LLD 19.2 Calculation of capital resources requirements
Application of PRU 2.1
PRU 2.1 applies to the Society in accordance with LLD 16.3.1 R.
PRU 2.1.34 R to PRU 2.1.35 G apply to managing agents in accordance with LLD 16.3.3 R.
PRU 2.1.9 R requires the Society to ensure, in relation to each member's insurance business, that capital resources equal to or in excess of the member's capital resources requirement (CRR) are maintained. PRU 2.1 sets out the overall framework of the CRR. PRU 7.2 sets out the calculation of the components of the general insurance capital requirement and the long-term insurance capital requirement.
Managing agents are required to calculate the ECR for the purposes of carrying out syndicate ICAs under PRU 2.3. As with-profits insurance business is not carried on through any syndicate, the calculation of the with-profits insurance capital component will not be applicable. PRU 7.4 is not applied to Lloyd's.
Calculation of the MCR
For the purposes of PRU 2.1.21 R, the Society must calculate the MCR in respect of the general insurance business of each member as the higher of:
- (1)
the member's share of the base capital resources requirement in respect of general insurance business for the members in aggregate; and
- (2)
the general insurance capital requirement for the member, calculated according to LLD 19.2.11 R.
For the purposes of LLD 19.2.5R (1), the Society must determine the member's share by apportioning the base capital resources requirement in respect of general insurance business for the members in aggregate between members in proportion to the result for each member of LLD 19.2.11 R.
For the purposes of PRU 2.1.22 R, the Society must calculate the MCR in respect of the long-term insurance business of each member as the higher of:
- (1)
the member's share of the base capital resources requirement in respect of long-term insurance business for the members in aggregate; and
- (2)
the sum of, for each member:
For the purposes of LLD 19.2.7R (1), the Society must determine the member's share by applying to the aggregate long-term business base capital resources requirement the ratio of the result for the member of LLD 19.2.7R (2) to the aggregate of the results of LLD 19.2.7R (2) for all members.
Calculation of the base capital resources requirement
Subject to PRU 2.1.27 R, the amount of the base capital resources requirement for the members in aggregate is:
- (1)
for general insurance business, €3 million; and
- (2)
for long-term insurance business, €3 million.
Calculation of the general insurance capital requirement
For the purposes of PRU 2.1.30 R, the Society must calculate the general insurance capital requirement for the members in aggregate as the higher of:
- (1)
the aggregate for all members of the higher of, for each member, the result of the premiums amount and the claims amount; and
- (2)
The Society must determine the general insurance capital requirement for each member by apportioning the result of LLD 19.2.10 R between members on a fair and reasonable basis, provided that the general insurance capital requirement for a member must not be less than the higher of the result of the premiums amount and the claims amount for that member.
The Society should calculate the premiums amount and the claims amount for each member on the basis of the member's own general insurance business, including insurance business that attaches to the reinsuring member for the purposes of PRU following an approved reinsurance to close (see LLD 17.5.3 R).
The Society must calculate the general insurance capital requirement it would have to determine under PRU 2.1.30 R if it were an insurer carrying on all the general insurance business carried on by its members, but eliminating inter-syndicate reinsurance (the Society GICR).
For the purpose of LLD 19.2.13 R the Society may make appropriate approximations, taking reasonable care to avoid underestimating the Society GICR.
The Society must determine each member's share of the Society GICR by allocating the Society GICR between the members in proportion to the result for each member of LLD 19.2.11 R.