Friendly Society - Asset Valuation

1.1

Unless otherwise stated, this Part applies to a non-directive friendly society.

1.2

Subject to Friendly Society – Financial Prudence 2.2, this Part applies with respect to the determination of the value of assets of a firm.

1.3

In this Part, the following definitions shall apply:

business amount

means:

1. (1) for a friendly society carrying on only general insurance business, the general insurance business amount;
2. (2) for a friendly society carrying on only long-term insurance business, the long-term insurance business amount; and
3. (3) for a friendly society carrying on both general insurance business and long-term insurance business, in the case of its general insurance business assets, the general insurance business amount and in the case of its long-term insurance business assets, the long-term insurance business amount.

connected individual

of a friendly society, means a natural person who:

1. (1) controls, or is a partner of a natural person who controls, the friendly society; or
2. (2) is a member of the governing body of the friendly society or the spouse or civil partner or a minor son or daughter of such a member;
3. and for the purposes of the above, a natural person controls a friendly society if he is:
4. (3) a natural person in accordance with whose directions or instructions the governing body is accustomed to act; or
5. (4) a natural person who either alone or with any associate or associates is entitled to exercise or control the exercise of, 15% or more of the voting power at any general meeting of the friendly society.

deferred acquisition costs

means those items referred to at G II under the heading "Assets" in Part I of Schedule 2 to the Accounts Regulations.

dependant

of a friendly society, means:

1. (1) a subsidiary of that friendly society; or
2. (2) a jointly controlled body.

deposit back arrangement

(in relation to a contract of reinsurance) means an arrangement whereby an amount is deposited by the reinsurer with the cedant.

established surplus

means an excess of assets representing the whole or a particular part of the fund or funds maintained by the firm in respect of its long-term insurance business over the liabilities, or a particular part of the liabilities, of the firm attributable to that business as shown by an investigation to which Friendly Society – Reporting 2 applies.

excess concentration with a number of counterparties

means the amount by which the firm is exposed to a counterparty in excess of the permitted counterparty exposure limit, calculated in accordance with 26.

exposure

means:

1. (1) (in relation to assets), an amount determined in accordance with 18 to 24;
2. (2) (in relation to a counterparty), an amount determined in accordance with 25 to 27.

general insurance business amount

means the higher of:

1. (1) the total of:
1. (a) the friendly society’s insurance liabilities (net of reinsurance ceded) in respect of general insurance business less debts:
1. (i) which are due from dependants to which 23.3 relates,
2. (ii) which are not reinsurance which has already been netted off the friendly society’s insurance liabilities, and
3. (iii) which are included in general insurance business assets; which amount is to be zero where the debts are greater than the friendly society’s insurance liabilities, and
2. (b) an amount equal to whichever is the greater of £320,000 or 20% of the general premium income; or
2. (2) such other amount as the friendly society may select not exceeding:
1. (a) the value of its general insurance business assets as determined in accordance with this Part;
2. (b) excluding debts due from dependants to which paragraph 23.2 relates and reinsurance recoveries; and
3. (c) less debts due to dependants of the friendly society included in general insurance business liabilities (excluding reinsurance recoveries, other than amounts due or that relate to claims already paid by the dependant) except that for a dependant to which 23.2 does not relate, the amount deducted will not exceed the dependant’s surplus assets (or proportional share).

general insurance business assets

means the assets of a firm which are, for the time being, identified as representing the general insurance business fund or funds maintained by that body in respect of its general insurance business.

general premium income

means, in any year, the net amount, after deduction of any premiums payable for reinsurance, of the premiums receivable in that year in respect of all insurance business other than long-term insurance business.

implicit item

means economic reserves arising in respect of items which relate to future surpluses, zillmerising or hidden reserves.

linked assets

means, in relation to a friendly society, long-term insurance business assets of the friendly society which are, for the time being, identified in the records of the friendly society as being assets by reference to the value of which property-linked benefits are to be determined.

long-term insurance business assets

means the assets of a firm which are, for the time being, identified as representing the long-term insurance business fund or funds maintained by that firm in respect of its long-term insurance business.

long-term insurance business amount

means the higher of:

1. (1) the total of:
1. (a) the friendly society’s insurance liabilities in respect of long-term insurance business (net of reinsurance ceded) and the amount of any deposit back under a deposit-back arrangement in relation to a contract of reinsurance in respect of long-term insurance business;
1. (i) excluding property-linked liabilities; and
2. (ii) less:
1. (A) the amount of any debt, that is a long-term insurance business asset (excluding reinsurance ceded which has already been deducted from the friendly society’s insurance liabilities), due from a dependant to which paragraph 23.2 relates, and
2. (B) the amount of any implicit item valued in accordance with a waiver; (which amount is to be zero where the result is negative); and
3. (C) the amount of the required margin of solvency or minimum guarantee fund, whichever is greater for its long-term insurance business (or, in the case of a friendly society whose head office is not in the UK, that amount which would apply if its head office were in the UK); or
2. (2) such other amount as the friendly society may select not exceeding the value of its assets determined in accordance with the this Chapter;
1. (a) excluding:
1. (i) reinsurance recoveries;
2. (ii) assets required to match property-linked liabilities;
3. (iii) debts due from dependants of the friendly society to which 23.2 relates; and
4. (iv) if the friendly society is a general insurer, general insurance business assets, and
2. (b) less:
1. (i) if the friendly society is a general insurer, debts due to dependants of the friendly society included in long-term insurance liabilities (excluding reinsurance recoveries (other than amounts due or that relate to claims already paid by the dependant)); or
2. (ii) if the friendly society is not a general insurer, debts due to dependants of the friendly society (excluding reinsurance recoveries (other than amounts due or that relate to claims already paid by the dependant)), but for the purposes of (b) above, for dependants to which 23.2 does not relate, the amount deducted will not exceed the dependant’s surplus assets (or proportional share);

except that for the purposes of determining the permitted asset exposure limit under 28, index-linked liabilities must also be excluded from (1)(a) and assets required to match such liabilities must be also excluded from (2).

permitted asset exposure limit

means the limits referred to in 28.

permitted counterparty exposure limit

means the limits referred to in 29.

readily realisable

means a listed investment in respect of which 12.4 does not apply or, by virtue of 12.5, is to be taken not to apply.

receivable

means such amounts as become due to a friendly society, whether or not received (including where appropriate, income which has accrued) in respect of contracts of insurance incepted in the relevant period.

2.1

In this Part, a debt owed to (or an obligation to be fulfilled for the benefit of) a firm must be regarded as being secured only to the extent that it is:

1. (1) secured by;
1. (a) a letter of credit established with a CRD credit institution; or
2. (b) a guarantee provided by a CRD credit institution
2. and the sum of the aggregate amount available under all letters of credit established for the benefit of the firm with the same counterparty, the aggregate amount of all guarantees issued for the benefit of the firm by that counterparty and the amount of any exposure of the firm to that counterparty does not exceed the permitted counterparty exposure limit for that counterparty; or
3. (2) secured by assets for the valuation of which provision is made in this Part and;
1. (a) the value of such assets (after deducting reasonable expenses of sale and the amount of any other debt or obligation secured thereon having priority to or ranking equally with the debt or obligation) is sufficient to enable the debt or obligation to be discharged in full;
2. (b) the value of the assets when aggregated with the firm’s exposure to assets of the same description does not exceed the permitted counterparty exposure limits; and
3. (c) where the assets give rise to exposure to a counterparty, the exposure of the firm to that counterparty, when added to the sum of the aggregate amount available under all letters of credit established for the benefit of the firm with that counterparty, and the aggregate amount of all guarantees issued for the benefit of the firm by that counterparty, does not exceed the permitted counterparty exposure limit for that counterparty.

2.2

For the purposes of 2.1:

1. (1) the aggregate amount available under letters of credit established with a counterparty must be taken not to exceed the sum of the aggregate amount of all debts and the aggregate value of all obligations in respect of which those letters of credit were established;
2. (2) the aggregate amount of guarantees issued by a counterparty must be taken not to exceed the sum of the aggregate amount of all debts and the aggregate value of all obligations so guaranteed; and
3. (3) assets which are securing any other debt owed to (or obligation to be fulfilled for the benefit of) the firm must be treated as if they were assets of the firm.

3.1

Where a firm has entered into any contracts for the payment of property-linked benefits, 4 to 17 do not apply with respect to the determination of the value of the linked assets to the extent that they are held in compliance with the requirements of Friendly Society - Financial Prudence 2.3 to match liabilities in respect of such benefits under such contracts and the value of such assets must be determined in accordance with generally accepted accounting practice or other generally accepted methods appropriate for insurance business.

4.1

1. (1) Subject to (2), any asset to which this Part applies, for the valuation of which no provision is made in this Part, must be left out of account for the purposes specified in 1.2.
2. (2) (1) does not apply to cash.

4.2

Where in all the circumstances of the case it appears that any asset is of a lesser value than the amount calculated in accordance with this Part, such lesser value must be taken to be the value of the asset.

4.3

For the purposes of 4.2, in determining whether it appears that an asset is of a lesser value than the amount calculated in accordance with this Part, regard must be had to:

1. (1) the underlying security; and
2. (2) in the case of bonds, debt securities and other money and capital market instruments, the credit rating of the issuer.

4.4

1. (1) In relation to an actuarial investigation of its long-term insurance business, a firm may, subject to the conditions set out in (2), elect to assign to any of its assets the value given to the asset in question in the books or other records of the firm.
2. (2) The conditions referred to in (1) are:
1. (a) that the election must not enable the firm to bring into account any asset for the valuation of which no provision is made in this Part; and
2. (b) that the value assigned to the aggregate of the assets must not be higher than the aggregate of the value of those assets as determined in accordance with this Part.

4.5

1. (1) Where a firm has entered into a contract for the conversion of currency which satisfies the conditions set out in (2), then for any of the purposes of this Part, the firm must treat the conversion as having been made on the relevant date.
2. (2) The conditions referred to in (1) are that:
1. (a) the contract provides for either;
1. (i) the conversion into another currency of an amount representing the sale of an asset which has, on the relevant date, been sold but not delivered; or
2. (ii) the purchase of currency for the purpose of settling the purchase of an asset which has, on the relevant date, been purchased but not delivered;
2. (b) the conversion referred to in (1) is to take place during a period which is:
1. (i) where the contract is in connection with the delivery of a listed security or a security admitted to trading, a period commencing on the date of the contract and extending for the usual period of settlement as laid down by the rules of the relevant stock exchange or regulated market; or
2. (ii) where the contract is in connection with the delivery of any other asset, a period commencing on the date of the contract and extending for 20 working days thereafter; and
3. (c) the contract is listed or has been entered into with an approved counterparty.

4.6

A firm must derecognise any defined benefit asset.

5.1

Where any shares are held by a firm in a regulated affiliated company, the value of the shares may be taken as, and in any event must not exceed:

1. (1) the value; or
2. (2) where the shareholding, whether held directly or indirectly, is less than 100%, the relevant proportional share of the value,

determined in accordance with this Part (other than 17.2(1) to (3)), of the surplus assets of that regulated affiliated company.

5.2

Where any shares are held by a firm in an affiliated company other than a regulated affiliated company, the value of the shares must not exceed the greater of:

1. (1) the value (or, where the shareholding, whether held directly or indirectly, is less than 100%, the relevant proportional share of the value), determined in accordance with this Part (other than 17.2(1) to(3)), of the affiliated company's surplus assets; and
2. (2) the value of those shares as determined under 12 reduced:
1. (a) by an appropriate amount, to the extent that the shares cannot effectively be made available or realised to meet losses (if any) arising in the firm;
2. (b) by an appropriate amount, to the extent needed to exclude value attributable to goodwill generated from business with the firm or any regulated affiliated company of the firm; and
3. (c) by the amount by which the value of any shares held by the affiliated company in a regulated affiliated company of the firm exceeds the value (or proportional share), determined in accordance with this Part (other than 17.2(1) to(3)), of the surplus assets of the affiliated company.

5.3

The surplus assets of an affiliated company are its total assets excluding:

1. (1) the assets that are selected to cover liabilities and, in the case of a regulated affiliated company, to cover any capital requirement imposed by any relevant provisions of the PRA Rulebook or FCA Handbook;
2. (2) assets that are interests directly or indirectly held in the affiliated company’s own capital (as defined by any relevant provisions of the PRA Rulebook or FCA Handbook for that affiliated company);
3. (3) where the affiliated company carries on long-term insurance business, profit reserves and future profits;
4. (4) assets which represent either a long-term insurance fund or a fund the allocation of which as between policyholders and other purposes has yet to be determined;
5. (5) amounts due, or to become due, in respect of share capital, or other contributions from members of the affiliated company, subscribed or called for but not fully paid up; and
6. (6) assets that cannot effectively be made available or realised to meet losses (if any) arising in the firm, including assets that represent capital not owned, directly or indirectly, by the firm.

5.4

The assets selected pursuant to 5.3(1) and which are excluded from the total assets:

1. (1) where the affiliated company is an insurance undertaking, must be identified and valued in accordance with any relevant provision of the PRA Rulebook or FCA Handbook as to the value, admissibility, nature, location or matching that apply to the assets available to cover its liabilities (determined under any relevant provision of the PRA Rulebook or FCA Handbook);
2. (2) where the group undertaking is a regulated affiliated company (excluding an insurance undertaking), must be identified and valued in accordance with the relevant provisions of the PRA Rulebook or FCA Handbook applicable to the regulated affiliated company as to cover its liabilities and the applicable regulatory requirement identified in 5.3(1);
3. (3) where the group undertaking is not a regulated affiliated company, must be of a value at least equal to the amount of its liabilities, determining that value and that amount in accordance with this Part (other than 17.2(1) to(3)) and Friendly Society - Liability Valuation Part; and
4. (4) in all cases, must not include:
1. (i) assets falling within 5.3(2), or
2. (ii) assets falling within 5.3(5) where the amount is due, or to become due, from an affiliated company; but
5. (5) notwithstanding 5.1, 5.2 and 5.3, a liability of an affiliated company which is a debt due to the firm is not required to be determined at an amount which is higher than the value placed on that debt as an asset of the firm.

5.5

For the purposes of 5.4, the relevant provisions of the PRA Rulebook or FCA Handbook must be treated as if 17.2(1) to (3) do not apply for the purpose of valuing shares in affiliated companies that are not dependants.

5.6

For the purposes of this Part, any value attributed to any shares held directly or indirectly in an affiliated company which is an ancillary services undertaking must be deducted from the assets of the firm.

6.1

A firm must notify the PRA of:

1. (1) any affiliated company:
1. (a) in which no participation is held by another affiliated company; and
2. (b) which is not a subsidiary; but
3. (c) which is linked by a consolidation Article 12(1) relationship with another affiliated company; and
2. (2) the value of that affiliated company calculated in accordance with 5.

7.1

The value of any debt due, or to become due, from an affiliated company must not exceed the amount reasonably expected to be recovered in respect of the debt taking into account only the value of:

1. (1) the assets identified in 5.3(1); and
2. (2) any security held in respect of the debt.

8.1

Where a firm has sold securities to or purchased securities from a CRD credit institution or a MiFID investment firm and such sale or purchase was made subject to an agreement that the CRD credit institution or MiFID investment firm would, either on demand by the firm or within six months of such sale or purchase, subsequently sell to or purchase from the firm equivalent securities, then if at the relevant date such subsequent sale or purchase has not taken place and the conditions specified in 8.2 and either 8.3 or 8.4 (as appropriate) are satisfied, the firm:

1. (1) must value:
1. (a) securities sold by it under such agreement as if such securities had been retained by it, and
2. (b) assets provided by it as consideration for the purchase of securities under such agreement as if such consideration had not been provided by it; and
2. (2) must not ascribe a value to:
1. (a) any consideration received for the sale of securities under such agreement (or any assets purchased by it with such consideration) up to the limit of the value of the securities sold; or
2. (b) any securities purchased by it under such agreement (or any assets purchased with the proceeds of the sale of any such securities) up to the limit of the consideration (valued in accordance with generally accepted accounting practice or other generally accepted methods appropriate to friendly societies) provided by it.

8.2

The condition specified in this Chapter is that, where at any time after the sale or purchase of securities by the firm under an agreement described in 8.1 either:

1. (1) the amount of the consideration received by the firm for the sale of the securities fell below the value of the securities sold by it; or
2. (2) the value of the securities purchased by the firm fell below the value of the consideration provided by it,

by more than 2.5% of the value of the securities sold or purchased (as the case may be), the firm demanded additional consideration equal to the shortfall and such demand was complied with before the end of the working day following the day on which the shortfall occurred.

8.3

The conditions specified in this Chapter are that, if the firm purchases securities from a CRD credit institution or a MiFID investment firm and the consideration provided by the firm is other than by way of sale of securities:

1. (1) the securities purchased are:
1. (a) approved securities,
2. (b) listed securities, or
3. (c) securities issued by a CRD credit institution; and
2. (2) the securities purchased do not include:
1. (a) securities (other than approved securities) issued by the same counterparty whose aggregate value amounts to more than 15% of the value of the securities purchased; or
2. (b) if the condition in (2)(a) is not satisfied, securities whose value when aggregated with the firm’s existing exposure to assets of the same description or to the same counterparty would exceed the appropriate permitted asset exposure limit or permitted counterparty exposure limit as determined in accordance with 17 to 29.

8.4

The conditions specified in this Chapter are that, if the firm sells securities to a CRD credit institution or a MiFID investment firm:

1. (1) the consideration provided by the CRD credit institution or MiFID investment firm is:
1. (a) cash;
2. (b) approved securities;
3. (c) listed securities;
4. (d) securities issued by a CRD credit institution;
5. (e) a charge over assets set out in (a) to (d);
6. (f) a letter of credit established with a CRD credit institution; or
7. (g) a guarantee provided by a CRD credit institution; and
2. (2) the consideration :
1. (a) except to the extent that the condition in (2)(b) is satisfied, when aggregated with the firm’s existing exposure to assets of the appropriate description or to the relevant counterparty, does not exceed the appropriate permitted asset exposure limit or permitted counterparty exposure limit as determined in accordance with 17 to 29; or
2. (b) does not include :
1. (i) securities (other than approved securities) issued by;
2. (ii) letters of credit established with;
3. (iii) guarantees provided by,
4. (iv) cash deposited with:
5. (v) a charge over cash deposited with; or
6. (vi) a charge over securities issued by,
3. the same counterparty in excess of 15% of the total consideration; and
4. (3) the consideration to be provided by the firm for the subsequent purchase of equivalent securities is:
1. (a) where the consideration for the original purchase by the CRD credit institution or MiFID investment firm was (wholly or in part) cash, cash denominated in the same currency; and
2. (b) where the consideration was (wholly or in part) securities, securities equivalent to the securities provided by way of consideration.

8.5

For the purposes of this Chapter, where the firm has received consideration in respect of a sale of the kind described in 8.1, in addition to any other exposure to assets or to a counterparty:

1. (1) if such consideration takes the form of a letter of credit established with, or a guarantee provided by, a CRD credit institution, it must be considered to give rise to exposure to that institution by the amount of the consideration;
2. (2) if such consideration takes the form of a charge over securities, it must be considered to give rise to exposure to securities of the same description and to the issuer of those securities by the amount of the consideration; and
3. (3) if such consideration takes the form of cash deposited with another party for the benefit of the firm, or a charge over cash deposited with another party, it must be considered to give rise to exposure to that party by the amount of the consideration.

8.6

For the purposes of this Chapter, the amount of any consideration must be:

1. (1) where the consideration is a letter of credit established with a CRD credit institution, the lower of the amount made available under the letter of credit and the value of the assets sold;
2. (2) where the consideration is a guarantee provided by a CRD credit institution, the lower of the amount of the guarantee and the value of the assets sold; and
3. (3) where the consideration takes the form of assets of any of the types mentioned in 8.4(1)(a) to (d), or a charge over such assets, the value of the assets as determined in accordance with this Part.

8.7

Where a firm has entered into a number of agreements described in 8.1, for the purposes of 8.3 and 8.4:

1. (1) any or all agreements under which the subsequent sale or purchase has not taken place at the relevant date may be treated as one agreement; and
2. (2) in such case, the 15% limits referred to in 8.3(2)(a) and 8.4(2)(b) must be calculated by reference to the aggregate of the value of the securities purchased under 8.3 and the amount of any consideration under 8.4.

9.1

This Chapter does not apply to any rights (other than debts due) in respect of:

1. (1) investments in an affiliated company;
2. (2) securities or beneficial interests in a limited partnership;
3. (3) units or other beneficial interests in a collective investment scheme;
4. (4) a derivative, except as provided under 9.8 or 9.9; or
5. (5) a contract or asset which has the effect of a derivative except as provided under 9.8 or 9.9 or under 16.4 or 9.6.

9.2

The value of any debt due, or to become due, to a firm, other than a debt to which 7, 9.3, 9.4, 9.5, 9.7 or 14 applies, must be:

1. (1) in the case of a debt which is due, or will become due, within twelve months of the relevant date (including any debt which would become due within that period if the firm were to exercise any right to which it is entitled to require payment of the same), the amount which can reasonably be expected to be recovered in respect of that debt; and
2. (2) in the case of any other debt, the amount which would reasonably be paid by way of consideration for an immediate assignment of the debt; and

in either case due account being taken of the terms and conditions for payment of the debt and, where the debt is secured, the nature and quality of the security.

9.3

Any debt due, or to become due, to a firm under a letter of credit must be left out of account for the purposes of this Part.

9.4

In the case of long-term insurance business carried on by a firm, the value of any debt due, or to become due, to the firm which is secured on a policy of insurance issued by the firm and which (together with any other debt secured on that policy) does not exceed the amount payable on a surrender of that policy at the relevant date must be the amount of that debt.

9.5

Subject to 9.6, the value of any rights of the firm under a contract of reinsurance to which it is a party must be the amount which can reasonably be expected to be recovered in respect of those rights.

9.6

9.5 does not apply to:

1. (1) rights under a contract of reinsurance in respect of long-term insurance business except to the extent that debts are due under such contracts; or
2. (2) debts to which 7 applies which are due or are to become due.

9.7

Any debt due, or to become due, to a firm:

1. (1) from an intermediary in respect of money advanced on account of commission to which that intermediary is not absolutely entitled at the relevant date; or
2. (2) which is a debt owed in respect of premiums (due account being taken of rebates, refunds and commissions payable) which is recorded in the firm’s accounting records as due and payable and has been outstanding for more than three months,

must be left out of account for the purposes of this Part.

9.8

The value of any right to recover assets transferred by way of initial margin in respect of a derivative or a contract or asset having the effect of a derivative must be determined:

1. (1) where the initial margin was a payment in cash, as if there were a debt owed to the firm for that amount; and
2. (2) where the initial margin took the form of a transfer of securities, as if there were a debt owed to the firm of an amount equal to the value of such securities as determined in accordance with this Part.

9.9

The value of any rights arising under a derivative or under a contract or asset having the effect of a derivative, must be the value of any right to recover assets transferred by way of initial margin together with the value of any other unconditional right to receive a specified amount.

10.1

The value of any land of a firm (other than land held by the firm as security for a debt or to which 10.2 or 15.1 applies) must be not greater than the amount which (after deduction of the reasonable expenses of sale) would be realised if the land were sold at a price equal to the most recent proper valuation of that land which has been provided to the firm and any such land of which there is no proper valuation must be left out of account for the purposes of this Part.

10.2

The value of any interest in land which is determinable upon the death of any person or upon the happening of some other future event or at some future time must be the amount which would reasonably be paid by way of consideration for an immediate transfer thereof.

11.1

The value of any computer equipment of a firm:

1. (1) in the financial year of the firm in which it is purchased, must not be greater than three-quarters of the cost thereof to the firm;
2. (2) in the first financial year thereafter, must not be greater than one-half of that cost;
3. (3) in the second financial year thereafter, must be not greater than one-quarter of that cost; and
4. (4) in any subsequent financial year, must be left out of account for the purposes of this Part.

11.2

The value of any office machinery (other than computer equipment), furniture, motor vehicles and other equipment of a firm, must be, in the financial year of the firm in which it is purchased, not greater than one-half of the cost thereof and must be, in any subsequent financial year, left out of account for the purposes of this Part.

12.1

Subject to 12.2, this Chapter applies to the valuation of investments comprising securities and beneficial interests in limited partnerships.

12.2

This Chapter does not apply to the valuation of securities which are:

1. (1) derivatives;
2. (2) units or other beneficial interests in collective investment schemes; or
3. (3) contracts or assets having the effect of derivatives.

12.3

Subject to 12.6, the value of an investment to which this Chapter applies must be:

1. (1) where the investment is transferable and 12.4 does not apply, the market value;
2. (2) where the investment is transferable and 12.4 applies, the lower of:
1. (a) the market value; and
2. (b) the amount which would reasonably be expected to be received by way of consideration for an assignment or transfer of the investment at a date not later than twelve months after the relevant date, it being assumed that negotiations for the assignment or transfer commenced on the relevant date and the assignment or transfer was made other than to the issuer or to an associate of the issuer or of the firm; or
3. (3) where the investment is not transferable:
1. (a) the amount payable on redemption on the relevant date or the most recent date before the relevant date on which the issuer of the investment could have been required to redeem the investment; or
2. (b) where the investment cannot be redeemed, the amount which would reasonably be paid by way of compensation for the surrender of the interest in the investment.

12.4

Subject to 12.5, this Chapter applies where it is not reasonable to assume that, had negotiations for the assignment or transfer of the investment commenced not more than seven working days before the relevant date, the investment could have been assigned or transferred on the relevant date for an amount not less than 97.5% of the market value other than to the issuer or to an associate of the issuer or of the firm.

12.5

12.4 does not apply where it would otherwise apply because:

1. (1) the listing or admission to trading of the investment has been temporarily suspended following receipt of price sensitive information by the stock exchange on which the investment is listed, or admitted to trading or the regulated market on which facilities for dealing have been granted; or
2. (2) the extent of the holding would prevent an orderly disposal of the investment for an amount equal to or greater than 97.5% of the market value.

12.6

Where a firm has made more than one investment (including loans) that is not listed (other than a number of investments exclusively comprising loans) and the value of such investments when taken together is greater than the aggregate of the values of each investment valued separately, then such higher value may be ascribed to the investments if it is reasonable to assume that none of the investments would be assigned or transferred separately.

13.1

Subject to 13.2, this Chapter applies to holdings of units, or other beneficial interests in:

1. (1) a scheme falling within the UCITS Directive;
2. (2) an authorised unit trust scheme or a recognised scheme (not falling within (1)); or
3. (3) any other collective investment scheme where:
1. (a) the scheme does not employ derivatives unless they are approved derivatives or approved quasi-derivatives; and
2. (b) the property of the scheme does not include assets other than those for the valuation of which provision is made in this Part.

13.2

This Chapter does not apply to units or other beneficial interests in a collective investment scheme which has the effect of a derivative.

13.3

The value of units or other beneficial interests in a collective investment scheme to which this Chapter applies must be:

1. (1) where the issuer can be required to purchase the units or other beneficial interests from the holder upon the holder giving notice of one month or less, the price at which the issuer would have purchased the units or other beneficial interests on the relevant date or the most recent date before the relevant date on which it could have been required to make such a purchase; or
2. (2) where the issuer cannot be required to purchase the units or other beneficial interests as set out in (1), a value determined in accordance with 12.

14.1

In the case of general insurance business, the value of deferred acquisition costs must be the value as determined in accordance with generally accepted accounting practice or other generally accepted methods appropriate to friendly societies.

15.1

The value of any long-term insurance business asset of a firm consisting of an interest in property which is a remainder, reversionary interest, right of fee subject to a life rent or other future interest, whether vested or contingent, must be the amount which would reasonably be paid by way of consideration for an immediate transfer or assignment of it.

16.1

Rights in respect of a contract or asset whose effect is that of a derivative must have a value determined in accordance with 9.9.

16.2

Subject to 16.4, for the purposes of this Part, a contract has the effect of a derivative if it is a contract (other than a derivative) which provides whether upon the exercise of a right by the firm or otherwise:

1. (1) for payment (at any time) of amounts which are determined by fluctuations in:
1. (a) the value of property of any description;
2. (b) an index of the value of property of any description;
3. (c) income from property of any description; or
4. (d) an index of income from property of any description;
2. (2) for delivery of an asset (other than an asset for the valuation of which provision is made in 11) to or by the firm; or
3. (3) for the conversion of an asset held by the firm or another party to:
1. (a) an asset of a different type; or
2. (b) a different asset of the same type.

16.3

Subject to 16.4 for the purposes of this Part an asset has the effect of a derivative if the asset is an asset (other than an approved security or an asset falling within 13.1(1)) and the holding of the asset confers contractual rights or imposes contractual obligations to make or accept payment, delivery or conversion as set out in 16.2.

16.4

A contract or asset does not have the effect of a derivative by reason only that:

1. (1) it provides for the unconditional delivery of assets, or for the payment for unconditional delivery of assets, such delivery or payment to be made within a period not exceeding the period commencing at the date of the contract and extending:
1. (a) in the case of a listed security or a security admitted to trading, for the usual period for delivery or payment as determined by the rules of the stock exchange or regulated market on which the securities are listed or admitted to trading, or facilities for dealing have been granted; or
2. (b) in any other case, for 20 working days;
2. (2) it is a contract of the type described in 4.5(1) in respect of which the conditions set out in 4.5(2) have been satisfied; or
3. (3) it is a transaction to which 8.1 applies.

17.1

This Chapter only applies to an incorporated friendly society.

17.2

Subject to 17.2 to 17.6, the aggregate value of the assets of a firm must be reduced by an amount representing the aggregate of:

1. (1) the amount by which the firm is exposed to assets of any description in excess of the permitted asset exposure limit for assets of that description;
2. (2) the amount by which the firm is exposed to a counterparty in excess of the permitted counterparty exposure limit for such counterparty;
3. (3) the amount by which the firm has an excess concentration with a number of counterparties;
4. (4) the value of any assets transferred to or for the benefit of the firm in pursuance of a condition in a derivative or a related contract; and
5. (5) the value of any assets transferred to or for the benefit of the firm in pursuance of a contract whose effect is that of a derivative or a related contract,

as determined in accordance with 18 to 29.

17.3

Where a firm is exposed to assets of any description in excess of the permitted asset exposure limit for such assets, the reduction required to be made by 17.2(1) must be made:

1. (1) by deducting (as far as possible) the amount of the excess from the assets of that description held by the firm; and
2. (2) where the firm does not hold sufficient (or any) assets of that description to eliminate the excess, by making an appropriate deduction from the aggregate value of the assets which the firm would otherwise be permitted to take into account for any of the purposes of this Part.

17.4

Where a firm is required to make a reduction in accordance with 17.2(2), (3), (4) or (5), the reduction must be made by making a deduction from the aggregate value of the assets which the firm would otherwise be permitted to take into account for any of the purposes of this Part.

17.5

Where a firm carrying on long-term insurance business has attributed assets partly to a long-term insurance business fund and partly to its other assets, any reduction required to be made by this rule must be made in the same proportion as the attribution.

17.6

Assets of a firm comprising:

1. (1) approved securities or any interest accrued thereon;
2. (2) debts to which 9.4 applies;
3. (3) rights to which 9.5 applies;
4. (4) debts in respect of premiums;
5. (5) moneys due from, or guaranteed by, the government of any approved State;
6. (6) shares in or debts due or to become due from a dependant falling within 5;
7. (7) holdings in a scheme falling within the UCITS Directive; or
8. (8) deferred acquisition costs,

must not be taken into account in any of the calculations described in 17.2.

17.7

Assets of dependants of the firm that are debts due or to become due from the firm or from a dependant of the firm must not be taken into account in any of the calculations described in 17.2.

17.8

Where a firm has entered into any contracts providing for the payment of index-linked benefits, the provisions of 17.2(1) must not apply to assets of that firm to the extent that they are held to match liabilities in respect of such benefits.

18.1

A value must be ascribed to assets of each description which must be an amount determined in accordance with this Part or, where the assets are of a description for the valuation of which no provision is made in those rules, an amount which would reasonably be paid by way of consideration for an immediate assignment or transfer of such assets. The amount by which the firm is exposed to assets of each description must be determined by adjusting the value of the assets in accordance with 19 to 23.

19.1

The value ascribed under 18 in respect of assets of each description must be increased or decreased by the value of assets of that description which the firm is deemed to have acquired or disposed of pursuant to a futures contract.

19.2

For the purposes of 19.1, the firm must be deemed to have acquired or disposed of assets pursuant to a futures contract if, at the relevant date, it has entered into (and not closed out) a futures contract which:

1. (1) provides for the acquisition of assets by the firm;
2. (2) is listed and provides for the disposal of assets by the firm; or
3. (3) is not listed but provides for the disposal of assets by the firm to an approved counterparty and it is prudent to assume that such disposal will take place within one year of the relevant date.

20.1

The value ascribed under 18 to 19 in respect of assets of each description must be increased or decreased by the value of assets of that description which the firm is deemed to have acquired or disposed of pursuant to an option.

20.2

For the purposes of 20.1, the firm must be deemed to have acquired or disposed of assets pursuant to an option if, at the relevant date, it is a party to an option and it is prudent to assume that the option will be exercised and the option is one which:

1. (1) provides for the acquisition of assets by the firm;
2. (2) is listed and provides for the disposal of assets by the firm; or
3. (3) is not listed but provides for the disposal of assets by the firm to an approved counterparty and it is prudent to assume that such disposal will take place within one year of the relevant date.

21.1

The value ascribed under 18 to 20 in respect of assets of each description must be increased by an amount representing the value of any assets of that description which have been transferred by the firm by way of initial margin.

22.1

The value ascribed under 18 to 21 must be increased or decreased by an amount representing the value of assets which the firm is deemed to have acquired or disposed of under:

1. (1) an undiversified contract for differences; or
2. (2) a contract or asset other than a diversified contract for differences which has the effect of a derivative.

22.2

For the purposes of 22.1, the firm must be deemed to have achieved the effect of such contract by entering into appropriate futures contracts or options. The assets deemed to be acquired or disposed of must be dealt with in accordance with the provisions in 19.1 and 20.1 respectively.

23.1

Subject to 23.2 and 23.3, the amount of the firm’s exposure to assets determined in accordance with 18 to 22 must be increased by an amount representing the exposure, if any, of the firm’s dependants to assets of that description.

23.2

For the purposes of 23.1, the exposure of each dependant must be calculated by applying 18 to 22 to that dependant as if it were a firm to which those provisions apply (whether it is or not).

23.3

In relation to a dependant:

1. (1) which is an insurance undertaking; or
2. (2) in respect of which 17.2(1) to (3) have (notwithstanding 5.4(1)) been applied when valuing the assets selected under 5.3(1),

23.1 applies only in relation to the dependant's surplus assets (or proportional share).

24.1

1. (1) The amount by which the firm is exposed to assets of a particular description in excess of the permitted asset exposure limit must be calculated by subtracting the permitted asset exposure limit for assets of that description from the corresponding amount of the exposure, calculated in accordance with 18 to 23.
2. (2) For the purpose of (1), exposures to assets must be excluded to the extent that such exposure has caused the recognition of excess exposure to assets of a different description and if the figure arrived at is negative, it must be taken to be zero.

25.1

1. (1) Subject to 25.2 to 25.4, the value of all investments (determined in accordance with 12) issued by any one counterparty and the value of all rights (determined in accordance with 9 and 16) against that counterparty, in each case up to the amount of the appropriate permitted asset exposure limit, must be aggregated.
2. (2) For the purposes of (1), where the counterparty is an issuer of a collective investment scheme falling within 13.1(3), the value of units or other beneficial interest in the collective investment scheme must be included.

25.2

Where a firm has rights in respect of a secured obligation to be fulfilled by a counterparty:

1. (1) which:
1. (a) is secured by cash deposited with, or a letter of credit established with, or securities issued by, or a guarantee provided by, a CRD credit institution or an approved financial institution; and
2. (b) is due to be fulfilled within 12 months of the relevant date; or
2. (2) which is secured by listed securities which are readily realisable or by approved securities which in either case:
1. (a) have been deposited with a CRD credit institution, an approved financial institution or a MiFID investment firm; and
2. (b) are beneficially owned by the counterparty but will not be available for the benefit of creditors generally in the event of the winding-up of the counterparty,
3. the aggregation required by 25.1 need not include the value of such rights.

25.3

If the firm has liabilities to the counterparty which may be offset against the assets in 25.1 in accordance with generally accepted accounting practice or other generally accepted methods appropriate for friendly societies, then such liabilities may be offset for the purposes of the aggregation required by 25.1.

25.4

Subject to 25.5, the amount arrived at under 25.1 to 25.4 must be increased by the amount by which any dependant of the firm is exposed to the same counterparty.

25.5

In relation to a dependant:

1. (1) which is an insurance undertaking; or
2. (2) in respect of which 17.2(1) to (3) have (notwithstanding 5.4(1)) been applied when valuing the assets selected under 5.3(1),

25.4 applies only in relation to the dependant’s surplus assets (or proportional share).

26.1

The amount by which a firm is exposed to a counterparty in excess of the permitted counterparty exposure limit must be calculated by subtracting from the amount of the exposure to such counterparty the amount of the permitted counterparty exposure limit for such counterparty. If the figure arrived at is negative, it must be taken to be zero. If the firm is exposed to a counterparty in excess of the permitted counterparty exposure limit in more than one of the circumstances set out in 29(1), it must make the deduction required under 17.2(2) only in respect of the circumstances leading to the greatest excess exposure.

27.1

In accordance with 27.2, where there is exposure to a counterparty of the type mentioned in 29.1(3)(b), 40% of the business amount must be deducted from the aggregate of such exposures. The amount so arrived at is the excess concentration with a number of counterparties. Where this amount is negative, it must be taken to be zero.

27.2

For the purposes of this Chapter:

1. (1) exposure to a counterparty must be taken into account only up to the level of the permitted counterparty exposure limit for that counterparty;
2. (2) exposure to a counterparty must not be taken into account if it does not exceed 5% of the business amount; and
3. (3) exposure to a counterparty must not be taken into account if the corresponding permitted counterparty exposure limit does not exceed 5% of the business amount.

28.1

The permitted asset exposure limits are those set out in 28.2 to 28.23.

28.2

5% for a piece of land or a number of pieces of land (or one or more interests in such pieces of 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 of such pieces of land or interests valued separately.

28.3

1% for a reversionary interest or a remainder not falling within 28.2.

28.4

1% for all debts due or to become due from any one individual (other than a connected individual of the firm), being debts which are fully secured on any dwelling or any land appurtenant (or in Scotland, appertaining) thereto owned or to be purchased by the individual and used or to be used by him for his own residence.

28.5

0.25% for all debts due or to become due from any one individual, other than debts specified in 28.4.

28.6

1% for all unsecured debts (other than debts arising under the terms of debt securities or debts from a regulated institution) due or to become due from any one counterparty other than an individual, body corporate or group.

28.7

1% for all unsecured debts (other than debts arising under the terms of debt securities or debts from a regulated institution) due or to become due from any one body corporate, taken together with all such debts due or to become due from an affiliated company of that body corporate.

28.8

2.5% for all unsecured debts (other than debts arising under the terms of debt securities or debts from an approved counterparty) due or to become due from any one regulated institution, taken together with (where that institution is a body corporate) all such debts due or to become due from an affiliated company of that institution.

28.9

5% for all debts, other than debts arising under the terms of debt securities, due or to become due from any one counterparty, which is not an approved counterparty, taken together with all such debts due or to become due from any affiliated company (other than an approved counterparty) of that counterparty.

28.10

10% for all debts, other than short-term deposits with a CRD credit institution or debts arising under the terms of debt securities, due or to become due from any one approved counterparty, taken together with all such debts due or to become due from any affiliated company of that approved counterparty.

28.11

20% for all debts due or to become due from a CRD credit institution (or an affiliated company of that institution) taken together unless:

1. (1) the firm has notified the PRA that it places deposits with that institution; and
2. (2) the total amount of debts due or to become due does not exceed £2 million.

28.12

5% for the aggregate of debts of the descriptions in 28.5, 28.6 and 28.7.

28.13

1% for all investments of a kind which may be valued in accordance with 12 (other than secured debt securities, debt securities issued by a regulated institution or investments which are listed and readily realisable) issued by any one issuer taken together with:

1. (1) all units or other beneficial interests in a collective investment scheme failing within 13.1(3) issued by that issuer; and
2. (2) all investments of the kinds mentioned in this Chapter issued by an affiliated company of that issuer.

28.14

10% for the aggregate of assets of any of the descriptions in 28.3 and 28.13.

28.15

2.5% for all shares and hybrid securities issued by any one issuer taken together with all such securities issued by an affiliated company of that issuer.

28.16

In the case of a firm effecting contracts of insurance or carrying out contracts of insurance that are with-profits policies and holding shares as long-term insurance business assets, for shares that are ordinary listed shares in the issuer, the permitted asset exposure limit in 28.15 may exceed 2.5% of the long-term insurance business amount to a maximum of 5% of the long-term insurance business amount or the formula result, whichever is lower, where:

1. (1) the ‘formula result’ means 0.8 multiplied by M/T multiplied by P, expressed as a percentage of the long-term insurance business amount, where:
1. (a) M = the aggregate market capitalisation of the ordinary listed shares in the issuer,
2. (b) T = the aggregate market capitalisation of all securities in the Financial Times Stock Exchange All Share Index, and
3. (c) P = the value of the assets supporting the firm’s long-term insurance business fund, determined in accordance with this Part; and
2. (2) ‘value of the assets’ means the value of the assets:
3. less
1. (a) the amount of the firm’s mathematical reserves for linked-long-term contract of insurance and non-profit policies net of reinsurance, and
4. plus
1. (b) (if the firm does not effect contracts of insurance or carry out contracts of insurance that are contracts of general insurance) the firm’s net assets outside the firm’s long-term insurance business fund.

28.17

5% for all securities issued by any one issuer which is not an approved counterparty taken together with (where that issuer is a body corporate) all securities issued by an affiliated company, other than an approved counterparty, of that issuer.

28.18

10% for all securities issued by any one counterparty.

28.19

5% for all holdings in any one authorised unit trust scheme or recognised scheme.

28.20

3% for all cash.

28.21

5% for all computer equipment.

28.22

2.5% for all office machinery (other than computer equipment) taken together with all furniture, motor vehicles and other equipment.

28.23

In the case of an asset which is not covered by 28.2 to 28.22 (other than a derivative), the permitted asset exposure limit is nil.

29.1

The permitted counterparty exposure limits are as follows:

1. (1) where the counterparty is an individual or an unincorporated body of persons, 5% of the business amount;
2. (2) where the counterparty is a counterparty of the type mentioned in (5) in the definition of counterparty, 5% of the business amount;
3. (3) where the counterparty is a body corporate or group, each of:
1. (a) 20% of the business amount or £2 million, whichever is the larger;
2. (b) 10% of the business amount where the exposure arises otherwise than by reason that debts are due, or are to become due, as a result of short term deposits made with an CRD credit institution; and
3. (c) 5% of the business amount where the exposure is to bodies which are not approved counterparties.