Prudential Regulation Authority Rulebook

1.1

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

1.2

In this Part, the following definitions shall apply:

called-up share capital

has the meaning in section 547 of the Companies Act 2006.

capital contribution

means an item of capital that is a gift of capital and where no coupon is payable on it.

capital instrument

means any security issued by or loan made to that firm or any other investment in, or external contribution to the capital of, that firm.

company

has the meaning in section 1(1) of the Companies Act 2006.

coupon

means a dividend, interest payment or any similar payment.

discounts

means discounting or deductions to take account of investment income as set out in paragraph 48 of the insurance accounts rules.

fund for future appropriations

means the fund of the same name required by the insurance accounts rules, comprising all funds the allocation of which either to policyholders or to shareholders has not been determined by the end of the financial year, or the balance sheet items under international accounting standards which in aggregate represent as nearly as possible that fund.

initial fund

means the items of capital that were available to a mutual on the date it received a Part 4A permission to effect contracts of insurance or carry out contracts of insurance.

member contribution

means any paid-up contribution by a member of a mutual where the members' accounts meet the following criteria:

1. (1) the memorandum and articles of association or other constitutional documents must stipulate that payments may be made from these accounts to members only in so far as this does not cause the capital resources to fall below the required level, or, if after dissolution of the mutual, all the firm's other debts have been settled;
2. (2) the memorandum and articles of association or other constitutional documents must stipulate, with respect to the payments referred to in (1) made for reasons other than the individual termination of membership, that the PRA must be notified at least one month in advance of the intended date of such payments; and
3. (3) the PRA must be notified of any amendment to the relevant provisions of the memorandum and articles of association or other constitutional documents.

step-up

means (in relation to any item of capital) any change in the coupon rate on that item that results in an increase in the amount payable at any time, including a change already provided in the original terms governing those payments:

1. (1) including (in the case of a fixed rate) an increase in that coupon rate;
2. (2) including (in the case of a floating rate calculated by adding a fixed amount to a fluctuating amount) an increase in that fixed amount;
3. (3) including (in the case of a floating rate) a change to the benchmark by reference to which the fluctuating element of the coupon is calculated; and
4. (4) not including (in the case of a floating rate) an increase in the absolute amount of the coupon caused by fluctuations in the benchmark by reference to which the absolute amount of the coupon floats.

tier one capital resources

means the sum calculated at stage F (Total tier one capital after deductions) of the calculation in the capital resources table.

valuation differences

means all differences between the valuation of assets and liabilities as valued in accordance with Insurance Company – Overall Resources and Valuation and the valuation that the firm uses for its external financial reporting purposes, except valuation differences which are dealt with elsewhere in the capital resources table.

1.3

Undefined references in this Part to types, tiers or stages of capital or capital instruments must be interpreted in accordance with the capital resources table.

1.4

A tier one instrument or tier two instrument is treated as not having been redeemed or repaid for the purposes of this Part if:

1. (1) under its terms the instrument is exchanged for or converted into a new instrument or is subject to a similar process, or it is redeemed out of the proceeds of the issue of new securities;
2. (2) any new instrument is included in the same stage of capital or a higher stage of capital as the original instrument; and
3. (3) it would be reasonable (taking into account the economic substance) to treat the original instruments as continuing in issue on the same or a more favourable basis where the question of whether that basis is more or less favourable must be judged from the point of view of the adequacy of the firm's capital resources.

1.5

A share is not redeemable for the purposes of this Part merely because the Companies Act 1985, the Companies (Northern Ireland) Order 1986 or the Companies Act 2006 allows the firm that issued it to purchase it.

1.6

A capital instrument is not redeemable for the purposes of this Part merely because the firm that issued it has a right to purchase it similar to the right in 1.5.