Prudential Regulation Authority Rulebook

1.

A firm may treat a sub-set of equity investments as long-term equity investments if all of the following requirements are met and, subject to 3D11.4, the firm has notified the PRA in writing that it meets these requirements:

1. (1) the sub-set of equity investments as well as the holding period of each equity investment within the sub-set are clearly identified;
2. (2) the sub-set of equity investments is included within a portfolio of assets which is assigned to cover the best estimate of a portfolio of insurance or reinsurance obligations corresponding to one or several clearly identified businesses, and the firm maintains that assignment over the lifetime of the obligations;
3. (3) the portfolio of insurance or reinsurance obligations, and the assigned portfolio of assets referred to in (2) are identified, managed and organised separately from the other activities of the firm, and the assigned portfolio of assets cannot be used to cover losses arising from other activities of the firm;
4. (4) the technical provisions within the portfolio of insurance or reinsurance obligations referred to in (2) only represent a part of the total technical provisions of the firm;
5. (5) the average holding period of equity investments in the sub-set exceeds five years, or where the average holding period of the sub-set is lower than five years, the firm does not sell any equity investments within the sub-set until the average holding period exceeds five years;
6. (6) the sub-set of equity investments consists only of equities that are listed in the UK or of unlisted equities of companies that have their head offices in UK;
7. (7) the solvency and liquidity position of the firm, as well as its strategies, processes and reporting procedures with respect to asset-liability management, are such as to ensure, on an ongoing basis and under stressed conditions, that it is able to avoid forced sales of each equity investments within the sub-set for at least 10 years; and
8. (8) the risk management, asset-liability management and investment policies of the firm reflects the firm’s intention to hold the sub-set of equity investments for a period that is compatible with the requirement of (5) and its ability to meet the requirement of (7).

2.

Where equities are held within collective investment undertakings or within alternative investment funds that meet the requirements of 3D7.8(1) to (3), the requirements set out in 3D11.1 may be assessed at the level of the funds and not of the underlying assets held within those funds.

3.

A firm that treats a sub-set of equity investments as long-term equity investments in accordance with 3D11.1 must not revert back to an approach that does not include long-term equity investments, and if the firm is no longer able to comply with the requirements set out in 3D11.1, it must immediately inform the PRA in writing and cease to apply 3D9.1(2), 3D9.2(2), 3D9.3(2) and 3D9.4(2) to any of its equity investments for a period of 36 months.

4.

Where a firm treated a sub-set of equity investments as long-term equity investments in accordance with Article 171a of Commission Delegated Regulation (EU) 2015/35 immediately before 31 December 2024 and from 31 December 2024 treats that sub-set of equity investments as long-term equity investments, the firm must notify the PRA in writing by 31 January 2025.