SUP App 2.1 to 2.15 apply3 to every friendly society that2 is an insurer.

5 SUP App 2.15 applies to an insurer carrying on with-profits business, but only if COBS 20.2.53 R (Ceasing to effect new contracts of insurance in a with-profits fund) also applies.

10 SUP App 2.7.1 G is made by the FCA for the purpose of its application to dormant account fund operators, rather than insurers.

In relation to a firm carrying on with-profits insurance business, action which it takes either to restore its capital resources to the levels set by the intervention points in this appendix, or to prevent its capital resources falling below those points, should be consistent with Principle 6 of the FCA's2 Principles for Businesses. The FCA's2Principle 6 requires a firm to pay due regard to the interests of its customers and treat them fairly.

Unless any of SUP App 2.4.1 R, SUP App 2.5.1 R, SUP App 2.5.3 R or SUP App 2.6.1 R applies, if a firm's circumstances change, such that its capital resources have fallen, or are expected to fall, below the level advised in individual capital guidance1 given to the firm by the appropriate regulator, then, consistent with PRIN 2.1.1 RPrinciple 11 (Relations with regulators), a firm should inform the appropriate regulator of this fact as soon as practicable, explaining why capital resources have fallen, or are expected to fall, below the level advised in individual capital guidance1, and:

1. (1)

   what action the firm intends to take to increase its capital resources; or

2. (2)

   what modification the firm considers should be made to the individual capital guidance1 which it has been given.

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In relation to a firm carrying on with-profits insurance business, if it intends either (a) to remedy a fall in the level of capital resources advised in its individual capital guidance1, or (b) to prevent a fall in the level advised in that guidance, for example, in either case, by taking management action to de-risk a with-profits fund or by reducing non-contractual benefits for policyholders, it should explain to the appropriate regulator4 how such proposed actions are consistent with the firm's obligations under 4the FCA's4 Principle 6 (Customers' interests).

Under Principle 11, the appropriate regulator normally expects to be notified by a firm when it decides to cease effecting new contracts of insurance in respect of one or more classes of contract of insurance (see SUP 15.3.8 G). At the same time, the appropriate regulator would normally expect the firm to discuss with it the need for the firm to apply to vary its permission (see SUP 6.2.6 G and SUP 6.2.7 G) and, if appropriate, to submit a scheme of operations in accordance with SUP App 2.8.1 R.

The PRA6 may ask a firm seeking a grant or variation of permission to provide a scheme of operations as part of the application process (see SUP 6.3.25 G). Such a firm is not required to submit to the PRA6 a further scheme of operations under this appendix unless SUP App 2.4, SUP App 2.5 or SUP App 2.8 applies. SUP App 2.13 and SUP 6 Annex 4 do, however, apply to such a firm.

In relation to a firm which carries on with-profits insurance business and which submits a plan, the appropriate regulator1 would expect an explanation of how any actions it plans to take to restore capital resources to the level of the guarantee fund, required margin of solvency or capital resources requirement are consistent with the firm's obligations under the FCA's1Principle 6 (Customers' interests).

The run-off plan required by COBS 20.2.53 R3 should include the information described in SUP App 2.15.2 G to SUP App 2.15.13 G in respect of the relevant with-profits fund.

A firm's run-off plan should describe how the firm proposes to manage the run-off of the with-profits fund. That description should include:

1. (1)

   details of the expected duration and costs of fully running off the fund's liabilities;

2. (2)

   an explanation as to how a solvent run-off will be funded; and

3. (3)

   details of the firm's future strategy for managing the risks associated with the run-off of the fund.

A firm's run-off plan should include an explanation of its future investment strategy, including:

1. (1)

   its strategy for matching the with-profits fund's liabilities with appropriate assets; and

2. (2)

   any changes it expects to make to the with-profits fund's investment strategy as a result of the closure of the with-profits fund, including any changes to the proportions of different types of investments.

A firm's run-off plan should include an explanation of its strategy for managing the with-profits fund's counterparty and credit risk, both within and external to the firm's group.

A firm's run-off plan should show how it will address any additional operational risks that may flow from the closure of the with-profits fund, including:

1. (1)

   any changes that it proposes to make to staffing arrangements for the run-off;

2. (2)

   an estimate of the cost of proposed operational changes, including redundancy costs; and

3. (3)

   any material outsourcing arrangements it proposes to enter into, explaining how the firm will address any specific operational risks created by those arrangements.

A firm's run-off plan should explain how it will use and manage reinsurance (if it will), including:

1. (1)

   any new inwards or outwards reinsurance it proposes to enter into as a result of the closure of the with-profits fund identifying, in each case, the proposed counterparty and the counterparty's relationship to the firm's group (if any); and

2. (2)

   how it will manage the risk that the reinsurance in (1) will not perform as expected.

A firm's run-off plan should include:

1. (1)

   details of any changes that will be made to the firm's corporate governance arrangements as a consequence of closure;

2. (2)

   an explanation of how costs charged to the with-profits fund may change in the light of closure;

3. (3)

   an explanation of any changes it will make, as a consequence of closure, to any charges for guarantees, including:

   1. (a)

      the circumstances in which those charges may be varied in the future; or

   2. (b)

      the manner by which the level of any appropriate variation to those charges may be determined;

4. (4)

   an explanation of any actual or potential changes in the maturity payment or surrender payment target ranges that the firm will apply to determine benefits under its with-profits policies;

5. (5)

   an explanation of any actual or potential changes in the firm's smoothing policy as a consequence of closure;

6. (6)

   an explanation of any changes to the firm'sprojection rates as a consequence of closure;

7. (7)

   details of any new deductions to be made from the firm's surrender payments, together with an explanation as to how those deductions are consistent with:

   1. (a)

      Principle 6 (Customers' interests); and

   2. (b)

      COBS 20.2.11 G to COBS 20.2.16 R3 (Amounts payable under with-profits policies: Surrender payments);

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8. (8)

   if there are groups of unitised with-profits policies in the with-profits fund with similar market value reduction free dates, an explanation as to whether:

   1. (a)

      the firm expects surrenders to peak around any of those dates; and

   2. (b)

      if it does, how it proposes to deal with those peaks;

9. (9)

   details of the information that the firm gives to its with-profits policyholders about their right (if any) to use the proceeds of a personal pension scheme, stakeholder pension scheme, FSAVC, retirement annuity contract or pension buy-out contract to purchase an annuity on the open market when the relevant contracts or schemes vest or mature 3 and any changes that will be made to that information as a result of the closure;

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10. (10)

    details of how the firm will deal with any potential mis-selling costs that may arise in the future in respect of contracts of insurance effected in the with-profits fund;

11. (11)

    an explanation of how the firm:

    1. (a)

       anticipates capital will become available for distribution to policyholders (and shareholders where appropriate); and

    2. (b)

       will ensure a full and fair distribution of the closed with-profits fund, including any inherited estate;

    including details of:

    1. (c)

       how the firm plans to provide in the long term for annuity payments on any with-profits and non-profits policies under which benefits have vested;

    2. (d)

       how the firm will address future adverse circumstances in relation to these (e.g. increased annuitant longevity); and

    3. (e)

       details of the firm's plans for distributing the embedded value in any major subsidiaries held in or by the closed with-profits fund;

12. (12)

    an explanation of any material differences between the firm's run-off plan and relevant parts of its PPFM, together with details of any changes that will be made to the PPFM as a consequence of closure (The firm should provide the FCA with a copy of the revised sections of its PPFM when it submits its run-off plan.);

13. (13)

    an explanation of whether the firm will be seeking to expand any other business following closure of the with-profits fund. (This explanation should include whether the firm will effect any new with-profits policies in a different with-profits fund and whether it will seek to expand its unit-linked or non-profit insurance business. It should also include an explanation of how such plans will impact on the closed with-profits fund. For example, will the firm offer policyholders in the closed with-profits fund the opportunity to switch into another with-profits fund or into unit-linked business?)

A firm's run-off plan should include:

1. (1)

   a forecast summary revenue account for the with-profits fund, in the form of SUP App 2.15.9 G Table 1;

2. (2)

   a forecast summary balance sheet and statement of solvency for the with-profits fund, which has been prepared in the form of SUP App 2.15.9 G Table 2 and on a regulatory basis; and

3. (3)

   a forecast summary balance sheet and statement of solvency for the entire firm, which has been prepared in the form of SUP App 2.15.9 G Table 3 and on a regulatory basis;

in each case, for at least a three year period, beginning on the date of closure; and

1. (4)

   a description of the assumptions underlying the forecasts at (1) to (3) and the reasons for adopting those assumptions.

If a firm is a realistic basis life firm, its run-off plan should include:

1. (1)

   a realistic balance sheet and statement of solvency position in the form of SUP App 2.15.9 G Table 2, if the financial position of the relevant with-profits fund would, when stated in that form, be materially different from the firm's most recent realistic solvency submission for that fund; or

2. (2)

   a statement that the firm is satisfied that the closure of the with-profits fund will not materially affect the realistic solvency position of that fund, as reflected in the firm's most recent realistic solvency submission for that fund.

A firm's run-off plan should include:

1. (1)

   a revised individual capital assessment for the firm (see INSPRU 7.12), which reflects the impact of the closure of the relevant with-profits fund; or

   2
2. (2)

   a statement that the firm is satisfied that the closure will not materially affect the firm's most recent assessment.

A firm's run-off plan should include details of any:

1. (1)

   intra-group balances held by the with-profits fund;

2. (2)

   groupcompany investments held by the with-profits fund; and

3. (3)

   guarantees given by the firm;

which, in each case, have a value in excess of 5% of the firm's gross technical provisions.

A firm's run-off plan should include any other information that the firm considers relevant to the run-off of the closed with-profits fund.

Either regulator7 may request additional information and explanations from the firm. (See section 165 (Regulators'7 power to require information) of the Act.)

Significant changes to, or departures from, a firm's run-off plan are likely to trigger one or more of the firm's obligations to notify the FCA. (See, for example, Principle 11 (Relations with regulators). The guidance in SUP 15.3 (General notification requirements) may also be relevant.)