Prudential Regulation Authority Rulebook

1.1

This supervisory statement is addressed to UK Solvency II firms and to Lloyd’s, whether they are assessing the quality of their existing own funds and/or intending to issue new own fund items under Solvency II.

1.2

This statement sets out the Prudential Regulation Authority’s (PRA’s) expectations of firms in relation to own funds on the following topics in particular:

1. (a) ancillary own funds and Article 96 of the Solvency II Directive;
2. (b) the transitional measures for own funds;
3. (c) the right to cancel (or defer) dividends or other distributions; and
4. (d) pre-issuance notification.

1.3

Firms should read this statement alongside all relevant European legislation as well as the Own Funds Part of the PRA Rulebook. In particular, among other relevant provisions:

1. (a) Articles 62 to 67 of the Solvency II Regulations set out requirements relating to applications for the approval of ancillary own funds and their assessment;
2. (b) Articles 80 and 81 of the Solvency II Regulations set out the adjustments that must be made to own funds to reflect the lack of transferability of ring-fenced funds that can only be used to cover losses arising from a particular segment of liabilities or from particular risks;
3. (c) Articles 69 to 78 of the Solvency II Regulations set out a list of own funds items and the criteria for classifying them as Tier 1 own funds, Tier 2 own funds or Tier 3 own funds.
4. (d) For the purposes of Own Funds 4, Article 82 of the Solvency II Regulations set out the applicable limits regarding the proportion of Tier 1 own funds, Tier 2 own funds and Tier 3 own funds which can be included in a firm’s eligible own funds to cover the firm’s solvency capital requirement (SCR) and minimum capital requirement (MCR).
5. (e) For the purposes of Own Funds 3.1, in connection with the classification of an item as ordinary share capital in Tier 1 own funds, a firm must assess whether that item of basic own funds satisfies all relevant criteria for that classification in the Solvency II Regulations. For example, a firm must assess whether the item ranks after all other claims including other classes of share capital in the event the firm is wound up.

1.4

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1.5

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