S.I. No. 360/1994 - European Communities (Life Assurance) Framework Regulations, 1994

• (2) The appointed actuary of an undertaking shall include in the certificate required by Article 32 (b) of these Regulations, a statement that premiums for new business are sufficient, on reasonable actuarial assumptions, to enable an insurance undertaking to meet all its commitments and, in particular, to establish adequate technical reserves.

• (3) For the purposes of paragraph (2), all aspects of the financial situation of an assurance undertaking may be taken into account, without the input from resources other than premiums and income earned thereon being systematic and permanent in such a way that it may jeopardise the insurance undertaking's solvency in the long term.

Valuation of future premiums

• (2) Where further specified premiums are payable by the policyholder under a contract (not being a linked life assurance contract) under which benefits (other than benefits arising from a distribution of profits) are determined from the outset in relation to the total premiums payable thereunder, then subject to Paragraph 6:

( a ) where the premiums under the contract are at a uniform rate throughout the period for which they are payable, the premiums to be valued shall be not greater than such level premiums as, if payable for the same period as the actual premiums under the contract and calculated according to the rates of interest and rates of mortality or disability which are to be employed in calculating the liability under the contract, would have been sufficient at the outset to provide for the benefits under the contract according to the contingencies upon which they are payable, exclusive of any additions for profits, expenses or other charges;

( b ) where the premiums under the contract are not at a uniform rate throughout the period for which they are payable, the premiums to be valued shall be not greater than such premiums as would be determined on the principles set out in sub-paragraph (a) of this paragraph modified as appropriate to take account of the variations in the premiums payable by the policyholder in each year; save that a premium to be valued shall in no year be greater than the amount of the premium payable by the policyholder.

• (3) Where the terms of the contract have changed since the contract was first made (the terms of the contract being taken to change for the purposes of this paragraph if the change is indicated in an endorsement on the policy but not if a new policy is issued), then, for the purposes of sub-paragraph (2), it shall be assumed that those changes from the time they occurred were provided for in the contract at the time it was made.

• (4) For contracts falling within sub-paragraph (2), the provisions of that subparagraph may be departed from where the nature of the business is such that an alternative valuation method is considered more appropriate, provided that, in the aggregate, the mathematical reserves determined are not less than those calculated in accordance with paragraphs 3 to 12 of this Annex.

• (5) Where under a contact (not being a linked life assurance contract):

( a ) each premium paid increases the benefits (other than benefits arising from a distribution of profits) provided under the contract, or

( b ) the amount of a premium payable in future is not determinable until it comes to be paid,

future premiums and the corresponding liability may be left out of account so long as adequate provision is made against any risk that the increase in the liabilities of the company resulting from the payment of future premiums might exceed the amount of the premiums.

Acquisition expenses

• (2) For the purposes of sub-paragraph (1) "the defined percentage" is the percentage arrived at by taking (for all contracts of the same type as the contract in question for which an adjustment is made) the average of the percentages of the relevant capital sum under each such contract that represent the acquisition costs for which, after allowing for the effects of taxation, allowance is made in the premiums.

• (3) The increase permitted by sub-paragraph (1) shall be subject to the limitation that the amount of a future premium valued shall not in any event be greater than the amount of the premium actually payable by the policyholder.

• (4) For the purposes of this sub-paragraph:

( a ) in the case of contracts other than temporary assurances, the relevant capital sum under a contract shall be arrived at in accordance with Paragraph 7 of Annex VI to these Regulations;

( b ) in the case of temporary assurances, the relevant capital sum shall be the sum assured on the valuation date.

Rate of interest

• (2) An insurance undertaking shall set aside in its accounts a provision to meet interest- rate commitments to its policyholders if the present or foreseeable yield on the insurance undertaking's assets is insufficient to cover those commitments.

• (3) For the purposes of sub-paragraph (1), the assumed yield on an asset attributed to the life assurance business, before any adjustment to take account of the effect of taxation, shall not exceed the yield on the asset calculated in accordance with sub-paragraphs (4) to (7), reduced by 2.5 per cent. of that yield or such other percentage as the Minister may from time to time determine.

• (4) For the purpose of calculating the yield on an asset:

( a ) the asset shall be valued in accordance with the provisions of Annex V to these Regulations excluding any provision under which assets may be taken at lower book values for the purposes of any investigation to which Article 15 of these Regulations applies, and

( b ) where a particular asset is required to be taken into account only to a specified extent by the operation of paragraph 13 of Annex V of these Regulations, the future income to be taken into account (whether interests, dividends or repayments of capital) shall be correspondingly reduced.

• (5) For fixed interest investments (that is to say, investments which are fixed interest securities as defined in paragraph 1 (1) of Annex V to these Regulations), the yield on an asset, subject to sub-paragraph (7), shall be that annual rate of interest which if used to calculate the present value of future payments of interests before the deduction of tax and the present value of repayments of capital, would result in the sum of those amounts being equal to the value of the asset.

• (6) For variable interest investments (that is to say, investments which are not fixed interest securities as defined in Article 1 of Annex V) the yield on an asset, subject to sub-paragraph (7) shall be the ratio to the value of the asset of the income before deduction of tax which would be received in the period of twelve months following the valuation date on the assumption that the assets will be held throughout that period and that the factors which affect income will remain unchanged, so however that account shall be taken of any changes in those factors known to have occurred by the valuation date and in particular, without prejudice to the generality of the foregoing of:

( a ) any known changes in the rental income from property or in dividends on equity shares,

( b ) any forecast changes in dividends which have been publicly announced by the valuation date,

( c ) the effect of any alterations in capital structure, and

( d ) the value (at the most recent date for which it is known at the valuation date) of any determinant of the amount of any future interest payments, the said value being deemed to remain unaltered for all subsequent dates.

• (7) In calculating the yield on an asset under this sub-paragraph:

( a ) if the asset does not consist of equity shares or land, and adjustment shall be made to exclude that part of the yield estimated to represent compensation for the risk that the income from the asset might not be maintained or that capital repayments might not be received as they fall due;

( b ) for assets which are equity shares or land, adjustments to yield shall be made as appropriate to exclude that part, if any, of the total yield from those assets, taken together, that is needed to compensate for the risk that the aggregate income from those assets taking one year with another might not be maintained;

( c ) in making these adjustments, regard shall be had wherever possible to the yields on risk-free investments of a similar term in the same currency.

• (8) To the extent that it is necessary to make an assumption about the yields which will be obtained on sums to be invested in future, the yield assumed on any investment to be made more than three years after the valuation date shall not exceed 7.5 per cent. per annum (before any adjustment to take account of the effect of taxation) or such other lower percentage as the Minister may from time to time determine.

• (9) In no case shall a rate of interest determined for the purposes of sub-paragraph (1) exceed the adjusted overall yield of assets calculated as the weighted average of the reduced yield on the individual assets arrived at under sub-paragraph (3); and when that weighted average is calculated:

( a ) the weight given to each investment shall be its value as an asset determined in accordance with Annex VII to these Regulations excluding any provision under which assets may be taken at lower book value for the purposes of any investigation to which Article 15 of these Regulations applies, and

( b ) except in relation to the rate of interest used in valuing payments of property linked benefits both the yield and the value of any linked assets shall be omitted from the calculation.

• (10) For the purpose of determining the rates of interest to be used in valuing a particular category of contracts the assets may, where appropriate, be notionally apportioned between different categories of contracts and in such cases the limit under sub-paragraph (9) shall be applied on the basis of the overall yield on the assets apportioned to the contracts in question.

• (11) The Minister shall notify the Commission and the competent authorities of the Member States which so request of the level of the prudential margin specified in accordance with sub-paragraph (3) and of the level of the maximum rate applied on the yield assumed from future investments specified in sub-paragraph (8).

Rates of mortality and disabilities

( a ) relevant published tables of rates of mortality and disability, and

( b ) the rates of mortality and disability experienced in connection with any similar contracts issued by the undertaking in the past.

Expenses

• (2) The provision mentioned in sub-paragraph (1) shall have regard to, among other things, the insurance undertaking's actual expenses in the last twelve months before the valuation date and the contingency that the insurance undertaking may cease to transact new business.

Options

• (2) Where a contract includes an option whereby the policyholder could secure a guaranteed cash payment within twelve months following the valuation date, the provision for that option shall be such as to ensure that the value placed on the contract is not less than the amount required to provide for the payments that would have to be made if the option were exercised.

Contracts not to be treated as assets

No credit for profits from voluntary discontinuance

ANNEX V

VALUATION OF ASSETS

Interpretation Annex V

"approved credit institution" means a credit institution as defined in Article 1 of the First Council Directive on the co-ordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions (Council Directive 77/780/EEC)^(5) authorised in a Member State or such other institutions as may be approved by the Minister;

"approved financial institution" means any of the following—

( a ) the Central Bank of a Member State,

( b ) the European Bank for Reconstruction and Development,

^(5) O.J. No. L322, 17.12.1977, page 30.

( c ) the European Investment Bank,

( d ) the European Communities,

( e ) the International Bank for Reconstruction and Development,

( f ) the International Finance Corporation,

( g ) the International Monetary Fund,

( h ) such other institution as may be approved by the Minister;

"approved securities" means any of the following—

( a ) securities of the Government (including Savings Certificates),

( b ) securities guaranteed as to capital and interest by the Government,

( c ) stocks, securities and mortgages issued by and charged on all or any of the property and revenues of a local authority in the State,

( d ) any loan to, or deposit with, an approved credit institution or an approved financial institution,

( e ) any securities issued or guaranteed by, and any deposits of cash with, any government, public or local authority or nationalised industry or undertaking which belongs to Zone A as defined in Council Directive 89/647/EEC^(6),

( f ) any loan to a Member State, to a regional or local authority in a Member State, or to an international organisation of which one or more Member States are members;

"asset" includes part of an asset;

"building society" means any society registered (or deemed to be registered) under the Building Societies Act, 1989 ;

"company" includes any body corporate;

"computer equipment" means the electro mechanical and electronic units which make up a computer configuration;

"contract for differences" means a contract the object of which is to secure a profit or avoid a loss by reference to fluctuations in the value or price of a financial asset or in an index of such assets;

"debenture" includes debenture stock and bonds, whether constituting a charge on assets or not, and loan stock or notes;

"debt" includes an obligation to pay a sum of money under a negotiable instrument but only payments under derivative instruments to the extent that these are unconditionally guaranteed;

"dependant" has the meaning assigned to it in paragraph (2) of this Article;

"derivative instrument" means a futures contract, an option or a contract for differences;

^(6) O.J. No. L386, 30.12.1989, page 14.

"equity share" means a share of equity share capital;

"equity share capital", in relation to a company, means its issued share capital excluding any part thereof which, neither as respects dividends nor as respects capital, carries any right to participate beyond a specified amount in a distribution;

"fixed interest securities" means securities which under their terms of issue provide for fixed amounts of interest;

"futures contract" means a contract calling for the delivery of a financial asset at the end of a designated period of time at a price agreed upon when the contract is made;

"guarantee fund" means any scheme designed to guarantee the payment of insurance claims to insured persons and injured third parties;

"industrial and provident society" means any society registered (or deemed to be registered) under the Industrial and Provident Societies Acts, 1893 to 1978;

"listed" means, in relation to an investment—

( a ) that there has been granted and not withdrawn a listing in respect of that investment on a stock exchange recognised by the Minister, or

( b ) that dealings in that investment are effected regularly on a regulated market recognised by the Minister, and

"unlisted" shall be construed accordingly;

"middle market quotation" means—

( a ) in relation to an investment for which two prices are quoted in the official list published for the relevant market, the average of the two prices so quoted for the relevant date or, if no official list has been published for that day, for the most recent day prior to that day for which the official list has been published, and

( b ) in relation to an investment for which one price is quoted in the official list published for the relevant market, the price as quoted for the relevant date or, if no official list has been published for that day, for the most recent day prior to that day for which the official list has been published, and

( c ) in any other case, the nearest equivalent to the average referred to in paragraph (a) which is published or can be reasonably ascertained from information which is published;

"non-life insurance" means insurance of a class specified in Annex I to the European Communities (Non-life insurance) Framework Regulations, 1994;

"non-life insurance business assets" and "non-life insurance business liabilities" mean respectively assets of a non-life insurance undertaking which are, for the time being, identified as representing the non-life insurance liabilities of the undertaking in respect of its non-life insurance business and liabilities of the undertaking which are attributable to its non-life insurance business;

"option" means a contract in which the writer of the option grants the buyer the right, but not the obligation, to purchase from or sell to the writer a financial asset either within a specified period or on a specified date at a price agreed upon when the contract is made;

"price earnings ratio" means a price earnings ratio (net) estimated in respect or an index appropriate to the application involved;

"proper valuation" means, in relation to land, a valuation made by a qualified valuer not more than one year before the relevant date which determined the amount which would be realised at the time of the valuation on an open market sale of the land free from any mortgage or charge;

"qualified valuer" means, in relation to any particular type of land in any particular area—

( a ) a person who is a fellow of the Society of Chartered Surveyors in the Republic of Ireland or the Royal Institution of Chartered Surveyors and either—

• (i) has knowledge of and experience in the valuation of that particular type of land in that particular area, or

• (ii) has knowledge of and experience in the valuation of land and has taken advice from a valuer who has knowledge of and experience in the valuation of that particular type of land in that particular area, or

( b ) a person who is approved for the time being by the Minister for the purposes of these Regulations;

"regulated market" has the meaning assigned to it in Article 1 of Council Directive 92/96/EEC;

"Regulations of 1976" means the European Communities (Non-Life Insurance) Regulations, 1976 (S.I. 115 of 1976);

"related company" means, in relation to an insurance undertaking—

( a ) a dependant of the insurance undertaking, or

( b ) a company of which the insurance undertaking is either directly or indirectly a dependant, or

( c ) a dependant of a company of which the insurance undertaking is a dependant;

"relevant date" means, in relation to the valuation of any assets for any purpose for which this Annex applies, the date when the asset falls to be valued for that purpose;

"securities" has the meaning assigned to it by Section 2 of the Central Bank Act, 1971 ;

"settlement date" means any date on which the fulfilment of an obligation under a derivative contract is or may be required;

"share" includes stock;

"technical reserves" means the amount, net of the amount recoverable by the undertaking under contracts of reinsurance ceded by it (but excluding any rights of recovery in respect of insurance liabilities already discharged by the undertaking), set aside by insurance undertakings to meet their liabilities under insurance contracts;

"UCITS" means undertakings for collective investment in transferable securities co-ordinated within the meaning of Council Directive 85/611/EEC^(7);

• (2) For the purposes of these Regulations, a company is a dependant of another company if—

( a ) it is a subsidiary company of that other company and "subsidiary company" is to be construed in accordance with Article 4 of the European Communities (Capital: Group Accounts) Regulations 1992 (S.I. 201/1992), or

( b ) that other company, either alone or with any associate or associates, is entitled to exercise, or controls the exercise of, 20 per cent. or more of the equity voting rights at any general meeting of the first mentioned company, or

( c ) the first mentioned company is a dependant of any company which is that other company's dependant;

• (3) For the purposes of these Regulations, a debt of an assurance undertaking shall be regarded as being secured only to the extent that—

( a ) it is fully secured on an asset or assets for the valuation of which provision is made in this Annex to these Regulations and

( b ) the value of the asset or assets providing the security (after deducting reasonable expenses of sale) is sufficient to enable the debt (and any other obligation secured on the asset or assets which has priority to or ranks equally with the debt) to be discharged in full.

Categories of assets

( b ) However, in the case of a linked asset of an undertaking including approved derivative instruments which meet the requirements of Articles 2 (9) and 12 (4) of this Annex, the value given will be the value of that asset as determined in accordance with generally accepted accounting concepts, bases and policies or other generally accepted methods appropriate for insurance undertakings.

• (2) An undertaking may cover its technical reserves only with the following categories of assets—

Investments

( a ) Debt securities, bonds and other money and capital market instruments;

^(7) O.J. No. L375, 31.12.1985, page 3 and O.J. No. L100, 19.4.1988, page 31.

( b ) loans;

( c ) shares and other variable yield participations;

( d ) units in undertakings for collective investment in transferable securities and other investment funds;

( e ) land, buildings and other immovable property rights;

Debts and Claims

( f ) debts owed by reassurers;

( g ) deposits with and debts owed by ceding undertakings;

( h ) debts owed by policyholders and intermediaries arising out of direct and reinsurance operations;

( i ) advances against policies;

( j ) tax recoveries;

( k ) claims against guarantee funds;

Others

( l ) tangible fixed assets, other than land and buildings;

( m ) cash at bank and in hand, deposits with credit institutions and any other bodies authorised to receive deposits;

( n ) accrued interest and rent, other accrued income;

( o ) reversionary interests.

• (3) Any asset to which this Part applies (other than cash) for the value of which no provision is made in this Annex shall be left out of account for the purpose of representing the technical reserves of an undertaking.

• (4) The assets covering the technical provisions shall take account of the business carried on by an undertaking in such a way as to secure the safety, yield and marketability of its investments which the undertaking will ensure are diversified and adequately spread.

• (5) Where the benefits provided by a contract are directly linked to the value of units in a unit trust or a UCITS, or to the value of assets contained in an internal fund held by the undertaking, usually divided into units, the technical provisions in respect of those benefits must be represented as closely as possible by those units or, in the case where units are not established, by those assets.

• (6) Where the benefits provided by a contract are directly linked to a share index or some other reference value other than those referred to in sub-paragraph (5), the technical reserves in respect of those benefits must be represented as closely as possible either by the units deemed to represent the reference value, or, in the case where units are not established, by assets of appropriate security and marketability which correspond as closely as possible with those on which the particular reference value is based.

• (7) All assets must be valued on a prudent basis, allowing for the risk of any amounts not being realisable. Assets covering technical reserves shall be valued net of any debts arising out of their acquisition.

• (8) Loans, whether to undertakings, to a State or international organisation, to local or regional authorities or to natural persons, shall be accepted as cover for technical reserves only if there are sufficient guarantees as to their security, whether these are based on the status of the borrower, mortgages, bank guarantees or guarantees granted by assurance undertakings or other forms of security.

• (9) Derivative instruments may be used in connection with assets covering technical reserves—

• (i) in so far as they contribute to a reduction of investment risks or facilitate efficient portfolio management,

• (ii) in so far as they are traded on a regulated market or the counterparty is an approved credit institution or other institution approved by the Minister; and

• (iii) in so far as, having regard to the nature and amount of assets which it holds and to its liabilities, the undertaking will have, at the settlement date and (if applicable) in the relevant fund, assets to fulfil its obligations under that instrument.

• (10) Transferrable securities which are not dealt in on a regulated market may be accepted as cover for technical reserves only if they can be realised in the short term or if they are holdings in credit institutions, in assurance undertakings (within the limits permitted by Article 8 of the First Directive) or in investment undertakings established in a Member State.

• (11) Where in accordance with this Annex the value of any asset is to be not greater than any specified amount and, in all the circumstances of the case, it appears that the asset is of a lesser value than that amount, such lesser value shall be the value of the asset.

• (12) Notwithstanding sub-paragraph (1) an undertaking may, for the purposes of an investigation to which Article 15 of these Regulations applies, elect to assign to any of its assets the value given to the asset in question in the books or other records of the undertaking, on condition—

( a ) that the election shall not enable the undertaking to bring into account any asset for the valuation of which no provision is made in this Annex and,

( b ) that the value assigned to the aggregate of the assets shall not be higher than the aggregate of the value of those assets as determined in accordance with Articles 3 to 13 of this Annex.

• (13) ( a ) If the Minister is not satisfied as to the valuation of any asset or assets submitted the Minister shall notify the undertaking accordingly.

( b ) Failing agreement between the undertaking and the Minister on the value placed on the asset or assets by the insurance undertaking, the Minister may call on an independent expert for the purposes of expressing an opinion on the value of the asset or assets in question.

( c ) The independent expert appointed in accordance with sub-paragraph (b) shall have regard to the provisions of these Regulations.

( d ) The valuation placed on the asset or assets by the independent expert shall be final.

( e ) The costs of any such independent valuation shall be borne by the undertaking.

• (14) Notwithstanding the provision of sub-paragraph (13), the Minister may appoint an independent expert for the purpose of expressing an opinion on the value of any asset or assets of an insurance undertaking.

• (15) If the Minister so directs, compliance with these Regulations may be ensured by the intervention of a person or institution from outside the undertaking and invested by the Minister with responsibility for verifying on the spot whether the assets representing technical reserves, including mathematical reserves, comply with these regulations.

• (16) For the purposes of these Regulations—

"designated assets" means assets which are admissible in accordance with this Annex as representing the technical reserves.

Shares in and debts due or to become due from dependants

• (2) In valuing an asset of an insurance undertaking which consists of shares in another company which is a dependant, any part of that value which arises from an interest by that other company, direct or indirect, in the shares of the insurance company shall be left out of account.

• (3) In this Article—

"net asset value" means, in relation to a dependant, the amount by which the value of its assets, as determined in accordance with Article 4, exceeds the amount of its liabilities as determined in the case of a dependant which is an insurance undertaking, in accordance with Article 4.

• (4) The value of any debt due, or to become due to an insurance undertaking from a dependant (other than a debt to which Article 5 (3) or (4) applies) shall be the amount which would reasonably be expected to be recovered in respect of that debt (due account being taken of any security held in respect thereof) if the dependant were in liquidation and—

( a ) in the case of a dependant which is an insurance undertaking, the amount realised from its assets and the amount of its liabilities in the liquidation were equal to the value of those assets and the amount of those liabilities, as determined in accordance with Article 4, and

( b ) in the case of a dependant which is not an insurance undertaking, the amount realised from its assets in the liquidation was equal to the value of those assets, as determined in accordance with the said Article 4.

• (5) Any share in a dependant—

( a ) in which there is no excess of assets over liabilities as is mentioned in paragraph (1), or

( b ) in relation to which an insurance undertaking cannot reasonably ascertain the amount of the liabilities of the dependant for the purposes of paragraph (1), shall be left out of account for the purposes for whichthis Part applies.

• (6) Where an insurance undertaking is unable to determine the value of any debt due or to become due to the undertaking from a dependant because it cannot reasonably ascertain the amount of the liabilities of the dependant for the purpose of ascertaining what would reasonably be expected to be recovered in respect of that debt in accordance with paragraph 2, the debt shall be left out of account for the purposes for which this Annex applies.

Valuation of assets and liabilities of dependants for the purposes of Article 3

• (2) In the case of a dependant which is an insurance undertaking, whether or not it is authorised by the Minister;

( a ) subject to paragraph 4 and paragraph 3 of Schedule 6, the value of its assets shall be determined in accordance with this Annex;

( b ) subject to sub-paragraphs (c), (d), (e), ( f ) and (g), the amount of its liabilities shall be determined in accordance with Annex IV;

( c ) where the dependant carries on non-life insurance business, its non-life insurance business liabilities shall be deemed to include an amount equal to whichever is the greater of 400,000 units of account or the solvency margin calculated in accordance with Annex II of the European Communities (Non-life Insurance) Framework Regulations, 1994;

( d ) where the dependant carries on life assurance business, its life assurance business liabilities shall be deemed to include whichever is the greatest of the following three amounts—

• (i) an amount ("the first amount") which is one sixth of the solvency margin that would be arrived at by regarding the dependant as having its head office in the State (whether it has or not) and applying Article 3 of Part A of Annex II to these Regulations;

• (ii) an amount which is six times the first amount, reduced by the implicit figure within the meaning of sub-paragraph (e);

• (iii) 800,000 units of account;

( e ) for the purposes of sub-paragraph (d ) (ii) the implicit figure is—

• (i) in the case of a dependant having its head office in the State, the amount of any implicit items relating to future profits, zillmerising or hidden reserves which the dependant is permitted to count by virtue of a direction under Article 3 of these Regulations and the application of Article 2 (g) of Part A of Annex II to these Regulations and Annex VI to these Regulations;

• (ii) in the case of a dependant having its head office elsewhere than in the State, the amount of any implicit items relating to future profits or zillmerising which would be arrived at by regarding the dependant as having its head office in the State and as having received a direction under Article 3 of these Regulations and by applying Article 2 (f) of Part A of Annex II to these Regulations and Annex VI to these Regulations;

( f ) in any case where the dependant is required to establish a life assurance business fund or funds under the Insurance Acts and Regulations its life assurance business liabilities shall be deemed to be not less than the value of the assets representing that fund or funds.

( g ) for the purposes of this Article an insurance undertaking includes reinsurance undertaking.

• (3) In the case of a dependant which is not an insurance undertaking—

( a ) the value of its assets shall be determined in accordance with this Annex, subject to the provisions of and the modifications provided for in paragraphs 3 and 4 of Schedule 6;

( b ) subject to paragraph (4), assets of the dependant which are of a relevant description shall be taken into account only to the extent that their value does not exceed the permitted limit applicable to the dependant in relation to those assets; and

( c ) any equipment leased by the dependant exclusively to any person other than its subsidiary or holding company or a subsidiary of its holding company shall be valued as a debt for the purposes of this Annex.

• (4) Where—

( a ) the dependant is an insurance undertaking and has assets of a relevant description which are not life assurance business assets or is not an insurance undertaking and has assets of a relevant description;

( b ) the value of such assets exceeds the permitted limit applicable to the dependant in relation to those assets, and

( c ) the insurance undertaking has no assets of the same description of the relevant class, or has assets of the same description of the relevant class and their value is less than the permitted limit applicable to the insurance undertaking in relation to those assets, then, for the purpose of determining the value of the assets of the dependant, there shall be added to the permitted limit applicable to the dependant in relation to assets referred to in sub-paragraph (a) an amount equal to the supplementary amount determined in accordance with Part 1 of Schedule 6.

• (5) In this Article and Schedule 6—

"assets of a relevant description" means assets of a description specified in Part 1 of Schedule 7 or, in the case of a dependant which is not an insurance undertaking, assets which would be of such a description if it were an insurance undertaking;

"insurance undertaking" has the meaning assigned to it in Article 3.

"the insurance undertaking" means an insurance undertaking the value of whose shares in or debts due or to become due from the dependant are being determined in accordance with Article 3.

"permitted limit" means, in relation to assets of a relevant description—

( a ) in the case of the insurance undertaking, or a dependant which carries on insurance business, an amount equal to the percentage of technical reserves applicable in relation to assets of that description in accordance with Article 13;

and

( b ) in the case of a dependant which is not an insurance undertaking, an amount equal to the percentages specified in Schedule 7, with respect to assets of that description, of the liabilities of the dependant, other than liabilities to the insurance undertaking or any other related company of the insurance undertaking; and references to assets held by any company being of the same description as assets held by a dependant mean—

• (i) in relation to land of the dependant of a description specified in paragraph 1 of Schedule 7, any interest of that other company in that land,

• (ii) in relation to assets of the dependant of a description specified in paragraph 2 of Schedule 7, any debt due or to become due to that other company which is secured on the land on which the debt due or to become due to the dependant is secured, and

• (iii) in relation to assets of the dependant of a description specified in paragraphs 3 to 15 of Schedule 7, assets of that other company which, if held by the dependant, would be assets of that description.

• (6) Save as otherwise provided in paragraph 3 (5) of Schedule 6, references in this Article and in Schedule 6 to assets of the insurance undertaking being of a relevant class mean—

( a ) where this Article and Schedule 6 are being applied for the purpose of determining the value of a life assurance business asset of the insurance undertaking which are life assurance business assets, and

( b ) in any other case, assets of the insurance undertaking which are not life assurance business assets.

• (7) Where the insurance undertaking cannot reasonably ascertain in accordance with the provisions of this Article—

( a ) the value of any asset of the dependant, or

( b ) the amount of the permitted limit applicable in relation to any asset or category of assets of the dependant,

that asset or that part of those assets shall be left out of account in determining the value of the assets of the dependant under this Article.

Debts and other rights

• (2) Subject to sub-paragraph (1), the value of any debt due, or to become due, to an undertaking, other than a debt to which Article 3 (4), sub-paragraph (3), (4), (5), (6) of this Annex or sub-paragraph (7) of this Article or Article 10 or 12 applies, shall be—

( a ) in the case of any such debt with a specified repayment date or dates (other than a debt between related companies) which is due, or will become due, within twelve months of the relevant date, the amount which can reasonably be expected to be recovered in respect of that debt (due account being taken of any security being held in respect thereof and the terms and conditions for payment thereof); and

( b ) in the case of any other such debt, the amount which would reasonably be paid by way of consideration for an immediate assignment of the debt taking account of:

• (i) whether the debt is a debt between related companies; and

• (ii) any security held in respect thereof and of the terms and conditions for payment thereof;

Provided that, in determining the amounts referred to in sub-paragraphs (a) and (b), no account shall be taken—

• (i) of any debts owed by policyholders and intermediaries, arising out of assurance operations, which have been outstanding for more than three months, or,

• (ii) of any letter or credit.

• (3) The value of any debt due, or to become due, to the undertaking which is secured on a policy of insurance issued by the undertaking 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 shall be the amount of that debt.

• (4) Any debt due or to become due to the undertaking—

( a ) 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

( b ) in respect of unpaid share capital of the company, or

( c ) under a letter of credit,

shall be left out of account for the purposes for which this Annex applies.

• (5) Subject to sub-paragraph (1) above the value of any debt due, or other rights of, the undertaking under any contract of reinsurance to which the undertaking is a party (other than a debt to which Article 3 (4) applies) shall be the amount which can reasonably be expected to be recovered in respect of that debt or right, provided that no account shall be taken of any debts owed by intermediaries which are outstanding for more than three months.

• (6) The value of any claim under a guarantee fund shall be the amount that can reasonably be expected to be recovered in respect of that claim.

• (7) The value of any debt due to, or other rights of, the undertaking under any claim for the recovery of tax shall be the amount that can reasonably be expected to be recovered in respect of such claim.

Land

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

Equipment

( a ) in the financial year of the undertaking in which it is purchased, shall be not greater than three-quarters of the cost thereof to the undertaking;

( b ) in the first financial year thereafter, shall be not greater than one-half of that cost;

( c ) in the second financial year thereafter, shall be not greater than one-quarter of that cost; and

( d ) in any subsequent financial year, shall be left out of account for the purposes for which this Annex applies.

• (2) The value of any office machinery (other than computer equipment), furniture, motor vehicles and other equipment of an undertaking, shall be, in the financial year of the undertaking in which it is purchased, not greater than one-half of the cost thereof and shall be, in any subsequent financial year, left out of account for the purposes for which this Annex applies.

Unlisted securities

• (2) The value of any unlisted security which is dealt in on a regulated market shall be an amount not greater than the middle market quotation.

• (3) The value of any unlisted equity share, other than a share to which sub-paragraph (2) applies, shall be not greater than—

( a ) where the company in which the share is held has been carrying on business for more than three financial years, the multiple of the price earnings ratio for the relevant date (or, if no price earnings ratio has been published for that date, for the most recent date prior to that date for which a price earnings ratio has been published) and the proportionate amount attributable to that share of the average amount of the profits of the company for the last three financial years; and

( b ) where the company has been carrying on business for less than three but more than one financial year, the multiple of such price earnings ratio and the proportionate amount attributable to that share of the average amount of the profits of the company for its two financial years or the profits of the company in its only financial year (as the case may be).

• (4) For the purposes of this Article the average amount of the profits of a company for any specified years shall be the amount represented in the formula

where—

( a ) P is the aggregate amount of the profits of the company after provision for taxation in each of the specified years,

( b ) L is the aggregate amount of any losses made by the company after provision for taxation in any of the specified years in which there were not profits, and

( c ) Y is the number of years specified, no account being taken of any profit or loss brought forward from any year preceding the specified years.

• (5) In this Article, the proportionate amount attributable to any share of the average amount or the amount of the profits of the company in which the share is held for any specified years shall be the amount which could reasonably be expected to be received in respect of that share if the average amount or the amount (as the case may be) of the profits in question were available for distribution by the company among its shareholders.

• (6) Where the value of any share would otherwise be determined in accordance with the provisions of sub-paragraph (3) but cannot be so determined because the amount of the profits of, or the amount of losses incurred by, the company in the last financial year cannot be reasonably ascertained, then the value of that share shall be determined—

( a ) in the case of a company which has been carrying on business for not less than four financial years, by reference to the average amount of the profits of the company for the three financial years preceding the last financial year; and

( b ) in the case of a company which has been carrying on business for less than four but more than two financial years, by reference to the average amount or the amount (as the case may be) of the profits of the company in any specified years other than the last financial year.

• (7) Any share to be valued in accordance with sub-paragraphs (3) to (6) shall be left out of account for the purposes for which this part applies if—

( a ) no amount is attributable thereto in accordance with sub-paragraph (3) of this Article or if the share is not realisable in the short term,

( b ) the company in which the share is held has been carrying on business for less than one financial year, or

( c ) the value of the share cannot be ascertained in accordance with sub-paragraphs (3) to (6) because the amount of the profits of, or the amount of the losses incurred by, the company in any of the specified years cannot reasonably be ascertained and no provision is made for its valuation in paragraph (6).

• (8) The value of any unlisted share other than one to which sub-paragraph (2) or (3) applies shall be the amount which would reasonably be paid by way of consideration for an immediate transfer of that share.

• (9) If, in all the circumstances of the case, it appears that any share to be valued in accordance with sub-paragraphs (2) to (6) is of a lesser value than that amount, such lesser value shall be the value of the asset.

• (10) The indices used for the purposes of this Article in estimating a "price earnings ratio" shall be disclosed in a note appended to the Valuation Report prepared in accordance with Schedule 4.

Collective investment schemes and recognised unit trusts

( a ) a unit trust to which section 31 of the Capital Gains Tax Act, 1975 , as amended by section 34 of the Finance Act, 1977 , relates, or

( b ) a unit trust which is an authorised unit trust scheme within the meaning of section 4 of the Unit Trusts Act, 1990 , or

( c ) a collective investment scheme approved by the Central Bank under Section 256 (8) of the Companies Act, 1990 , and Section 9 of the Unit Trusts Act, 1990 , or

( d ) a scheme falling within the Council Directive on the co-ordination of laws, regulations and administrative provisions relating to undertakings for collective investments in transferable securities (UCITS) No. 85/611/EEC,

shall be the price at which the managers under the unit trust or UCITS would purchase the holding of units or other beneficial interest if required to do so.

Listed investments

• (2) Where the listing of any listed debenture or listed share, the value of which falls to be determined in accordance with this Article, was suspended at a relevant date, then for the purpose or purposes for which that date was the relevant date—

( a ) if that suspension was in force for a period in excess of ten days, the debenture or share shall be left out of account, and

( b ) if that suspension was in force for a period not exceeding ten days, the value of that debenture or share shall be the lower of—

• (i) the middle market quotation on the day before the day of suspension came into force, and

• (ii) the middle market quotation on the day after the day the suspension was terminated.

• (3) For the purposes of sub-paragraph (2), a day which is a Saturday or Sunday or a bank holiday shall be disregarded.

Life interests, reversionary interests etc.

Approved derivative instruments

• (2) Subject to sub-paragraph (3) below, the value of rights under a derivative instrument to which this Article applies shall be—

( a ) in the case of a listed derivative instrument, the amount which would reasonably be paid by way of consideration for an immediate transfer or assignment thereof; or

( b ) in the case of an unlisted derivative instrument which the insurance undertaking—

• (i) has entered into with an approved counterparty, and

• (ii) reasonably believes may be readily closed out by entering into a further approved derivative instrument with an approved counterparty,

the amount that would reasonably be paid by way of consideration for closing out that instrument.

• (3) There shall be deducted from the amount calculated in accordance with sub-paragraph (2) above the amount of any cash or other assets as shall at the relevant date have been paid or transferred to the insurance undertaking in respect of that instrument.

• (4) In this article "approved derivative instrument" means—

( a ) a contract for differences under which the amount payable by either party is calculated by references to fluctuations in the value of—

• (i) an asset for the valuation of which provision is made in this Annex to these Regulations; or

• (ii) income from such an asset; or

• (iii) an index of such assets, or income therefrom, the value of which is determined on the basis of an arithmetric average of the value of the assets which comprise the index; or

• (iv) an index in respect of which a derivative instrument is listed; or

( b ) a futures contract or an option where any of the property to be acquired or disposed of is an asset for the valuation of which provision is made in this Annex to these Regulations.

• (5) For the purposes of this Article—

"an approved counterparty" is an approved credit institution or other institution approved by the Minister.

Other assets

( a ) in the case of a listed securities, the middle market quotation together with any interest accrued thereon;

( b ) in the case of securities which are not transferable, the amount payable on a surrender or redemption of such securities at the relevant date; and

( c ) in any other case, the amount which would reasonably be paid by way of consideration for an immediate transfer or assignment thereof.

• (2) The value of shares in any building society or industrial and provident society shall be the amount which would reasonably be paid by way of consideration for an immediate transfer or assignment thereof.

Assets to be taken into account only to a specified extent

( a ) to any approved securities or to any interest accrued thereon except insofar as it relates to the limitations applied to any loans to, or deposits with any one approved credit institution as specified in Schedule 7, and

( b ) insofar as liabilities for property linked benefits are covered by assets which determine the benefits payable under linked contracts and to such other assets as the Minister may from time to time determine.

• (2) Assets or categories of assets of an undertaking of any of the descriptions specified in Schedule 7 shall be taken into account, for the purpose of representing the technical reserves, only to the extent that the value of those assets or categories of assets does not exceed—

( a ) for an individual asset of a description specified in column 1, Part I, an amount equal to the percentage of the technical reserves specified in column 2 for an asset of that description;

( b ) for the aggregate of assets of a description specified in column 1, Part I, an amount equal to the percentage of the technical reserves specified in column 3 for assets of that description;

( c ) for an individual asset of the description specified in column 1, Part II, an amount equal to the percentage of the net premium income of the undertaking specified in column 2 (other than premiums in respect of treaty reinsurance accepted) for the twelve months preceding the relevant date;

( d ) for the aggregate of the assets of the description specified in column 1, Part II, an amount equal to the percentage of the net premium income of the undertaking specified in column 3 (other than premiums in respect of treaty reinsurance accepted) for the twelve months preceding the relevant date.

• (3) In no case shall the aggregate of the assets of a description specified in column 1, Part III, of Schedule 7 exceed that proportion of the technical reserves specified in column 2 of that Part.

• (4) Without prejudice to sub-paragraph (2) of this Article an undertaking may hold amounts of the assets in Schedule 7 which exceed the percentage limits specified, if it so wishes, but the amount of such excess assets cannot be put forward by the undertaking as representing the technical reserves.

• (5) For the purposes of sub-paragraph (2) above an undertaking's aggregate exposure in the case of derivative instruments shall be calculated as follows:—

( a ) where the undertaking is a party to a derivative instrument which is (wholly or in part) a futures contract which—

• (i) provides for the acquisition of assets;

• (ii) is listed and provides for the disposal of assets; or

• (iii) is not listed but provides for the disposal of assets to an approved credit institution or regulated market within a year;

for the purposes of determining its aggregate exposure, the undertaking shall be deemed at the valuation date to have acquired or disposed of such assets;

( b ) where the undertaking company is a party to a derivative instrument which is (wholly or in part) an option which:—

• (i) provides for the acquisition of assets;

• (ii) is listed and provides for the disposal of assets; or

• (iii) is not listed but provides for the disposal of assets to an approved credit institution or regulated market within a year;

and it is prudent at the valuation date to assume that such option will be exercised for the purposes of determining its aggregate exposure, the undertaking shall be deemed to have acquired or disposed of such assets at that date;

( c ) where an undertaking is a party to a derivative instrument which is (wholly or in part) or has the equivalent effect to a contract for differences which is not listed and the value of which depends to a significant extent upon fluctuations in the value of, or income from, particular assets, for the purposes of determining its aggregate exposure, the undertaking shall be deemed to have achieved the effect of such contract for differences by entering into appropriate options or futures contracts in respect of the particular assets, and such contracts, options or futures shall be dealt with in accordance with sub-paragraphs (a) and (b) above;

( d ) the amount of the aggregate exposure of the undertaking to assets of any particular description shall be the value of such assets held by the undertaking (if any) adjusted to take account of assets, which the undertaking is deemed to have acquired or disposed of by the application of sub-paragraphs (a) to (c) above.

• (6) In this Article—

"the net premium income" of an undertaking for any specific period means the gross amounts, first recorded in the undertaking's books during that period as paid or due to the undertaking by way of premiums, less any rebates, refunds and commission so recorded during that period as allowed or paid on those gross amounts or on any such gross amounts so recorded in any previous period.

• (7) Where—

( a ) an asset (or group of assets) of an undertaking carrying on life assurance business is attributed by the undertaking partly to its life assurance business assets and partly to its other assets, and

( b ) by virtue of sub-paragraph (2) there is a reduction in the extent to which that asset or group of assets is to be taken into account,

the reduction shall be in the same proportion as the attribution.

ANNEX IV

Implicit Items

• (2) Article 3 of these Regulations applies to a direction under this Article.

( a ) in the case of a future profits item, a certificate signed by the appointed actuary confirming that the amount for which approval is sought does not exceed the lower of:

• (i) the amount calculated in accordance with Article 2 (g) (i) of Part A of Annex II to these Regulations of and this Annex and

• (ii) the present value of the profits that may be expected to arise in the future on the life assurance business in force on the valuation date:

( b ) in the case of zillmerising, a certificate from the appointed actuary confirming that the amount for which approval is sought has been calculated in accordance with Article 2 (g) (ii) of Part A of Annex II to these Regulations and this Annex.

• (2) For the purposes of sub-paragraph (1):

( a ) where an investigation under Article 15 of these regulations has been carried out annually in relation to the relevant period, the profits made in life assurance business for any particular year of the relevant period shall be taken to be the surplus (if any) arising in the life assurance fund since the last such investigation, and the profits so made for that period shall be taken to be the aggregate of those surpluses less any deficiencies in the life assurance fund during that period;

( b ) where an undertaking has carried on life assurance business throughout the relevant period but investigations under Article 15 of these Regulations have not been conducted annually in that period, the profits so made for that period shall be taken to be the aggregate of surpluses arising in the life assurance fund since the last investigation preceding the commencement of the relevant period less any deficiencies in the life assurance fund since that last investigation, except that the surplus or deficiency arising in the period ending with the first investigation within the relevant period shall be proportionately reduced to allow for any period of time falling outside the relevant period;

( c ) where an undertaking has not carried on life assurance business throughout the relevant period, the profits made in life assurance business for the relevant period shall be taken to be the aggregate of any surpluses arising in the life assurance fund during that part of the relevant period for which life assurance business was carried on less any deficiencies in the life assurance fund during that part of that period.

• (2) For the purposes of sub-paragraph (1), weighting shall be based on the net single premium attaching to such policies but undertakings may use a method of calculation which involves a degree of approximation where such method is shown to the Minister's satisfaction to give similar results.

• (3) Undertakings may dispense with the detailed requirements of sub-paragraph (2) for classes of policies of minor importance, the results of which would have no significant effect on the average period to run for the undertaking concerned.

• (4) In sub-paragraph (1) a "period to run" means:

( a ) for whole life assurances, the expectation of life,

( b ) for open ended whole-life assurance, the expectation of life,

( c ) for endowment assurances and pure endowment the period to the fixed maturity date,

( d ) for flexible endowments, the period to the first date of a guaranteed cash option,

( e ) for temporary assurances, the period to the expiry date,

( f ) for deferred annuities with cash options, the period to the vesting date; where the annuity can be taken at any age falling within a prescribed range, the earliest date,

( g ) for deferred annuities without cash options, the expectation of life for the age attained,

( h ) for annuities in payment, the expectation of life; for temporary annuities, the period of the expiry date,

( i ) for group life schemes, the unexpired duration of the period for which the premium rates are guaranteed,

( j ) for group pension schemes,

• (i) by individual deferred annuity contracts, as under deferred annuities above,

• (ii) by deferred annuities under controlled funding, a period of 10 years,

• (iii) by deposit administration, a period of 10 years,

• (iv) by managed fund, a period of 10 years,

( k ) for permanent health insurance,

• (i) for individual policies, the period to the expiry date,

• (ii) for group contracts, the unexpired duration of the period for which the premium rates are guaranteed,

( l ) for capital redemption, the period to the fixed maturity date,

( m ) for income and growth bonds, the period to the expected date of surrender.

• (5) In relation to sub-paragraph (4), (c), (d), (e), (f), (h) and (k) (i), mortality during the term shall be covered by the adjustment for the premature termination of contracts.

• (6) Applications based on alternative definitions of the period to run shall be considered provided it can be shown that the definitions used in connection with the allowance for premature termination may be expected to result in a conservative estimate of the average period to run.

• (2) The multiplying factor need not, however, be calculated where it is shown to the satisfaction of the Minister that such factor would in any event be in excess of that necessary to generate an adequate implicit item to supplement the explicit elements referred to in Article 2 (a) to (d) of Part A of Annex II to these Regulations for the purpose of meeting the requirements of Article 3 of Part A of Annex II to these Regulations.

( a ) for whole life assurance, the sum assured,

( b ) for policies where a sum is payable on maturity (including policies where a sum is also payable on earlier death), the sum payable on maturity,

( c ) for deferred annuities, the capitalised value of the annuity at the vesting date (or the cash option if it is greater),

( d ) for capital redemption contracts, the sum payable at the end of the contract period, and

( e ) for linked life assurance contracts, notwithstanding paragraphs (a) to (d) the lesser of:

• (i) the amount for the time being payable on death, and