The Prudent Person Principle

On 27 May 2020, the Prudential Regulation Authority ("PRA") published Supervisory Statement ("SS") 1/20 on their latest expectations of the application of the Solvency II ("SII") Prudent Person Principle ("PPP") rules to insurers’ investment strategy, risk management and governance.

The SII PPP requires insurers to conduct investment activities in an appropriate manner, and to only invest in assets risks of which they can properly identify, measure, monitor, control and report, and in the best interest of policy holders. The importance of this has been highlighted by the increased trend towards investment in less liquid and more complex assets as well as recent economic volatility.

In this paper, we summarise the key PPP expectations, in our view, from the updated text in the SS, and their potential implications for insurers.