders need to be considered by the
COBS 20.5.6GRP
(1) COBS 20.5.5R (2) requires that a firm provides a with-profits committee or advisory arrangement with sufficient resources. A with-profits committee or advisory arrangement should be able to obtain external professional, including actuarial, advice, at the expense of the firm, if the with-profits committee or advisory arrangement considers the advice to be necessary to perform its role effectively. In a proprietary firm the with-profits committee or advisory arrangement should
COBS 20.5.7GRP
(1) The FCA expects the governing body of the firm to decide whether a member of the with-profits committee or a person (other than a non-executive director) carrying out the advisory arrangement is independent. The FCA expects a firm'sgoverning body to adopt the following approach and have regard to the following factors when making this assessment:(a) the governing body should determine whether the person is independent in character and judgment and whether there are relationships
COBS 20.5.8GRP
In complying with the rule on systems and controls in relation to compliance, financial crime and money laundering (SYSC 3.2.6 R), a firm should maintain governance arrangements designed to ensure that it complies with, maintains and records, any applicable PPFM. These arrangements should:(1) be appropriate to the scale, nature and complexity of the firm'swith-profits business; and(2) include the approval of the firm'sPPFM by its governing body.
COBS 20.1.1RRP
1This chapter applies to a firm carrying on with-profits business, except to the extent modified in the following rules.
COBS 20.1.2RRP
(1) The section on the process for reattribution (COBS 20.2.42 R to COBS 20.2.52 G):(a) applies to a firm that is proposing to make a reattribution of its inherited estate;(b) but not if, and to the extent that, it would require the firm to breach, or would prevent the firm from complying with, an order made by a court of competent jurisdiction.(2) If a firm proposes to seek an order from a court of competent jurisdiction that would allow or require it to act in a way that is
COBS 20.1.3RRP
For an EEA insurer:(1) 4(a) the rules and guidance on the with-profits fund (COBS 20.1A), on treating with-profits policyholders fairly (COBS 20.2.1 G to COBS 20.2.41 G and COBS 20.2.53 R to COBS 20.2.60 G), and the governance provisions in COBS 20.5. apply only in so far as responsibility for the matter in question has not been reserved to the firm'sHome State regulator by an EU instrument;4notwithstanding the above: (b) COBS 20.2.26A R (financial penalties and the with-profits
COBS 20.1.4RRP
The following do not apply to a non-directive friendly society:(1) COBS 20.3 (Principles and Practices of Financial Management);3(2) COBS 20.4 (Communications with with-profits policyholders); and3(3) COBS 20.5 (With-profits governance).3
COBS 20.1.5RRP
This chapter does not apply to with-profits business that consists of effecting or carrying out Holloway sickness policies.
COBS 20.3.1RRP
(1) A firm must:(a) establish and maintain the PPFM according to which its with-profits business is conducted (or, if appropriate, separate PPFM for each with-profits fund); and(b) retain a record of each version of its PPFM for five years.(2) A firm'swith-profits principles must:(a) be enduring statements of the standards it adopts in managing with-profits funds; and(b) describe the business model it uses to meet its duties to with-profits policyholders and to respond to longer-term
COBS 20.3.5RRP
A firm'sPPFM must cover any matter that has, or it is reasonably foreseeable may have, a significant impact on the firm's management of with-profits funds, including but not limited to:(1) any requirements or constraints that apply as a result of previous dealings, including previous business transfer schemes;3(2) the nature and extent of any shareholder or other3 commitment to support the with-profits fund; and3(3) the precise terms and conditions of support asset arrangements,
COBS 20.3.6RRP
Table: Issues to be covered in PPFMSubjectIssues(1)Amount payable under a with-profits policy(a)Methods used to guide determination of the amount that is appropriate to pay individual with-profits policyholders, including:(i)the aims of the methods and approximations used;(ii)how the current methods, including any relevant historical assumptions used and any systems maintained to deliver results of particular methods, are documented; and(iii)the procedures for changing the current
COBS 20.3.8GRP
Table: Guidance on with-profits principles and practicesReference to PPFM issues (COBS 20.3.6R)With-profits principlesWith-profits practices(1) Amount payable under a with-profits policyGeneral(a) Circumstances under which any historical assumptions or parameters, relevant to methods used to determine the amount payable, may be changed;General(e) For each major class of with-profits policy, methods establishing the main assumptions or parameters that decide the output of methods
INSPRU 1.2.30GRP
All cash flows are to be valued using prudent assumptions in accordance with generally accepted actuarial practice. Cash flows may be omitted from the valuation calculations provided the reserves obtained as a result of leaving those cash flows out of the calculation are not less than would have resulted had all cash flows been included (see INSPRU 1.2.22R (2)(b)2). Provision for future expenses in respect of with-profits insurance contracts (excluding accumulating with-profits
INSPRU 1.2.31GRP
INSPRU 1.2.29R (4) requires regulatory basis only life firms to make allowance for any future annual bonus that a firm would expect to grant, assuming future experience is in line with the assumptions used in the calculation of the mathematical reserves. final bonuses do not have to be taken into consideration in these calculations except in relation to accumulating with-profits policies (see INSPRU 1.2.9 R). The calculations required for accumulating with-profits policies are
INSPRU 1.2.71RRP
For the purposes of INSPRU 1.2.70 R, a firm must assume that the amount of a cash payment secured by the exercise of an option is:(1) in the case of an accumulating with-profits policy, the lower of:(a) the amount which the policyholder would reasonably expect to be paid if the option were exercised, having regard to the representations made by the firm and including any expectations of a final bonus; and(b) that amount, disregarding all discretionary adjustments;(2) in the case
INSPRU 1.2.72GRP
INSPRU 1.2.71R (1) applies only to accumulating with-profits policies; INSPRU 1.2.71R (2) applies to any other type of policy, including non-profit insurance contracts. In INSPRU 1.2.71R (1)(a) a firm must take into consideration, for example, a market value adjustment where such an adjustment has been described in representations made to policyholders by the firm. However, any discretionary adjustment, such as a market value adjustment, must not be included in the amount calculated
INSPRU 1.2.86RRP
For the purposes of INSPRU 1.2.79R (2) and INSPRU 1.2.85 R, future surplus Future surplus may only be offset against future reinsurance cash outflow in respect of surplus on non-profit insurance contracts and the charges or shareholder transfers arising as surplus from with-profits insurance contracts. Such charges and transfers may only be allowed for to the extent consistent with the regulatory duty of the firm to treat its customers fairly.
If a firm intends either (a) to remedy a fall in capital resources, or (b) to prevent such a fall, for example, by taking management action to reduce the risks to which a with-profits fund is exposed or by reducing non-contractual benefits for policyholders, it should explain to the FCA how such proposed actions are consistent with the firm's obligations under Principle 6 (Customers' interests).
INSPRU 1.5.23RRP
A firm must maintain a separate accounting record in respect of each of its long-term insurance funds (including any with-profits fund).
INSPRU 1.5.25GRP
Where the surplus arising from business is shared between policyholders and shareholders in different ways for different blocks of business, it may be necessary to maintain a separate fund to ensure that policyholders are, and will be, treated fairly. For example, if a proprietary company writes some business on a with-profits basis, this should be written in a with-profits fund separate from any business where the surplus arising from that business is wholly owned by shareho
INSPRU 1.5.29GRP
INSPRU 1.1.27 R and INSPRU 1.1.28 R provide further constraints on the transfer of assets out of a with-profits fund. INSPRU 1.1.27 R requires a firm to have admissible assets in each of its with-profits funds to cover the technical provisions and other long-term insurance liabilities relating to all the business in that fund. 7
SUP 18.2.16GRP
For a transfer of long-term insurance business the independent expert should be an actuary familiar with the role and responsibilities of the actuarial function holder and (if the relevant insurance business includes with-profits insurance business) a with-profits actuary.22
SUP 18.2.39GRP
For a scheme involving long-term insurance business, the report should:(1) describe the effect of the scheme on the nature and value of any rights of policyholders to participate in profits;(2) if any such rights will be diluted by the scheme, how any compensation offered to policyholders as a group (such as the injection of funds, allocation of shares, or cash payments) compares with the value of that dilution, and whether the extent and method of its proposed division is equitable
SUP 18.2.57EGRP
7Relevant documents in SUP 18.2.57D G above will usually include:(1) the scheme report;(2) if the business to be transferred includes long-term insurance business, copies of reports on the transfer by the actuarial function holder and (if the insurance business includes with-profits business) the with-profits actuary of both firms;(3) draft notices under article 3 of the Financial Services and Markets Act 2000 (Control of Business Transfers)(Requirements on Applicants) Regulations
SUP App 2.1.4GRP
SUP App 2.14A and65SUP App 2.15 apply6 to an insurer carrying on with-profits business, but SUP App 2.156 only applies6 if COBS 20.2.53 R (Ceasing to effect new contracts of insurance in a with-profits fund) also applies.6
SUP 4.2.3GRP
The functions3 described by SUP 4.2.2 G (1) are performed by one or more actuaries who are3 required to hold office continuously and must be approved persons3. Solvency II firms are required to have an actuarial function. Solvency II firms are not required to appoint an external actuary to fulfil the actuarial function for the purposes of rule 6 of the PRA Rulebook: Solvency II firms: Conditions Governing Business, but they must do so if they do not have the internal capability
COBS 16.6.3ARRP
4If a firm provides figures, on or after 1 January 2016, about the potential future development of bonuses under a with-profits policy it must inform the policyholder annually in writing of any differences between the actual bonuses payable to date and the figures previously provided.[Note: article 185(5) of the Solvency II Directive]
INSPRU 1.1.27RRP
A firm carrying on long-term insurance business must ensure that it has admissible assets in each of its with-profits funds of a value sufficient to cover:(1) the technical provisions in respect of all the business written in that with-profits fund; and(2) its other long-term insurance liabilities in respect of that with-profits fund.
COBS 19.5.4GRP
(1) Firms with large or complex relevant schemes should establish an IGC. For the purposes of this section, a firm may determine whether it has large relevant schemes by reference to:(a) the number of relevant policyholders in relevant schemes; (b) the funds under management in relevant schemes; and(c) the number of employers contributing to relevant schemes.(2) Examples of features that might indicate complex schemes include: (a) schemes that are operated on multiple information