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Own Funds Determination of Own Funds

Application provision

1.1 Unless otherwise stated, this Part applies to:

  1. (1) a UK Solvency II firm; and
  2. (2) in accordance with Insurance General Application 3, the Society.

2.1

01/01/2016

A firm’s own funds comprise the sum of its basic own funds and ancillary own funds.


[Note: Art. 87 of the Solvency II Directive]

2.2

01/01/2016

The firm’s basic own funds consist of the following items:

  1. (1) the excess of assets over liabilities, less the amount of own shares held by the firm; and
  2. (2) subordinated liabilities.

[Note: Art. 88 of the Solvency II Directive]

2.3

01/01/2016

Subject to 2.5, the firm’s ancillary own funds consist of items (other than items of basic own funds) which can be called up to absorb losses, including the following (to the extent that they are not items of basic own funds):

  1. (1) unpaid share capital or initial fund that has not been called up;
  2. (2) letters of credit and guarantees;
  3. (3) any other legally binding commitments received by the firm; and
  4. (4) for a mutual, any future claims which it may have against its members by way of a call for supplementary contribution within the next 12 months.

[Note: Art. 89(1) of the Solvency II Directive]

2.4

01/01/2016

Where an item of ancillary own funds becomes paid in or called up, the proceeds paid in or the amount due in respect of the call must be treated as an asset and the item must cease to be treated as an item of ancillary own funds.


[Note: Art. 89(2) of the Solvency II Directive]

2.5

01/01/2016

When determining its own funds, a firm must not take into account any item of ancillary own funds unless, subject to 2.6, it has received the PRA’s approval of either:

  1. (1) a monetary amount for the relevant item of ancillary own funds; or
  2. (2) the method by which to determine the amount of the relevant item of ancillary own funds, together with the amount determined in accordance with that method for a specified time period.

[Note: Art. 90(1) and (3) of the Solvency II Directive]

2.6

01/01/2016

Where a firm has received approval:

  1. (1) under 2.5(1), it may only include in its own funds the item of ancillary own funds for an amount up to the amount approved; or
  2. (2) under 2.5(2), it may only include in its own funds the item of ancillary own funds up to the amount determined using the method approved, and only for the time period for which approval is granted.

[Note: Art. 90(3) of the Solvency II Directive]

2.7

01/01/2016

A firm may only attribute an amount to an item of ancillary own funds to the extent that it:

  1. (1) reflects the loss-absorbency of the item; and
  2. (2) is based upon prudent and realistic assumptions.

[Note: Art. 90(2) of the Solvency II Directive]