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Prudential International Assurance (PIA) Brexit Update

As you’ll be aware the UK officially left the European Union on 31 January 2020 and entered a transition period during which negotiations have been taking place to establish the UK and EU’s future relationship.

This transition period is currently scheduled to end at 11pm on 31 December 2020. Until this time all EU rules and regulations will continue to apply to the UK and there will be no immediate change to the servicing of PIA policies.

While the result of these negotiations remains unclear, policyholder access to the Financial Services Compensation Scheme (FSCS) will change once the transition period ends. In particular, it’s our understanding that new policies issued from 1 January 2021 to UK residents in respect of all PIA plans, with the exception of the Prudential Onshore Portfolio Bond, will not be eligible to FSCS. 

Policyholder protection

While there’s no equivalent in Ireland to the FSCS for insurance policies, there’s a strong regulatory environment in Ireland where PIA is based. PIA is authorised and regulated by the Central Bank of Ireland and in the context of its UK activities, is deemed authorised by the Prudential Regulation Authority and subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority.

PIA, which is part of the M&G plc group, has total assets under management of £7.8 billion and over 60,000 policies (as at 31 December 2019) for its offshore business. PIA is a 100% owned subsidiary of The Prudential Assurance Company Limited (PAC), also part of the M&G plc group, which has an A- rating for financial strength from Standard & Poor’s (as at June 2020).

As a life insurance undertaking in Ireland, PIA is subject to life company capital requirements and risk management frameworks which are designed to ensure life companies can deal with significant market shocks, preventing life companies from failing thereby protecting policyholders.

PIA is subject to Solvency II regulations, as enacted in Ireland, which have further strengthened requirements around capital, governance and risk management.  Amongst its aims, Solvency II looks to improve consumer protection and therefore secure a higher degree of policyholder protection.

As part of Solvency II there are three layers of protection that PIA implements:

  1. Once a client takes out a PIA single premium bond, PIA sets aside a provision for the value of that single premium bond, which is segregated from shareholder funds.
  2. In addition to this provision, PIA is required under Solvency II to have extra capital to ensure that its customers 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.
  3. In addition to the SCR, PIA holds additional capital over and above the SCR to provide additional security to policyholders. PIA’s solvency position was 155% (as at 31 December 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  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. PIA makes public its solvency position each year in its “Solvency and Financial Conditions Report”, which is available on prudential-international.com you can view the report here.

Policyholder Protection – pre and post end of transitional period

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.

Eligible claimants are those which meet the criteria as laid out on fscs.org.uk – you can view it here. As our policies are contracts of long term insurance we understand individuals, trustees and corporate owners, regardless of business size, are eligible claimants.

The table below outlines the different positions for each of PIA’s International bonds, open for new business, taking into account when the policy is issued.

Plan name Existing Plans Plans which issue before close of business 31 December 2020 Plans which issue from 1 January 2021
Prudential International Investment Bond (Life & Capital Redemption versions)

Solvency II layers of protection as mentioned above:

  1. Segregation from shareholder funds
  2. Solvency II SCR
  3. PIA additional capital above its SCR

plus

Access to FSCS for eligible claimants.

No change to above beyond 31 December 2020. 

Solvency II layers of protection as mentioned above:

  1. Segregation from shareholder funds
  2. Solvency II SCR
  3. PIA additional capital above its SCR

plus

Access to FSCS for eligible claimants.

No change to above beyond 31 December 2020

Solvency II layers of protection as mentioned above:

  1. Segregation from shareholder funds
  2. Solvency II SCR
  3. PIA additional capital above its SCR

No Access to FSCS

Prudential International Investment Portfolio (Life & Capital Redemption versions) No change - Same as above No change - Same as above Same as above 
International Portfolio Bond (Life & Capital Redemption versions) No change - Same as above No change - Same as above Same as above
Prudential Onshore Portfolio Bond No change – Same as above  No change – Same as above 

Solvency II layers of protection as mentioned above:

1.Segregation from shareholder funds

2.Solvency II SCR

3. PIA additional capital above its SCR

plus

Ongoing access to FSCS for eligible claimants.

PIA operates a UK branch for its UK onshore bond business and has applied for the Temporary Permissions Regime (TPR) in the UK. PIA maintains its ‘authorised person’ status by virtue of its UK branch, with the ’authorised person’ status applying to PIA as a whole, and not just its UK branch.

By maintaining the ‘authorised person’ status existing eligible policyholders up to close of business 31 December 2020 will retain FSCS cover, including for any top investments made after 31 December 2020.

Where a plan is issued before the close of business on 31 December 2020, then any top-ups whether issued pre or post 31 December 2020, will also be covered by the FSCS.

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 policyholders 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 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 policyholders 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 the benefits payable from our funds are provided by PAC. 

What next?

We’ll continue to monitor the negotiations between the UK and EU on their future relationship and update advisers and policyholders as and when required. We’ll be sending an email to advisers to let them know how this may impact their clients. In the meantime, if you have any questions on how Brexit may affect your clients please give contact your Account Manager.

"Prudential" is a trading name of Prudential Distribution Limited. Prudential Distribution Limited is registered in Scotland. Registered Office at Craigforth, Stirling FK9 4UE. Registered number SC212640. Authorised and regulated by the Financial Conduct Authority. Prudential Distribution Limited is part of the same corporate group as the Prudential Assurance Company. The Prudential Assurance Company and Prudential Distribution Limited are direct/indirect subsidiaries of M&G plc, a company incorporated in the United Kingdom. These companies are not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America or Prudential plc, an international group incorporated in the United Kingdom.