On 22 August 2014, the MFSA issued a Guidance Note entitled “Solvency Requirements in relation to Protected Cell Companies”. This Note clarifies the solvency requirements for PCCs under Solvency I under different scenarios pending Solvency II implementation, with a particular emphasis on the calculation of the Solvency Capital Requirement (SCR) and the adjustment to the Own Funds. Reference is also made to the presence of diversification within PCCs.

This guidance note reflects the latest developments included in the updated Technical Specifications for the Solvency II valuation and Solvency Capital Requirements calculations (Part I) as distributed by EIOPA on the 18th of October 2012. However, it is noted that the EIOPA document is still a working document and hence it is possible that further changes could take place in the future.

  • The Guidance Note has concluded the following:
  • The core and the cells within the PCC structure can be treated as ring-fenced funds under Solvency II
  • The SCR for PCCs can be calculated using either the standard formula, USPs or internal models (full or partial).
  • Diversification is permitted within the core or any of the cells in isolation, and
  • Diversification between the cells and the core is only possible for ring-fenced funds which fall under Article 304 of Directive 2009/138/EC and where conditions specified in that Article are met.

The full text of the MFSA Guidance Note may be accessed by clicking here.