Prudential International Assurance (PIA) - Brexit Update

The UK officially left the European Union on Friday 31 January 2020 and has now entered into a transitional period during which negotiations will continue to establish the UK and EU’s future relationship.

This transitional period is expected to continue until at least 31 December 2020. During this time all EU rules and regulations will continue to apply to the UK and there will be no immediate impact to the servicing of PIA policies.

A common concern of investors is eligibility on future claims from the Financial Services Compensation Scheme (FSCS). The FSCS is designed to protect eligible policyholders habitually resident in the UK on or after 1 December 2001 from financial loss should an insurer become insolvent.

We outline our position in this note.

Currently, PIA policyholders may (if they meet the criteria) be eligible to claim from the Financial Services Compensation Scheme (FSCS). This will continue to be the case for all plans issued before close of business 31 December 2020. And it applies to top-ups made to these plans, both before and after 31 December 2020.

What does this mean for your clients?

Life Company capital requirements and risk management frameworks are designed to ensure life companies can deal with significant market shocks, preventing life companies from failing thereby protecting policyholders.

In January 2016, Solvency II regulations were introduced. These regulations have further strengthened requirements around capital, governance and risk management. They are intended to reduce the likelihood of an insurer failing and, by extension, the likelihood of having to access the FSCS (the most recent insolvent life insurer that the FSCS is dealing with dates back to September 1993).

What about PIA?

PIA is authorised by the Central Bank of Ireland and is subject to regulation by the Financial Conduct Authority for UK business. PIA has total assets of £7.8bn and 59,000 policies (as at 31 December 2019). PIA is a 100% owned subsidiary of Prudential Assurance Company (PAC).

There are three layers of protection that PIA implements under Solvency II:

  1. Once a client takes out a PIA International single premium bond, PIA sets aside a provision for the value of that single premium bond, this is segregated from shareholder funds.
  2. In addition to this provision, PIA is required under Solvency II to have extra capital to ensure that your clients are well protected. This is known as the Solvency Capital Requirements (SCR). This capital acts as a safety blanket to uphold policyholder commitments even under extreme stress scenarios. The SCR represents the level of capital expected to weather the events of 199 out of 200 years.
  3. In addition to the SCR PIA holds additional capital over and above the SCR to provide even more security to policyholders. PIA’s solvency position was 156% (as at 30 June 2019) meaning that PIA was holding more than 1.5 times its SCR.

As part of Solvency II requirements, PIA monitors its solvency position on a regular on-going basis. PIA also reports it solvency position to both the Central Bank of Ireland (CBI) and its parent PAC on a quarterly and annual basis.

PAC is one of the country's leading Life and Pensions providers and one of the longest-established. PAC has an A+ financial strength rating from Standard & Poor (as at March 2019). This is one of the highest ratings currently given to any UK life assurance company.

PruFund

Whilst solvency II measures set the regulatory capital requirements for life companies you of course will wish to consider the financial strength, stability and robustness of a business and underlying assets and investments.

For clients who invest in our Prufund Range of Funds, PIA accesses these funds via a reinsurance agreement with PAC. This reinsurance agreement is such that all of the benefits provided by these policies are wholly reinsured to PAC.

The PAC With-Profits Fund is the largest and one of the financially strongest with-profits funds in the UK. Thus, when your clients invest in any of the PruFund Range of Funds their investment is pooled together with other investors’ money in the PAC long-term fund, called the Defined Charge Participating Sub-Fund (DCPSF). Our reinsurance arrangement with PAC means that all of the benefits payable from our funds is provided by PAC.

What next?

During this period of negotiation on the UK’s future relationship with the EU, we will continue to monitor the situation and update policyholders and advisers as and when required. In the meantime, if you have any questions on how Brexit may affect your clients please contact your Prudential Account Manager.

© Prudential 2020