The Friendly Societies (Insurance Business) Regulations 1994

PART III MATCHING AND LOCALISATION

Application: Part III

12.  This Part of these Regulations applies to a society to which section 37(2) or (3) of the 1992 Act applies.

Matching: general requirement

13.—(1) Where the liabilities of a society to which this Part applies in any particular currency exceed 5 per cent. of the society’s total liabilities, the society shall hold sufficient assets in that currency to cover at least 80 per cent. of the society’s liabilities in that currency.

(2) Where a society carries on both long term and general business, the requirements of paragraph (1) apply to the assets and liabilities of each kind of business separately.

(3) Where the contract of insurance expresses any liability in terms of a particular currency, that liability shall be regarded as a liability in that currency.

(4) For the purposes of this regulation—

• “assets”, except in the case of assets of the kind referred to in regulation 20(2) below, means assets valued in accordance with Part IV of these Regulations; and

• “liabilities” means provision by a society to cover liabilities arising under or in connection with contracts of insurance (not being liabilities relating to insurance business excluded by regulation 18 below).

(5) For the purposes of this regulation references to assets in a currency shall be construed as references to assets expressed in or capable of being realised (without exchange risk) in that currency; and an asset is capable of being realised (without exchange risk) in a currency if it is reasonably capable of being realised in that currency without risk that changes in exchange rates would reduce the cover of liabilities in that currency.

(6) The provisions of this regulation have effect subject to the following regulations in this Part of these Regulations.

Matching: property linked benefits

14.—(1) In so far as the liabilities for property linked benefits and index linked benefits are covered by assets which determine the benefits payable under a linked long term contract, regulation 13 above does not apply.

(2) In so far as the liabilities for property linked benefits are determined by reference to assets in a currency other than that in which the society’s obligations to the policyholder are expressed, those liabilities shall for the purposes of regulation 13 be deemed to be liabilities in the first-mentioned currency.

(3) In this regulation “property linked benefits” and “index linked benefits” have the meanings given by regulation 19(1) below.

Matching: currency of general business liabilities

15.—(1) The currency of a society’s general business liabilities shall, for the purposes of regulation 13 above, be determined as follows.

(2) Where the liabilities are not expressed as liabilities in terms of a particular currency, they shall be regarded as liabilities in the currency of the country in which the risk is situated or, if the society on reasonable grounds so determines, in the currency in which the premium payable under the contract is expressed.

(3) However, the society may regard its liabilities as liabilities in the currency which it will use in accordance with past experience or, in the absence of such experience, in the currency of the country in which it is established where, in accordance with the nature of the risks, the society’s liabilities are liabilities in a currency other than that determined in accordance with paragraph (2).

(4) Where a claim has been notified to a society and the society’s liability in respect of that claim is payable in a currency other than one which would result from the application of the above provisions, the liability shall be regarded as a liability in the currency in which the society is actually obliged to pay it.

(5) Where a claim is assessed in a currency which is known to the society in advance but which is different from a currency determined in accordance with the above provisions, the society may regard its liabilities as liabilities in that currency.

Matching: exception for certain liabilities

16.—(1) Subject to paragraphs (2) and (3) below, a society need not cover its liabilities by assets in a particular currency if those assets would amount to 7 per cent. or less of the remainder of its assets in other currencies.

(2) During the period until 31st December 1998, paragraph (1) has effect in relation to general business liabilities required to be covered by assets in Greek drachmas, Irish pounds or Portuguese escudos as if the amount of 2 million ECU, if less than the percentage mentioned in that paragraph, were substituted for that percentage.

(3) During the period until 31st December 1996, paragraph (1) has effect in relation to general business liabilities required to be covered by assets in Belgian francs, Luxembourg francs or Spanish pesetas as if the amount of 2 million ECU, if less than the percentage mentioned in that paragraph, were substituted for that percentage.

Localisation

17.—(1) Assets held pursuant to regulation 13 above shall be held—

(a) if they cover liabilities in sterling, in the European Community;

(b) If they cover liabilities in any other currency, in the European Community or in the country of that currency.

(2) For the purposes of applying paragraph (1) above to tangible assets and assets consisting of a claim against a debtor or a listed or unlisted investment, the following provisions shall have effect—

(a) a tangible asset shall be regarded as held in the place where it is situated;

(b) an asset consisting of a claim against a debtor shall be regarded as held in any place where it can be enforced by legal action;

(c) an asset consisting of a listed investment shall be regarded as held in any place where—

(i) there is a stock exchange (of the kind described in paragraph (a) of the definition of “listed” in regulation 19(1) below) where it is listed; or

(ii) there is a regulated market as defined in regulation 19(1) below where it is dealt in;

(d) an asset consisting of an unlisted investment issued by an incorporated company shall be regarded as held in the place where the head office of the company is situated.

(3) In this regulation—

• “assets” and “liabilities” have the same meaning as in regulation 13 above;

• “listed” and “unlisted” have the meaning given in regulation 19(1) below.

Exclusions from regulations 13 to 17

18.—(1) Nothing in regulations 13 to 17 above shall apply to long term or general business carried on outside the European Community.

(2) For the purposes of paragraph (1) above, the term “carried on”—

(a) in relation to long term business, has the same meaning as the term “written in” has for the purposes of Article 17(3) of the first life Directive; and

(b) in relation to general business, refers to general business where the risk is situated in a member State.