The International Underwriting Association has published a guide for insurance companies responding to a new regulatory requirement to establish a solvent exit analysis. A solvent exit is the process through which an insurer ceases business whilst still meeting all its liabilities.

From June 30, the Prudential Regulation Authority requires firms to document how they would achieve this. In a new publication – Solvent Exit Planning of Insurers – the IUA sets out the regulator’s expectations, practical considerations for firms responding and summarises how some of its members have been preparing for the new rules.

Nafisah Hussain, director of public policy at the IUA, said: “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.”

While the objectives of this new regime are clear, implementing the requirements in practice will mean something different for each company. The nature of a solvent exit analysis will depend on firms’ size, business model, systemic importance and range of products sold.

Hussain added: “Companies should draw upon existing information where appropriate for their solvent exit analysis and avoid duplicating work for other existing requirements. The introduction of a solvent exit analysis requirement introduces a new area of supervisory focus. Yet a well-constructed document will provide boards with greater understanding about the true costs and complexities of ceasing operations.

“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.”

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