Prudential Regulation Authority Rulebook

1.1

This supervisory statement is addressed to UK Solvency II firms and to Lloyd’s, whether they are assessing the quality of their existing own funds and/or intending to issue new own fund items under Solvency II.

1.2

This statement sets out the Prudential Regulation Authority’s (PRA’s) expectations of firms in relation to own funds on the following topics in particular:

1. (a) ancillary own funds;
2. (b) the transitional measures for own funds;
3. (c) the right to cancel (or defer) dividends or other distributions; and
4. (d) pre-issuance notification.

1.3

Firms should read this statement alongside the Own Funds Part of the PRA Rulebook and related policy materials. In particular, among other relevant provisions:

1. (a) Chapter 3 of the PRA’s statement of policy ‘Solvency II: The PRA’s approach to insurance own funds permissions’^[A.1] (Own Funds SoP) sets out the PRA’s approach to applications for Ancillary Own Funds permissions;
2. (b) Own Funds 3L sets out the adjustments that must be made to own funds to reflect the lack of transferability of ring-fenced funds that can only be used to cover losses arising from a particular segment of liabilities or from particular risks;
3. (c) Own Funds 3A-3J set out a list of own funds items and the criteria for classifying them as Tier 1 own funds, Tier 2 own funds or Tier 3 own funds.
4. (d) For the purposes of Own Funds 4, Own Funds 4A sets out the applicable limits regarding the proportion of Tier 1 own funds, Tier 2 own funds and Tier 3 own funds which can be included in a firm’s eligible own funds to cover the firm’s solvency capital requirement (SCR) and minimum capital requirement (MCR).
5. (e) For the purposes of Own Funds 3.1, in connection with the classification of an item as ordinary share capital in Tier 1 own funds, a firm must assess whether that item of basic own funds satisfies the conditions in 3A and 3B.1-3B.13..  For example, a firm must assess whether the item ranks after all other claims including other classes of share capital in the event the firm is wound up.

1.4

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1.5

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