The Insurance Companies (Amendment No. 2) Regulations 1994

Assets to be taken into account only to a specified extent

12.—(1) Regulation 57 of the 1994 Regulations (assets to be taken into account only to a specified extent) shall be amended as follows.

(2) For paragraphs (1) to (8) substitute—

“(1) Assets of an insurance company shall only be taken into account to the extent that its aggregate exposure to assets of a particular description does not exceed the maximum admissible value for assets of that description. Where its aggregate exposure to assets of a particular description exceeds the maximum admissible value for assets of that description, assets shall be left out of account in accordance with paragraph (8C) below.

(2) The “aggregate exposure” of an insurance company to assets of a particular description shall mean an amount in respect of such assets actually held by the company (if any) calculated in accordance with paragraph (4) below adjusted in accordance with paragraphs (5) to (8B) below.

(3) The “maximum admissible value” means—

(a) for a company carrying on general business, whether or not also carrying on long term business, in the case of general business assets of a description specified in Part I of Schedule 12, an amount equal to the percentage of the general business amount specified in Schedule 12 for assets of that description;

(b) for a company carrying on only long term business, for all assets of a description specified in Part I of Schedule 12, an amount equal to the percentage of the long term business amount specified in Schedule 12 for assets of that description;

(c) for a company carrying on general business and long term business, in the case of long term business assets of a description specified in Part I of Schedule 12, an amount equal to the percentage of the long term business amount specified in Schedule 12 for assets of that description; and

(d) for any company, in the case of assets of any other description, no value.

(4) The amount referred to in paragraph (2) above and paragraphs (5) to (7) and (8E) below is—

(a) where the assets held are of a description for the valuation of which provision is made in this Part of these Regulations, the value of such assets; or

(b) where the assets held are of a description for the valuation of which no provision is made in this Part of these Regulations, an amount which would reasonably be paid by way of consideration for an immediate assignment or transfer of such assets.

(5) Where assets of a particular description have been transferred by the company to another party pursuant to a stock lending transaction, the aggregate exposure to such assets shall be increased by an amount in respect of the assets transferred, calculated in accordance with paragraph (4) above.

(6) Where the company is party to a contract which (wholly or in part) is or has the equivalent effect to a futures contract which—

(a) provides for the acquisition of assets of a particular description by the company; or

(b) is listed and provides for the disposal of assets of a particular description by the company; or

(c) is not listed but provides for the disposal of assets of a particular description by the company to an approved counterparty within one year of the relevant date,

then, for the purposes of calculating its aggregate exposure, at the relevant date the company shall be deemed to have acquired or disposed of such assets and the aggregate exposure to assets of that description shall be increased or decreased accordingly by an amount calculated in accordance with paragraph (4) above.

(7) Where the company is party to a contract which (wholly or in part) is or has the equivalent effect to an option which—

(a) provides for the acquisition of assets of a particular description by the company; or

(b) is listed and provides for the disposal of assets of a particular description by the company; or

(c) is not listed but provides for the disposal of assets of a particular description by the company to an approved counterparty within one year of the relevant date,

and it is prudent at the relevant date to assume that such option will be exercised then, for the purpose of calculating its aggregate exposure, at the relevant date the company shall be deemed to have acquired or disposed of such assets and the aggregate exposure to assets of that description shall be increased or decreased accordingly by an amount calculated in accordance with paragraph (4) above.

(8) Where the company is party to a contract which (wholly or in part) is or has the equivalent effect to a contract for differences, the value of which depends to a significant extent upon fluctuations in the value of, or income from, either assets for the valuation of which no provision is made in this Part of these Regulations or assets of a particular description, for the purpose of calculating its aggregate exposure, the company shall be deemed to have achieved the effect of such contract for differences by entering into appropriate options or futures contracts in respect of those assets and such options or futures contracts shall be dealt with in accordance with paragraphs (6) and (7) above.

(8A) Where the company—

(a) has rights under a contract which (wholly or in part) is or has the equivalent effect to a derivative contract; and

(b) would reasonably expect to receive by way of consideration for an immediate transfer or assignment thereof or for closing out that contract, an amount in excess of the value of those rights when determined in accordance with this Part of these Regulations,

the aggregate exposure of the company to assets of descriptions deemed to have been acquired or disposed of pursuant to that contract by virtue of paragraphs (6) to (8) above shall be reduced by the amount of that excess, such amount being apportioned between those descriptions of assets in a reasonable manner, having regard to the terms of the contract.

(8B) Where the company—

(a) is party to a contract which falls within paragraph (8E) below; and

(b) is required to make a deduction pursuant to that paragraph,

the aggregate exposure to assets of descriptions deemed to have been acquired or disposed of pursuant to that contract by virtue of paragraphs (6) to (8) above shall be reduced by the amount of that deduction, such amount being apportioned between those descriptions of assets in a reasonable manner, having regard to the terms of the contract.

(8C) Where the aggregate exposure to assets of a particular description exceeds the maximum admissible value for assets of that description, then assets to the amount of the excess shall be left out of account—

(a) by leaving out of account assets of that description held by the company to an amount sufficient to eliminate the excess; and

(b) where the company does not hold sufficient assets of that description, by making a deduction, sufficient to eliminate the excess, from the aggregate value of the assets of the company taken into account.

(8D) For the purposes of determining whether, in pursuance of paragraphs 6, 8, 9, 10, 12, 13 and 14 of Schedule 12, assets should be left out of account by reason that the aggregate exposure exceeds the maximum admissible value, account may be taken of any amount which has already been left out of account in respect of assets of any of the descriptions in those paragraphs.

(8E) Where the company is party to a contract which (wholly or in part) is or has the equivalent effect to a derivative contract for the valuation of which provision is not made in this Part of these Regulations, in addition to assets left out of account by virtue of paragraph (1) above, a deduction, equal to the amount, calculated in accordance with paragraph (4) above, of cash or other assets as shall at the relevant date have been paid or transferred to the company in respect of that contract, shall be made from the aggregate value of the assets of the company taken into account.”

(3) In paragraph (13), omit the words “(not being a dependant of the insurance company)”.

(4) After paragraph (13) insert—

“(13A) Until 1st September 1995, paragraphs 4 and 10 of Schedule 12 shall have effect as if “listed debentures” included all debentures in respect of which there has been granted and not withdrawn a listing on any stock exchange in an EEA State which is a stock exchange within the meaning of the law of that EEA State and “unlisted debentures” shall be construed accordingly.”

(5) In paragraph (15), omit the word “or” in sub-paragraph (c), replace the full stop in sub-paragraph (d) with a semi-colon and add—

“(e) shares in or debts due or to become due from a dependant falling within regulation 46; or

(f) holdings in a unit trust scheme falling within Council Directive 611/EEC of 20 December 1985(1)on the co-ordination of laws, regulations and administrative provisions relating to undertakings for collective investments in transferable securities.”

(1)

This instruction was inserted by S.I. 1994/1515, reg. 15(8).