Beta This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

General Insurance Manual

Non-resident insurers: scope of UK taxing rights: section 11 ICTA & Article 7 OECD Model: attribution of the investment return: regulatory guidance

Regulatory authorities and the market expect an entity with insurance business to have a substantial margin of income-producing assets above its liabilities to policyholders and more than the absolute minimum statutory solvency margin. The position here is evolving. The current set of Directives, pending the introduction (expected in 2012) of a new EU framework (Solvency II), is known as Solvency I. In the UK, the Financial Services Authority (FSA) introduced interim standards from 1 January 2005 based on a consultation paper CP190 ‘Enhanced capital requirements and individual capital assessments for non-life insurers’ (July 2003).

Solvency IA ‘required minimum margin’ (RMM), a proportion of the technical provisions, is added to the provisions. The result is larger than the absolute minimum capital, the ‘minimum guarantee fund’ (MGF). CP190 made public the FSA’s ‘informal supervisory rule of thumb’ that required at least twice the RMM to be added to the provisions.

CP190Under the ‘three pillar’ approach to regulation, originally developed for banking under the Basel Accord

  • Pillar 1 is a set of harmonised valuation standards and minimum capital requirements
  • Pillar 2 is a supervisory review process, with active regulator participation, ensuring insurers have good processes and adequate capital, involving ‘individual capital guidance’ (ICG) input from the regulator
  • Pillar 3 is market disclosure and discipline, allowing comparison across institutions.The new risk-based regulatory requirement (enhanced capital requirement, or ECR) for Pillar 1 and individual capital adequacy standards (ICAS) regime are steps towards the standards being developed for Solvency II The CP190 proposals are now reflected in INSPRU, in succession to PRU (see


Solvency IIPillars 1 - 3 will be in place across the EU. The MGF will be replaced by a ‘minimum capital requirement’ (MCR) and the ECR by a ‘solvency capital requirement’ (SCR), a risk based level of solvency capital which may be topped up (‘adjusted SCR’) through the ICAS process. A Community wide regulatory reporting process will be in place. It is expected that this will comprise

  • A public Solvency and Financial Condition Report (SFCR), and
  • A private Report to Supervisors (RTS).These reports will include quantitative and narrative information supporting the regulatory process, including (for Pillar 2) what is known as an Own Risk and Solvency assessment (ORSA). The information contained will be useful in assessing capital requirements (while bearing in mind that the supervisory view is not conclusive).

GIM10160+ discusses the relevance of these regulatory capital standards in the light of OECD developments.