The International Underwriting Association (IUA) has issued a new guide to help insurers respond to a forthcoming Prudential Regulation Authority (PRA) requirement to produce a "solvent exit analysis."
Starting June 30, PRA-regulated firms will be required to document how they could cease writing business while still meeting all liabilities, rather than relying on insolvency or resolution processes.
A solvent exit is the process through which an insurer winds down operations but continues to honour obligations to policyholders, claimants and other creditors.
In its new publication, “Solvent Exit Planning of Insurers”, the IUA set out the PRA’s expectations, practical considerations for firms and how some members have been preparing for the rules.
In recent years, the PRA has pushed insurers to strengthen recovery planning, improve run-off strategies and demonstrate that they can continue to deliver critical services through severe but plausible disruptions.
Solvent exit analysis adds an explicit expectation that firms also think through what an orderly wind-down would look like well before any stress crystallises.
“The PRA is keen to ensure that insurers are able to exit the market in an orderly manner without relying on insolvency or resolution processes, thus minimising disruption and protecting policyholders. Whilst the objectives of this new regime are clear, however, implementing the requirements in practice will mean something different for each company," said Nafisah Hussain (pictured), director of public policy at the IUA. "The nature of a solvent exit analysis will depend on firms’ size, business model, systemic importance and range of products sold."
The IUA’s emphasis on data reflects one of the most immediate practical hurdles for firms. Building a solvent exit analysis requires sufficiently granular information on in‑force policies, claims development patterns, operational dependencies, outsourcing and intra‑group arrangements.
The PRA is expected to focus closely on governance as well as technical content. Solvent exit planning is also likely to feed into discussions with shareholders and debt investors about capital allocation and run‑off strategies.
The work is intended to dovetail with existing operational resilience and third‑party risk management programmes. Understanding which services and suppliers would be critical in a run‑off scenario, and how they would be managed through a wind‑down, is likely to be a specific area of supervisory interest.
A credible solvent exit plan for such firms will have to address issues including the run-off of large and latent claims, commutation strategies, the possible use of Part VII transfers or other portfolio transfer mechanisms, and the treatment of reinsurance and retrocession.
In practice, this may sharpen internal debates over the long‑term viability of certain lines or territories. A clearer understanding of the costs, timeframes and operational hurdles involved in exiting a class of business can influence strategic decisions about whether to enter, grow or withdraw from that market. Boards may also find that solvent exit analysis highlights concentrations of risk in particular distribution channels, delegated authority arrangements or outsourced services.
“The introduction of a solvent exit analysis requirement introduces a new area of supervisory focus," said Hussain. "The IUA’s new guide aims to ensure that compliance work undertaken will have practical benefits, supporting decision-making around risk appetite, new business ventures, product line changes, third party engagement and operational resilience.”
