The Friendly Societies (Long Term Insurance Business) Regulations 1987

Regulation 2

SCHEDULE 1

PART I CLASSES OF LONG TERM BUSINESS

Number	Description	Nature of business
I	Life and annuity.	Effecting and carrying out contracts of insurance on human life or contracts to pay annuities on human life, but excluding (in each case) contracts within Class III below.
II	Marriage and birth.	Effecting and carrying out contracts of insurance to provide a sum on marriage or on the birth of a child, being contracts expressed to be in effect for a period of more than one year.
III	Linked long term.	Effecting and carrying out contracts of insurance on human life or contracts to pay annuities on human life where the benefits are wholly or partly to be determined by reference to the value of, or the income from, property of any description (whether or not specified in the contracts) or by reference to fluctuation in, or in an index of, the value of property of any description (whether or not so specified).
IV	Permanent health.	Effecting and carrying out contracts of insurance providing specified benefits against risks of persons becoming incapacitated in consequence of sustaining injury as a result of an accident or of an accident of a specified class or of sickness or infirmity, being contracts that– (a) are expressed to be in effect for a period of not less than five years, or until the normal retirement age for the persons concerned, or without limit of time, and (b) either are not expressed to be terminable by the insurer, or are expressed to be so terminable only in special circumstances mentioned in the contract.
V	Tontines.	Effecting and carrying out tontines.
VI	Capital redemption.	Effecting and carrying out capital redemption contracts.
VII	Pension fund management.	Effecting and carrying out– (a) contracts to manage the investments of pension funds, or (b) contracts of the kind mentioned in paragraph (a) above that are combined with contracts of insurance covering either conservation of capital or payment of a minimum interest.

PART II CLASSES OF SUPPLEMENTARY BUSINESS

Number	Description	Nature of business
1	Accident.	Effecting and carrying out contracts of insurance providing fixed pecuniary benefits or benefits in the nature of indemnity (or a combination of both) against risks of the person insured or, in the case of a contract made by virtue of section 140, 140A or 140B of the Local Government Act 1972, a person for whose benefit the contract is made– (a) sustaining injury as the result of an accident or of an accident of a specified class, or (b) dying as the result of an accident or of an accident of a specified class, or (c) becoming incapacitated in consequence of disease or of disease of a specified class, inclusive of contracts relating to industrial injury and occupational disease but exclusive of contracts falling within class 2 below or within class IV in Part I of this Schedule (permenant health).
2.	Sickness.	Effecting and carrying out contracts of insurance providing fixed pecuniary benefits or benefits in the nature of indemnity (or a combination of the two) against risks of loss to the persons insured attributable to sickness or infirmity, but exclusive of contracts falling within class IV in Part I of this Schedule.

Regulations 6 and 7

SCHEDULE 2 INFORMATION REQUIRED WITH APPLICATION FOR AUTHORISATION

Solvency

1.  A statement showing the amount by which the assets are expected to exceed liabilities at the date of authorisation (after application of Parts VI and VII of these Regulations) and how calculated.

Classification of business

2.  Particulars of the classes of long term business which the society wishes to be included in the authorisation.

Scheme of operations

3.  The sources of business (for example, insurance brokers, agents, own employees or direct selling), and the approximate percentage expected from each source.

4.  The nature of the commitments which the society proposes to take on and the general and special policy conditions which it proposes to use.

5.  The technical bases that the actuary who will be appointed by the society for the purposes of these Regulations proposes to employ for each class of business, including the data needed to calculate premium rates and mathematical reserves.

6.  The guiding principles as to reinsurance including the society’s maximum retention per risk or event after all reinsurance ceded and the names of the principal reinsurers.

7.  The assets which represent or will represent the minimum guarantee fund being assets admissible under and valued in accordance with Part VI of these Regulations.

8.  The estimated cost of installing the administrative services and organisation for securing business, and the financial resources intended to cover those costs.

Projections

9.  For each of the first three years of account following authorisation–

(a) a forecast balance sheet (on both optimistic and pessimistic bases);

(b) a plan (on both optimistic an pessimistic bases) setting out detailed estimates of income and expenditure in respect of direct business and reinsurance cessions; and

(c) estimates relating to the financial resources intended to cover underwriting liabilities and the margin of solvency.

Other information

10.  A statement showing the types of investments which are expected to represent the insurance funds and the estimated proportion which will be represented by each type of investment.

11.  Copies or drafts of reinsurance treaties.

12.  Copies or drafts of any standard agreements with brokers or agents.

13.  Copies or drafts of any agreements with persons (other than employees of the society) who manage or will manage the business of the society.

14.  A certificate by the actuary appointed for the purposes of these Regulations that–

(a) he considers the premium rates to be suitable,

(b) he considers the financing of the society to be sufficient to cover both technical reserves and the required margin of solvency during the first three years of account following authorisation, and

(c) he agrees with the information provided under paragraphs 6 and 9 above.

Regulation 17

SCHEDULE 3 SUPPLEMENTARY BUSINESS—SOLVENCY MARGIN: PREMIUM BASIS OF CALCULATION

1.  In this Schedule–

“gross premiums”, in relation to a society and a year of account means premiums after the deduction of discounts, refunds and rebates of premium but before deduction of premiums for reinsurance ceded and before deduction of commission payable by the society;

“receivable”, in relation to a society, a year of account and a premium, means recorded in the society’s books as due to the society in respect of–

(a)

a contract commencing in that year, or

(b)

a contract not accounted for in an annual revenue account of the society prior to that year, even though the contract commenced in an earlier year of account,

whether or not the society has received the premium;

“recoverable”, in relation to a society and a year of account, means recorded in the society’s books as due in that year, whether or not the society has received any payment.

2.  The gross premiums receivable in respect of the society’s entire supplementary business for the last preceding year of account shall be aggregated.

3.  From the aggregate arrived at under paragraph 2 above there shall be deducted–

(a) any taxes included in the premiums mentioned in paragraph 2 above, and

(b) any levies that are related to premiums and are recorded in the society’s books as payable in the last preceding year of account in respect of general business.

4.  The amount arrived at under paragraph 3 above shall be multiplied by twelve and divided by the number of months in the year of account.

5.  If the amount arrived at under paragraph 4 above is more than 10 million units of account, it shall be divided into two portions, the former consisting of 10 million units of account and the latter comprising the excess.

6.  Where there has been a division into two portions pursuant to paragraph 5 above, there shall be calculated and added together 18 per cent and 16 per cent of the two portions respectively; and where there has been no such division, there shall be calculated 18 per cent of the amount arrived at under paragraph 4 above.

7.—(1) If the provision for claims outstanding at the end of the last preceding year of account exceeds the provision for claims outstanding at the beginning of that year, the amount of the excess shall be added to the amount of claims paid in the last preceding year of account.

(2) If the provision for claims outstanding at the beginning of the last preceding year of account exceeds the provision for claims outstanding at the end of that year, the amount of the excess shall be deducted from the amount of the claims paid in the last preceding year of account.

8.—(1) For the purpose of paragraph 7 above, the amount of claims paid, in relation to a society and a year of account, is the amount that is recorded in the society’s books as at the end of the year of account as paid by it (whether or not payment has been effected in that year) in full or partial settlement of–

(a) the claims described in sub-paragraph (2) below, and

(b) the expenses described in sub-paragraph (3) below,

less any recoverable amounts within the meaning of sub-paragraph (4) below.

(2) The claims mentioned in sub-paragraph (1) above are claims under contracts of insurance including claims relating to business accounted for over a longer period than a year of account.

(3) The expenses mentioned in sub-paragraph (1) above are expenses (such as, for example, legal or medical costs) which are incurred by the society, whether through employment of its own staff or otherwise, and are directly attributable to the settlement of individual claims, whether or not the individual claims in question are those mentioned in sub-paragraph (1) above.

(4) Recoverable amounts for the purposes of sub-paragraph (1) above are amounts recoverable by the society in respect of the claims mentioned in that sub-paragraph or other claims, including amounts recoverable from third parties and amounts recoverable in respect of reinsurance ceded by the society.

9.—(1) For the purposes of paragraph 7 above, the provision for claims outstanding, in relation to a society and a year of account, is (subject to any applicable valuation regulations) the amount set aside by the society as at the beginning or end of the year of account as being an amount likely to be sufficient to meet–

(a) the claims described in sub-paragraph (2) below, and

(b) the expenses described in sub-paragraph (3) below,

less any recoverable amounts within the meaning of sub-paragraph (4) below.

(2) The claims mentioned in sub-paragraph (1) above are claims under contracts of insurance in respects of incidents occurring–

(a) in the case of an amount set aside as at the beginning of the year of account, before the beginning of that year, and

(b) in the case of an amount set aside as at the end of a year of account, before the end of that year,

being claims which have not been treated as claims paid and including claims relating to business accounted for over a longer period than a year of account, claims the amounts of which have not been determined and claims arising out of incidents that have not been notified to the society.

(3) The expenses mentioned in sub-paragraph (1) above are expenses (such as, for example, legal or medical costs) which are likely to be incurred by the society, whether through the employment of its own staff or otherwise, and are directly attributable to the settlement of individual claims, whether or not the individual claims in question are those mentioned in sub-paragraph (1) above.

(4) Recoverable amounts for the purposes of sub-paragraph (1) above are amounts estimated by the society to be recoverable by it in respect of the claims mentioned in that sub-paragraph, including amounts recoverable from third parties and amounts recoverable from other insurers but excluding amounts recoverable in respect of reinsurance ceded by the society.

10.  From the amount determined under paragraph 7(1) or (2) above, there shall be deducted the total sum recoverable in respect of that amount under reinsurance contracts ceded.

11.  The amount determined under paragraph 10 above shall be expressed as a percentage of the amount determined under paragraph 7(1) or (2) above.

12.  The sum arrived at under paragraph 6 above shall be multiplied–

(a) where the percentage arrived at under paragraph 11 above is greater than 50 per cent but not greater than 100 per cent, by the percentage so arrived at,

(b) where the percentage so arrived at is greater than 100 per cent, by 100 per cent, and

(c) in any other case, by 50 per cent.

Regulation 44

SCHEDULE 4 ASSETS TO BE TAKEN INTO ACCOUNT ONLY TO A SPECIFIED EXTENT

PART I

Descriptions of Asset	Percentage of long term business amount
1.  A piece of land (not being land held as a security for a debt) or a number of pieces of such land to which in the most recent proper valuation of such pieces of land an aggregate value is ascribed which is greater than the aggregate of the value of each such piece of land valued separately.	5%
2.  A debt (other than a listed debenture) due or to become due to the society from any person (not being an individual) which is fully secured on land or a number of such debts all of which are secured on the same land.	5%
3.  Debts (other than listed debentures, debts to which regulation 36(2), (3) or (4) above applies, debts of the descriptions specified in paragraph 2 above or paragraph 14 below) which are due or will become due to the society within 12 months of the relevant date (including debts which would become due within that period if the society were to exercise any right to which it is entitled to require payment or repayment of the same) from– (a) any one company and any of its connected companies,	2½%
(b) any one unincorporated body of persons not being monies due from the Crown or any public body.	2½%
4.  Debts (other than listed debentures, debts to which regulation 36(2), (3) or (4) above applies, and debts of the description specified in paragraph 2 or 3 above or paragraph 14 below) which will become due to the society from– (a) any one company and any of its connected companies	1%
(b) any one unincorporated body of persons	1%
not being monies due from the Crown or any public body.
5.  Listed equity shares in any one company and any of its connected companies.	2½%
6.  Listed shares (including listed equity shares but only to the extent that such shares may be taken into account in accordance with paragraph 5 above) and listed debentures in any one company and any of its connected companies.	5%
7.  Unlisted shares in any one company and any of its connected companies.	1%
8.  Debenture options and share options (including traded options) in any one company and any of its connected companies.	1/10%
9.  Options of the description specified in paragraph 8 above and debts and shares of the descriptions specified in paragraphs 3, 4, 5, 6 and 7 above due or to become due from or held in any one company and any of its connected companies to the extent that such debts and shares and options may be taken into account in accordance with the provisions of those paragraphs.	7½%
10.  Debts due or to become due to the society from an individual (other than debts of the descriptions specified in regulation 36(2) above, or paragraphs 3(b) and 4(b) above or paragraphs 11 and 14 below).	1/4%
11.  Debts due or to become due to the society from an individual, being debts which are fully secured on any dwelling or any land appurtenant thereto owned or to be purchased by the individual and used or to be used by him for his own residence.	1%
12.  Computer equipment.	5%
13.  Office machinery (other than computer equipment), furniture, motor vehicles and other equipment.	2½%

PART II

Description of Assets	Percentage of long term business net premium income
14.  Amounts recorded in the society’s books as due in respect of contributions or premiums which either– (a) have not been paid, or (b) have been received by an intermediary on behalf of the society, but have not been paid to the society by the intermediary, less any rebates, refunds and commission recorded in the society’s books as allowable or payable in respect of any such amounts.	30%