Prudential Regulation Authority Rulebook

5.1

Permanent share capital means an item of capital which (in addition to satisfying the conditions in 4.3) meets the following conditions:

1. (1) it is:
1. (a) an ordinary share;
2. (b) a member contribution; or
3. (c) part of the initial fund of a mutual;
2. (2) any coupon on it is not cumulative, the firm is under no obligation to pay a coupon in any circumstances and the firm has the right to choose the amount of any coupon that it pays; and
3. (3) the terms upon which it is issued do not permit redemption and it is otherwise incapable of being redeemed to at least the same degree as an ordinary share issued by a company incorporated under the Companies Act 2006 (whether or not it is such a share).

5.2

A firm must deduct from its capital resources negative amounts, including any interim net losses, from its profit and loss account and other reserves.

5.3

A firm must deduct dividends from reserves as soon as they are foreseeable.

5.4

A firm must account for a capital contribution as an increase in reserves and may count that increase in reserves as core tier one capital.

5.5

A firm must include in its core tier one capital a share premium account relating to the issue of a share forming part of its core tier one capital.

5.6

A firm must include share premium account relating to the issue of a share forming part of another tier of capital:

1. (1) in that other tier;
2. (2) for a firm that is incorporated under the Companies Act 2006, as core tier one capital to the extent that the terms of issue of the share concerned provide that any premium is not repayable on redemption; or
3. (3) for a firm that is not incorporated under the Companies Act 2006 as core tier one capital if its share premium account is subject to substantially the same or greater restraints on use than a share premium account falling into (2).

5.7

A firm must either add (if positive) or deduct (if negative) valuation differences from its capital resources in accordance with the capital resources table.

5.8

A firm that carries on general insurance business and which discounts or reduces its technical provisions for claims outstanding must deduct from its capital resources the difference between the undiscounted technical provisions or technical provisions before deductions, and the discounted technical provisions or technical provisions after deductions.

5.9

The adjustment referred to in 5.8 must be made for all classes of general insurance business, except for risks listed under classes 1 and 2.

5.10

For classes other than 1 and 2, no adjustment needs to be made in respect of the discounting of annuities included in technical provisions.

5.11

For classes 1 and 2 (other than annuities), if the expected average interval between the settlement date of the claims being discounted and the accounting date is not at least four years, the firm must deduct:

1. (1) the difference between the undiscounted technical provisions and the discounted technical provisions; or
2. (2) where it can identify a subset of claims such that the expected average interval between the settlement date of the claims and the accounting date is at least four years, the difference between the undiscounted technical provisions and the discounted technical provisions for the other claims.

5.12

5.8 to 5.11 do not apply to a pure reinsurer which ceased to conduct new reinsurance contracts before 31 December 2006.

5.13

A firm must include in its core tier one capital any fund for future appropriations.