Prudential Regulation Authority Rulebook

1.1

Unless otherwise stated, this Part applies to a non-directive friendly society.

1.2

Subject to Friendly Society – Financial Prudence 2.2, this Part applies with respect to the determination of the value of assets of a firm.

1.3

In this Part, the following definitions shall apply:

business amount

means:

1. (1) for a friendly society carrying on only general insurance business, the general insurance business amount;
2. (2) for a friendly society carrying on only long-term insurance business, the long-term insurance business amount; and
3. (3) for a friendly society carrying on both general insurance business and long-term insurance business, in the case of its general insurance business assets, the general insurance business amount and in the case of its long-term insurance business assets, the long-term insurance business amount.

connected individual

of a friendly society, means a natural person who:

1. (1) controls, or is a partner of a natural person who controls, the friendly society; or
2. (2) is a member of the governing body of the friendly society or the spouse or civil partner or a minor son or daughter of such a member;

and for the purposes of the above, a natural person controls a friendly society if he is:

1. (3) a natural person in accordance with whose directions or instructions the governing body is accustomed to act; or
2. (4) a natural person who either alone or with any associate or associates is entitled to exercise or control the exercise of, 15% or more of the voting power at any general meeting of the friendly society.

deferred acquisition costs

means those items referred to at G II under the heading "Assets" in Part I of Schedule 2 to the Accounts Regulations.

dependant

of a friendly society, means:

1. (1) a subsidiary of that friendly society; or
2. (2) a jointly controlled body.

deposit back arrangement

(in relation to a contract of reinsurance) means an arrangement whereby an amount is deposited by the reinsurer with the cedant.

established surplus

means an excess of assets representing the whole or a particular part of the fund or funds maintained by the firm in respect of its long-term insurance business over the liabilities, or a particular part of the liabilities, of the firm attributable to that business as shown by an investigation to which IPRU(FSOC) 5.1 or 5.2 of the PRA Handbook as at 31 December 2015 applies pursuant to Non-Solvency II Firms – Transitional Measures 3.

excess concentration with a number of counterparties

means the amount by which the firm is exposed to a counterparty in excess of the permitted counterparty exposure limit, calculated in accordance with 26.

exposure

means:

1. (1) (in relation to assets), an amount determined in accordance with 18 to 24;
2. (2) (in relation to a counterparty), an amount determined in accordance with 25 to 27.

general insurance business amount

means the higher of:

1. (1) the total of:
1. (a) the friendly society’s insurance liabilities (net of reinsurance ceded) in respect of general insurance business less debts:
1. (i) which are due from dependants to which 23.3 relates,
2. (ii) which are not reinsurance which has already been netted off the friendly society’s insurance liabilities, and
3. (iii) which are included in general insurance business assets; which amount is to be zero where the debts are greater than the friendly society’s insurance liabilities, and
2. (b) an amount equal to whichever is the greater of £320,000 or 20% of the general premium income; or
2. (2) such other amount as the friendly society may select not exceeding:
1. (a) the value of its general insurance business assets as determined in accordance with this Part;
2. (b) excluding debts due from dependants to which paragraph 23.2 relates and reinsurance recoveries; and
3. (c) less debts due to dependants of the friendly society included in general insurance business liabilities (excluding reinsurance recoveries, other than amounts due or that relate to claims already paid by the dependant) except that for a dependant to which 23.2 does not relate, the amount deducted will not exceed the dependant’s surplus assets (or proportional share).

general insurance business assets

means the assets of a firm which are, for the time being, identified as representing the general insurance business fund or funds maintained by that body in respect of its general insurance business.

general premium income

means, in any year, the net amount, after deduction of any premiums payable for reinsurance, of the premiums receivable in that year in respect of all insurance business other than long-term insurance business.

implicit item

means economic reserves arising in respect of items which relate to future surpluses, zillmerising or hidden reserves.

linked assets

means, in relation to a friendly society, long-term insurance business assets of the friendly society which are, for the time being, identified in the records of the friendly society as being assets by reference to the value of which property-linked benefits are to be determined.

long-term insurance business assets

means the assets of a firm which are, for the time being, identified as representing the long-term insurance business fund or funds maintained by that firm in respect of its long-term insurance business.

long-term insurance business amount

means the higher of:

1. (1) the total of:
1. (a) the friendly society’s insurance liabilities in respect of long-term insurance business (net of reinsurance ceded) and the amount of any deposit back under a deposit-back arrangement in relation to a contract of reinsurance in respect of long-term insurance business;
1. (i) excluding property-linked liabilities; and
2. (ii) less:
1. (A) the amount of any debt, that is a long-term insurance business asset (excluding reinsurance ceded which has already been deducted from the friendly society’s insurance liabilities), due from a dependant to which paragraph 23.2 relates, and
2. (B) the amount of any implicit item valued in accordance with a waiver; (which amount is to be zero where the result is negative); and
3. (C) the amount of the required margin of solvency or minimum guarantee fund, whichever is greater for its long-term insurance business (or, in the case of a friendly society whose head office is not in the UK, that amount which would apply if its head office were in the UK); or
2. (2) such other amount as the friendly society may select not exceeding the value of its assets determined in accordance with the this Chapter;
1. (a) excluding:
1. (i) reinsurance recoveries;
2. (ii) assets required to match property-linked liabilities;
3. (iii) debts due from dependants of the friendly society to which 23.2 relates; and
4. (iv) if the friendly society is a general insurer, general insurance business assets, and
2. (b) less:
1. (i) if the friendly society is a general insurer, debts due to dependants of the friendly society included in long-term insurance liabilities (excluding reinsurance recoveries (other than amounts due or that relate to claims already paid by the dependant)); or
2. (ii) if the friendly society is not a general insurer, debts due to dependants of the friendly society (excluding reinsurance recoveries (other than amounts due or that relate to claims already paid by the dependant)), but for the purposes of (b) above, for dependants to which 23.2 does not relate, the amount deducted will not exceed the dependant’s surplus assets (or proportional share);

except that for the purposes of determining the permitted asset exposure limit under 28, index-linked liabilities must also be excluded from (1)(a) and assets required to match such liabilities must be also excluded from (2).

permitted asset exposure limit

means the limits referred to in 28.

permitted counterparty exposure limit

means the limits referred to in 29.

readily realisable

means a listed investment in respect of which 12.4 does not apply or, by virtue of 12.5, is to be taken not to apply.

receivable

means such amounts as become due to a friendly society, whether or not received (including where appropriate, income which has accrued) in respect of contracts of insurance incepted in the relevant period.