The Friendly Societies (Insurance Business) Regulations 1994

Made: 20th July 1994

Laid before Parliament: 1st August 1994

Coming into force: 1st September 1994

The Friendly Societies Commission, being a Department designated for the purposes of section 2(2) of the European Communities Act 1972[^f00001] in relation to the authorisation of the carrying on by friendly societies of insurance business and the regulation of such business and its conduct and in relation to anything supplemental or incidental to such matters[^f00002], in exercise of the powers conferred by that section and, with the consent of Treasury, in exercise of the powers conferred upon it by section 45(1) and (2), 46(1), (3), and (8), 48(1), (2), (6), and (7), 49(1), 56(1), (2) and (5) and 121(3) of the Friendly Societies Act 1992[^f00003] and of all other powers enabling it in that behalf, hereby makes the following Regulations:

PART I — PRELIMINARY

Citation and commencement

1

These Regulations may be cited as the Friendly Societies (Insurance Business) Regulations 1994, and shall come into force on 1st September 1994.

Interpretation: general

2

• (1) In these Regulations, unless the context otherwise requires—

• “the 1982 Act” means the Insurance Companies Act 1982[^f00004];

• “the 1992 Act” means the Friendly Societies Act 1992;

• “the 1987 Regulations” means the Friendly Societies (Long Term Insurance Business) Regulations 1987[^f00005];

• “the 1994 Regulations” means the Insurance Companies Regulations 1994[^f00006];

• “authorisation” has the same meaning as it has in Part IV of the 1992 Act by virtue of section 32(9) of that Act, and “authorised” shall be construed accordingly;

• “cede” and “cession”, in relation to reinsurance, include retrocede and retrocession;

• “the Commission” means the Friendly Societies Commission established by section 1 of the 1992 Act;

• “deposit back arrangement”, in relation to any contract of reinsurance, means an arrangement whereby an amount is deposited by the reinsurer with the cedant;

• “guarantee fund” has the meaning given in regulation 5(1) below;

• “implicit items” has the meaning given by regulation 8(3) below and “implicit item” shall be construed accordingly;

• “insurance company” means a person or body of persons (whether incorporated or not) carrying on insurance business other than a friendly society;

• “linked long term contract” means a contract of the kind referred to in section 56(1) of the 1992 Act;

• “mathematical reserves” means the provision made by a society to cover liabilities (excluding liabilities which have fallen due and liabilities arising from deposit back arrangements) arising under or in connection with contracts for long term business;

• “minimum guarantee fund” has the meaning given in regulation 5(2) below;

• “premium” includes a contribution in respect of an insurance benefit and the consideration for the granting of an annuity;

• “required margin of solvency” has the meaning given in regulation 4(2) below;

• “Schedule” means Schedule to these Regulations;

• “society” means a society which is either an incorporated friendly society or a registered friendly society;

• “the Stock Exchange” means the International Stock Exchange of the United Kingdom and the Republic of Ireland Limited;

• “zillmerising” has the meaning given by regulation 10(7) below.

• (2) Unless the context otherwise requires, expressions used in these Regulations which are defined in section 116, 117, 119 or in any other provision of the 1992 Act shall have the same meanings as they have for the purposes of that Act.

• (3) Any reference in these Regulations to a financial year or preceding financial year of a friendly society shall be construed—

• (a) in the case of a registered friendly society or an incorporated friendly society which was not formerly a registered friendly society, in accordance with section 118 of the 1992 Act; and

• (b) in the case of an incorporated friendly society which was formerly a registered friendly society, as referring to a period of 12 months ending with 31st December during which period the friendly society was or is—

• (i) a registered friendly society;

• (ii) an incorporated friendly society; or

• (iii) registered as an incorporated friendly society; or

as referring to such shorter period than 12 months ending with the date as at which the incorporated friendly society makes up its final accounts.

PART II — MARGINS OF SOLVENCY

Application: Part II

3

• (1) This Part of these Regulations applies to a society to which section 48 of the 1992 Act applies.

• (2) Subject to regulation 62 below, a society which is—

• (a) an incorporated friendly society, or

• (b) an authorised registered friendly society,

is prescribed for the purposes of section 48(1)(c) of the 1992 Act.

Required margin of solvency

4

• (1) The margin of solvency of a society is the excess of the value of its assets over the amount of its liabilities determined in accordance with Parts IV and V of these Regulations.

• (2) Subject to paragraphs (3) to (5) below, the margin of solvency to be maintained by a society to which this Part of these Regulations applies pursuant to section 48 of the 1992 Act (referred to in these Regulations as “the required margin of solvency”) shall be determined—

• (a) with respect to a society which carries on long term business, in accordance with Schedule 1; and

• (b) with respect to a society which carries on general business, by taking the greater of the two sums resulting from the application of the two methods of calculation set out in Schedules 2 and 3 respectively.

• (3) For a contract to which section 117(4) of the 1992 Act applies, the required margin of solvency shall be determined by taking the aggregate of the results arrived at by applying—

• (a) in the case of so much of the contract as is within any class of long term business, the appropriate method prescribed by Schedule 1 for that class; and

• (b) in the case of so much of the contract as is within general business class 1 or 2, the method of calculation set out in Schedule 2 (excluding paragraphs 7, 8 and 9).

• (4) Where a society carries on long term business and owing to the nature of that business more than one margin of solvency is produced in respect of that business by the operation of this Part of these Regulations, the margins in question shall be aggregated as regards the society in order to arrive at its required margin of solvency for long term business.

• (5) Where a society carries on both long term and general business and is accordingly required to maintain separate margins of solvency in respect of the two kinds of business—

• (a) these Regulations shall apply for determining the margin of solvency for each kind of business separately; and

• (b) assets other than those representing the funds maintained by the society in respect of its long term business, if they are not included among the assets covering the liabilities and the margin of solvency relating to the society’s general business, may be included among the assets taken into account in covering the liabilities and the margin of solvency for the society’s long term business.

Guarantee fund and minimum guarantee fund

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• (1) Subject to paragraphs (2) and (3) below, one-third of a required margin of solvency (being, in the case of long term business, the required margin of solvency determined in accordance with regulation 4(4) above) shall constitute the amount (“the guarantee fund”) prescribed for the purposes of section 49(1) of the 1992 Act.

• (2) In the case of a society which is—

• (a) an incorporated friendly society; or

• (b) a registered friendly society to which section 37(2) or (3) of the 1992 Act applies, the guarantee fund shall not be less than an amount (“the minimum guarantee fund”) arrived at in accordance with regulation 6 for long term business and regulation 7 for general business respectively.

• (3) In the case of long term business, items that are not implicit items must be at least large enough to cover either the minimum guarantee fund or 50 per cent. of the guarantee fund, whichever is the greater.

Minimum guarantee fund: long term business

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• (1) In the financial year during which a society is first authorised under section 32 of the 1992 Act to carry on long term business, the minimum guarantee fund shall be the amount in column 2 of the table below, which corresponds to the society’s annual contribution income in respect of that business in the last preceding financial year, as shown in column 1 of the table

Contribution Income (in ECU)	Minimum Guarantee Fund (in ECU)
1,000,000 or less	100,000
1,000,001-1,500,000	200,000
1,500,001-2,000,000	300,000
2,000,001-2,500,000	400,000
2,500,001-3,000,000	500,000
3,000,001 or more	600,000

but where a society had no annual contribution income in respect of long term business in the last preceding financial year or has not been in existence long enough to have a preceding financial year, the minimum guarantee fund shall be an amount of 100,000 ECU.

• (2) In any subsequent financial year during which a society continues to be authorised to carry on long term business, the minimum guarantee fund shall be the greater of either—

• (a) the amount in column 2 of the table in paragraph (1) above that corresponds to the society’s annual contribution income in respect of long term business in the last preceding financial year; or

• (b) the amount of the minimum guarantee fund required to be maintained by the society in the last preceding financial year,

providing that if the amount referred to in subparagraphs (a) and (b) above is the same, the minimum guarantee fund shall be that amount.

• (3) Where a society obtains authorisation under section 32 of the 1992 Act to carry on long term business—

• (a) of a class additional to that in respect of which it is already authorised; or

• (b) in a part of the United Kingdom additional to that in respect of which it is already authorised,

a minimum guarantee fund of 600,000 ECU shall be maintained by that society for the whole of its long term business (that is to say, not only for the additional business carried on but also for the business previously carried on).

Minimum guarantee fund: general business

7

The minimum guarantee fund in respect of general business carried on by a society shall be an amount of 225,000 ECU.

Valuation of solvency margins

8

• (1) Where a society to which this Part of these Regulations applies has assets in excess of its liabilities, then, in addition to any other applicable valuation regulations in Part IV of these Regulations, paragraphs (2) and (3) below shall have effect for determining the extent to which the value of the assets exceeds the amount of liabilities in connection with the required margin of solvency, the guarantee fund and the minimum guarantee fund.

• (2) In the case of a society carrying on general business, any claim which the society has against its members by way of a call for supplementary contributions for a financial year shall have its full value for that financial year, subject to the limitation that the value shall not exceed—

• (a) 50 per cent. of the difference between the maximum contributions and the contributions called in, or

• (b) 50 per cent. of the required margin of solvency.

• (3) The items mentioned in regulations 9 to 11 below (which relate to future surpluses, zillmerising and hidden reserves and shall be known as “implicit items”) shall have no value, except with the consent of the Commission given upon application of a society. Where the Commission so consents—

• (a) any of the implicit items may be valued in accordance with the provisions of regulations 9 to 11 with respect to long term business; and

• (b) the implicit item relating to hidden reserves may be valued in accordance with regulation 11 with respect to general business.

Implicit items: future surpluses

9

• (1) The implicit item relating to future surpluses may be valued at not more than 50 per cent. of the full amount of future surpluses.

• (2) For the purposes of paragraph (1) above, the full amount of future surpluses shall be obtained by multiplying the estimated annual surplus by a factor which shall as nearly as may be represent the average number of years remaining to run on policies, but shall, if it exceeds 10, be reduced to 10.

• (3) For the purposes of paragraph (2) above—

• (a) the estimated annual surplus shall be taken to be one-fifth of the surplus (“the periodic surplus”) made in long term business over a period of five years (“the relevant period”) ending on the last day of the most recent completed financial year during which a valuation for the purposes of section 46 of the 1992 Act or regulation 11 of the 1987 Regulations has been carried out, substantial items of an exceptional nature being excluded, and

• (b) the average number of years remaining to run on policies shall be calculated—

• (i) by multiplying the number of years to run on each policy by the actuarial value of the benefits payable under the policy, adding together the products so obtained and dividing the total by the aggregate of the actuarial values of the benefits payable under all the policies; or

• (ii) by an approximation to this method of calculation suitable to the circumstances of the case, including, where appropriate, an approximation involving the grouping of contracts,

appropriate allowance being made in either case for premature termination of contracts.

• (4) For the purposes of paragraph (3)(a) above—

• (a) where a valuation under section 46 of the 1992 Act or regulation 11 of the 1987 Regulations has been carried out annually in relation to the relevant period, the annual surplus made in long term business for any particular year of the relevant period shall be taken to be the surplus (if any) arising in the long term business funds since the last such valuation, and the periodic surplus shall be taken to be the aggregate of those annual surpluses less any deficiencies in the long term business funds during that period;

• (b) where a society has carried on long term business throughout the relevant period but valuations under section 46 of the 1992 Act or regulation 11 of the 1987 Regulations have not been made annually in that period, the periodic surplus shall be taken to be the aggregate of surpluses arising in the long term business funds since the last valuation preceding the relevant period less any deficiencies in the long term business funds since the last valuation, except that the surplus or deficiency arising in the period ending with the first valuation within the relevant period shall be proportionately reduced to allow for any period of time falling outside the relevant period;

• (c) where a society has not carried on long term business throughout the relevant period, the periodic surplus shall be taken to be the aggregate of any surpluses arising in the long term business funds during that part of the relevant period for which long term business was carried on less any deficiencies in the long term business funds during that part of that period.

Implicit items: zillmerising

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• (1) Where zillmerising (as defined in paragraph (7) below) is appropriate but either is not practised or is at a rate less than the loading for acquisition costs included in the premium then, subject to paragraph (6) below, the implicit item relating to zillmerising may be valued at an amount not exceeding the difference between—

• (a) the non-zillmerised or partially zillmerised figure for mathematical reserves maintained by the society concerned; and

• (b) a figure for mathematical reserves (determined in accordance with Part V of these Regulations) zillmerised at a rate equal to the loading for acquisition costs included or allowed for in the premium.

• (2) Where zillmerising is not practised, then subject to paragraph (6) below, the value given by paragraph (1) above (less any amount relating to temporary assurances) shall not exceed 3.5 per cent. of the aggregate of the difference between—

• (a) the relevant capital sums for long term business activities; and

• (b) the mathematical reserves (excluding mathematical reserves for temporary assurances).

• (3) Where zillmerising is practised but is at a rate less than the loading for acquisition costs, then, subject to paragraph (6) below, the value given by paragraph (1) above (less any amount relating to temporary assurances) together with the difference between the partially zillmerised mathematical reserves and the non-zillmerised mathematical reserves shall not exceed 3.5 per cent. of the aggregate of the difference between—

• (a) the relevant capital sums of long term business activities; and

• (b) the mathematical reserves (excluding mathematical reserves for temporary assurances).

• (4) In paragraphs (2) and (3) above “relevant capital sums” means—

• (a) for whole life assurances, 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 sums payable at the end of the contract period; and

• (e) for linked long term contracts, notwithstanding subparagraphs (a) to (d) above, the lesser of—

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

• (ii) the aggregate of the value for the time being of the units allocated to the contract (or, where entitlement is not denoted by means of units, the value for the time being of any other measure of entitlement under the contract equivalent to units) and the total amount of the premiums remaining to be paid during such part of the term of the contract as is appropriate for zillmerising, or, if such premiums are payable beyond the age of seventy-five, until that age,

excluding in all cases any vested reversionary bonus and any capital sums for temporary assurances.

• (5) Where, under the contract relating to any such business as is mentioned in paragraph (4) above, the payment of premiums is to stop before the sum assured becomes due, then, notwithstanding the said paragraph (4), “relevant capital sums” in paragraphs (1) to (3) above shall be taken to mean the mathematical reserves appropriate for that contract at the end of the premium-paying term.

• (6) For the purposes of this regulation—

• (a) reserves for vested reversionary bonuses shall not be regarded as mathematical reserves, and

• (b) the result given by paragraph (1), (2) or (3) above shall be reduced by the amount of any undepreciated acquisition costs brought into account as an asset.

• (7) “Zillmersing” means the method known by that name for modifying the net premium reserve method of valuing a long term policy by increasing the part of the future premiums for which credit is taken so as to allow for initial expenses.

Implicit items: hidden reserves

11

The implicit item relating to hidden reserves, if it consists of hidden reserves resulting from the underestimation of assets and overestimation of liabilities (other than mathematical reserves), may, in so far as the hidden reserves in question are not of an exceptional nature, be given its full value.

PART III — MATCHING AND LOCALISATION

Application: Part III

12

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

Matching: general requirement

13

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

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

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

• (4) For the purposes of this regulation—

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

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

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

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

Matching: property linked benefits

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

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

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

Matching: currency of general business liabilities

15

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

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

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

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

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

Matching: exception for certain liabilities

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

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

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

Localisation

17

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

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

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

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

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

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

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

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

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

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

• (3) In this regulation—

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

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

Exclusions from regulations 13 to 17

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

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

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

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

PART IV — VALUATION OF ASSETS

Interpretation: Part IV

19

• (1) In this Part of these Regulations, unless the context otherwise requires—

• “approved counterparty” means any of the following— an approved credit institution; a person who is exempt pursuant to section 43 of the Financial Services Act 1986[^f00007]; or a person who is an authorised person within the meaning of section 207(1) of the Financial Services Act 1986 in respect of investment business of a kind which includes entering into unlisted derivative contracts as principal;

• “approved credit institution” means an institution recognised or permitted under the law of an EEA State to carry on any of the activities set out in Annex 1 to Council Directive 89/646/EEC of 15 December 1989 on the co-ordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions[^f00008];

• “approved financial institution” means any of the following— the central bank of an EEA State, the International Bank for Reconstruction and Development; the International Finance Corporation; the International Monetary Fund; the Inter-American Development Bank; the African Development Bank; the Asian Development Bank; the Caribbean Development Bank; the European Investment Bank; the European Community; the European Atomic Energy Community; and the European Coal and Steel Community; “approved investment firm” means an investment firm as defined in article 2 of Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field[^f00009];

• “approved securities” means any of the following— any securities issued or guaranteed by, or the repayment of the principal of which, or the interest on which is guaranteed by, and any loans to or deposits with, any of the following, namely, any government, public or local authority or nationalised industry or undertaking, which belongs to Zone A as defined in Council Directive 89/647/EEC of 18 December 1989 on a solvency ratio for credit institutions[^f00010]; and any loan to, or deposit with, an approved financial institution;

• “asset” includes part of an asset;

• “assignment” includes an assignation;

• “building society” means a building society within the meaning of the Building Societies Act 1986[^f00011];

• “company” includes any body corporate;

• “contract for differences” means a contract which falls within paragraph 9 of Part I of Schedule 1 to the Financial Services Act 1986[^f00012];

• “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;

• “derivative contract” means a contract for differences, a futures contract or an option;

• “enactment” includes an enactment of the Parliament of Northern Ireland;

• “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 which falls within paragraph 8 of Part I of Schedule 1 to the Financial Services Act 1986;

• “general business amount” has the meaning assigned to it in regulation 32(9) below;

• “general business assets” and “general business liabilities” mean respectively assets of a society or insurance company which are, for the time being, identified as representing the general business fund or funds maintained by that body in respect of its general business and liabilities of the body which are attributable to its general business;

• “general premium income” means, in relation to any body in any year, the net amount, after deduction of any premiums payable for reinsurance, of the premiums receivable by the body in that year in respect of all insurance business other than long term business;

• “index linked benefits” means benefits— provided for under any contract the effecting of which constitutes the carrying on of ordinary long term business; and determined by reference to fluctuations in any index of the value of property (whether specified in the contract or not);

• “industrial and provident society” means any society registered (or deemed to be registered) under the Industrial and Provident Societies Act 1965[^f00013] or the Industrial and Provident Societies Act (Northern Ireland) 1969[^f00014];

• “insurance liabilities” means, in relation to a society any debt due from, or other liabilities of the society, under any contract of insurance to which it is party;

• “intermediary” means a person who in the course of any business or profession invites other persons to make offers or proposals or to take other steps with a view to entering into contracts of insurance with a society, other than a person who only publishes such invitations on behalf of, or to the order of, some other person;

• “linked assets” means, in relation to a society, long term business assets of the society which are, for the time being, identified in the records of the society as being assets by reference to the value of which property linked benefits are to be determined;

• “listed” means, in relation to an investment— that there has been granted and not withdrawn a listing in respect of that investment on any stock exchange in a member State which is a stock exchange within the meaning of the law of that member State and that dealings in the investment are effected regularly on such stock exchange; or that dealings in that investment are effected regularly on a regulated market; and “unlisted” shall be construed accordingly;

• “long term business amount” has the meaning assigned to it in regulation 32(9) below;

• “long term business assets” and “long term business liabilities” mean respectively assets of a society or insurance company which are, for the time being, identified as representing the long term business fund or funds maintained by that body in respect of its long term business and liabilities of the body which are attributable to its long term business;

• “middle market quotation” means— 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 in relation to an investment for which one price is quoted in the official list published for the relevant market, the price 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 in any other case, the nearest equivalent to the average referred to in paragraph (a) above which is published or can be reasonably ascertained from the information which is published;

• “option” means an option which falls within paragraph 7 of Part I of Schedule 1 to the Financial Services Act 1986[^f00015] or a warrant;

• “price earnings ratio” means the price earnings ratio (net) estimated in respect of the non-financial index of the Financial Times-Stock Exchange-Actuaries Share Indices jointly compiled by the Financial Times, the Stock Exchange, the Institute of Actuaries and the Faculty of Actuaries;

• “proper valuation” means, in relation to land, a valuation made by a qualified valuer not more than three years 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;

• “property linked benefits” means benefits other than index linked benefits— provided for under any contract the effecting of which constitutes the carrying on of ordinary long term business; and determined by reference to the value of, or income from, property of any description (whether specified in the contract or not);

• “qualified valuer”, in relation to any particular type of land in any particular area, means a person who is a fellow or professional associate of the Royal Institution of Chartered Surveyors or a fellow or associate of the Incorporated Society of Valuers and Auctioneers or a fellow or associate of the Rating and Valuation Association and either— has knowledge of and experience in the valuation of that particular type of land in that particular area; or has knowledge of and experience in the valuation of land and has taken advice from a valuer who he is satisfied has knowledge of and experience in the valuation of that particular type of land in that particular area;

• “regulated institution” means any of the following— an EC company, a UK company or an EFTA company within the meaning of the 1982 Act; an approved credit institution; a friendly society which is authorised to carry on insurance business; and an approved investment firm;

• “regulated market” means a market which is characterised by— regular operation; the fact that regulations issued or approved by the appropriate authority of the state where the market is situated— define the conditions for the operation of and access to the market; define the conditions to be satisfied by a financial instrument in order for it to be effectively dealt in on the market; and require compliance with reporting and transparency requirements comparable to those laid down in articles 20 and 21 of the Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field[^f00016]; and in the case of a market situated outside the European Community, the fact that the financial instruments dealt in are of a quality comparable to those in a regulated market in the United Kingdom;

• “relevant date” means, in relation to the valuation of any asset for any purpose for which this Part of these Regulations applies, the date when the asset falls to be valued for that purpose;

• “securities” includes shares, debentures, Treasury Bills, Tax Reserve Certificates and Certificates of Tax Deposit;

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

• “share” includes stock;

• “stock lending transaction” means an agreement under which title to securities is transferred from one party to the agreement, described in the agreement as the lender, to another, described as the borrower, on terms which provide for redelivery of identical securities from the borrower to the lender on demand or at an agreed date;

• “Talisman short term certificate” means a short term certificate provided by the Stock Exchange to Talisman trading account holders which has been endorsed by such account holders and passed to lenders as security under stock lending transactions;

• “Treasury Bills” includes bills issued by Her Majesty’s Government in the United Kingdom and Northern Ireland Treasury Bills.

• “warrant” means an instrument which falls within paragraph 4 of Part I of Schedule 1 to the Financial Services Act 1986.

• (2) For the purposes of these Regulations, a body is a dependant of a society if it is—

• (a) a subsidiary of that society; or

• (b) a body jointly controlled by that society and another person, within the meaning of section 13 of the 1992 Act.

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

• (a) it is a debt in respect of the full amount of which a letter of credit has been established with an approved credit institution; or

• (b) it is a debt the payment in full of which is guaranteed by an approved credit institution; or

• (c) it is fully secured by a Talisman short term certificate; or

• (d) it is fully secured on an asset or assets for the valuation of which provision is made in this Part of these Regulations; and—

• (i) the value of the asset or assets providing the security (after deducting reasonable expenses of sale) is sufficient to enable the debt to be discharged in full; and

• (ii) subject to paragraph (4) below, the value of the asset or assets providing the security for the debt when added to the aggregate exposure (as defined in regulation 32(3)) to assets of the same descriptions does not exceed the maximum admissible value (as defined in regulation 32(4)) for assets of that description; and

• (iii) there is no other obligation secured on the asset or assets which has priority to or ranks equally with the debt.

• (4) A debt arising under a stock lending transaction shall not be deemed to be unsecured by reason only that the condition set out in subparagraph (3)(d)(ii) above is not satisfied if the total value of the assets providing security for the debt is not dependent on fluctuations in the value of any individual asset.

Application: Part IV

20

• (1) Subject to paragraph (2) below, this Part of these Regulations applies with respect to the determination of the value of assets of a society for the purposes of—

• (a) section 48 of the 1992 Act;

• (b) any actuarial investigation carried out pursuant to section 46 or 47 of the 1992 Act; and

• (c) such other actuarial investigation in relation to the financial condition of an authorised society which carries on insurance business as may be required by the Commission in the exercise of its powers under Part V of the 1992 Act.

• (2) Where a society has entered into any contracts for the payment of property linked benefits, regulations 21 to 32 of these Regulations shall not apply, and where the requirements of section 49A(2) and (3) of the 1992 Act have been met in respect of liabilities under such contracts, the value of any linked asset by reference to the value of which those benefits are to be determined shall 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 business.

• (3) Any asset to which this Part of these Regulations applies (other than cash) for the valuation of which no provision is made in this Part of these Regulations shall be left out of account for the purposes specified in paragraph (1) above.

• (4) Where in accordance with this Part of these Regulations 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.

• (5) For the purposes of paragraph (4) above, in determining whether it appears that an asset shall be of a lesser value than a specified amount, regard shall be had to the underlying security and in, the case of bonds, debt securities and other money and capital market instruments, the credit rating of the issuer, including whether the issuer belongs to Zone A as defined in the Council Directive 89/647/EEC of 18th December 1989 on a solvency ratio for credit institutions[^f00017] and, where the issuer is an international organisation, whether it includes at least one EEA State among its members.

• (6) Notwithstanding paragraph (1) above (but subject to the conditions set out in paragraph (7) below) and in relation to an actuarial investigation of its long term business only, a society may elect to assign to any of its assets the value given to the asset in question in the books or other records of the society.

• (7) The conditions referred to in paragraph (6) above are—

• (a) that the election shall not enable the society to bring into account any asset for the valuation of which no provision is made in this Part of these Regulations;

• (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 regulations 21 to 32 of these Regulations.

Shares in and debts due or to become due from dependants

21

• (1) The value of any share in a dependant of a society shall be not greater than that part of the net asset value of the dependant which would be payable in respect of the share if the dependant were in liquidation and the net asset value were the amount distributable to the shareholders in the winding up.

• (2) In this regulation, “net asset value” means, in relation to a dependant, the amount by which the value of its assets, as determined in accordance with regulation 22 below, exceeds the amount of its liabilities as determined in the case of a dependant which is an insurance company, in accordance with regulation 22.

• (3) The value of any debt due, or to become due, to a society from a dependant (other than a debt to which regulation 23(2), (3) or (6) below 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 and of the terms and conditions for payment) if the dependant were in liquidation and—

• (a) in the case of a dependant which is an insurance company, 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 regulation 22 below; and

• (b) in the case of a dependant which is not an insurance company, the amount realised from its assets in the liquidation were equal to the value of those assets, as determined in accordance with regulation 22.

• (4) Any share in a dependant—

• (a) in which there is no excess of assets over liabilities as is mentioned in paragraph (2) above; or

• (b) in relation to which a society cannot reasonably ascertain the amount of the liabilities of the dependant for the purposes of paragraph (2),

shall be left out of account for the purposes for which this Part of these Regulations applies.

• (5) Where a society is unable to determine the value of any debt due or to become due to the society from a dependant because the society 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 (3) above, the debt shall be left out of account for the purposes for which this Part of these Regulations applies.

Valuation of assets and liabilities of dependants for the purposes of regulation 21

22

• (1) This regulation shall apply with respect to the determination of the value of the assets and the amount of the liabilities of a dependant for the purposes of regulation 21 above.

• (2) In the case of a dependant which is an insurance company, whether or not it is a company to which Part II of the 1982 Act applies—

• (a) subject to paragraph (4) below and paragraph 3 of Schedule 4, the value of its assets shall be determined in accordance with Part VIII of the 1994 Regulations;

• (b) subject to subparagraphs (c), (d), (e) and (f) below, the amount of its liabilities shall be determined in accordance with Part IX of the 1994 Regulations;

• (c) where the dependant carries on general business, its general business liabilities shall be deemed to include an amount equal to whichever is the greater of 400,000 ECU or 20 per cent. of the general premium income;

• (d) where the dependant carries on long term business, its long term 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 margin of solvency that would be arrived at by regarding the dependant as having its head office in the United Kingdom (whether it has or not) and applying regulations 18 to 21 of the 1994 Regulations;

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

• (iii) 800,000 ECU;

• (e) for the purposes of subparagraph (d)(ii) above the implicit figure is—

• (i) in the case of a dependant having its head office in the United Kingdom, the amount of any implicit items relating to future profits, zillmerising or hidden reserves which the dependant is permitted to count by virtue of an order under section 68 of the 1982 Act of the kind mentioned in regulation 23(5) of the 1994 Regulations and the application of regulations 23(5), 24, 25 and 26 of those Regulations; and

• (ii) in the case of a dependant having its head office elsewhere than in the United Kingdom, 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 United Kingdom and as having received an order under section 68 of the 1982 Act of the kind mentioned in regulation 23(5) of the 1994 Regulations and the application of regulations 23(5), 24 and 25 of those Regulations accordingly;

• (f) in any case where the dependant is required to establish a long term business fund or funds under section 28 of the 1982 Act, its long term business liabilities shall be deemed to be not less than the value of the assets representing that fund or funds.

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

• (a) the value of its assets shall be determined in accordance with Part VIII of the 1994 Regulations, subject to the provisions of and the modifications provided for in paragraphs 3 and 4 of Schedule 4 to these Regulations;

• (b) subject to paragraph (4) below, 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 the society of which it is a dependant, or any other dependant of that society, shall be valued as a debt for the purposes of Part VIII of the 1994 Regulations.

• (4) Where—

• (a) the dependant is an insurance company and has general business assets of a relevant description, or, is not an insurance company 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 society 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 society 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 the assets referred to in subparagraph (a) above an amount equal to the supplementary amount determined in accordance with Part I of Schedule 4.

• (5) In this regulation and Schedule 4—

• “assets of a relevant description” means assets of a description specified in Part I of Schedule 12 of the 1994 Regulations or, in the case of a dependant which is not an insurance company, assets which would be of such a description if it were an insurance company;

• “permitted limit” means, in relation to assets of a relevant description— in the case of the society, an amount equal to the percentage of the general business amount or, as the case may be, the long term business amount applicable in relation to assets of that description in accordance with regulation 32 below; in the case of a dependant which is an insurance company, an amount equal to the percentage of the general business amount or, as the case may be, the long term business amount applicable in relation to assets of that description in accordance with regulation 57 of the 1994 Regulations as applied pursuant to paragraph (2) above; and in the case of a dependant which is not an insurance company, an amount equal to the percentage specified in Schedule 12 of the 1994 Regulations, with respect to assets of that description, of the liabilities of the dependant, other than liabilities to the society or to any other dependant of the society; and references to assets held by any society being of the same description as assets held by a dependant mean— in relation to land of the dependant of a description specified in paragraph 1 of Schedule 12 of the 1994 Regulations, any interest of that society in that land, in relation to assets of the dependant of a description specified in paragraphs 2 to 17 of Schedule 12 of the 1994 Regulations, assets of the society which, if held by the dependant, would be assets of that description.

• (6) Save as otherwise provided in paragraph 3(5) of Schedule 4, references in this regulation and in Schedule 4 to assets of the society being of a relevant class mean—

• (a) where this regulation and Schedule 4 are being applied for the purpose of determining the value of a long term business asset of the society, assets of the society which are long term business assets, and

• (b) in any other case, assets of the society which are general business assets.

• (7) Where the society cannot reasonably ascertain in accordance with the provisions of this regulation—

• (a) the value of any asset of the dependant; or

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

that asset shall be left out of account in determining the value of the assets of the dependant under this regulation.

Debts and other rights

23

• (1) The value of any secured debt due, or to become due, to a society, other than a debt to which regulation 21(3) above, paragraph (2), (3) or (6) of this regulation applies, shall be the amount which can reasonably be expected to be recovered in respect of that debt (due account being taken of the nature and quality of the security).

• (2) Any debt due, or to become due, to a society under a letter of credit shall be left out of account for the purposes of this Part of these Regulations.

• (3) In the case of long term business carried on by a society, the value of any debt due, or to become due, to the society which is secured on a policy of insurance issued by the society 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) The value of any unsecured debt due, or to become due, to a society, other than a debt to which regulation 21(3) above, paragraph (5) or (6) of this regulation or regulation 28 or 32 applies, shall be—

• (a) in the case of any such 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 society 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 (due account being taken of 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 (due account being taken of the terms and conditions for payment thereof).

• (5) The value of any debt due to, or other rights of, the society under any contract of reinsurance to which the society is a party (other than a debt to which regulation 21(3) above applies) shall be the amount which can reasonably be expected to be recovered in respect of that debt or right.

• (6) Any debt due or to become due to the society—

• (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) which is a debt to which paragraph (7) or (8) below applies,

shall be left out of account for the purposes for which this Part of these Regulations applies.

• (7) This paragraph shall apply to a debt which is a debt owed in respect of premiums (due account being taken of rebates, refunds and commissions payable) which is recorded in the society’s accounting records as due and payable and has been outstanding for more than three months.

• (8) This paragraph shall apply to a debt arising under a contract which, wholly or in part, has the equivalent effect to a derivative contract to which regulation 30(3) does not apply.

• (9) The value of any right of a society to have identical securities transferred to it under a stock lending transaction shall be calculated as if the right was a debt owed to the society in respect of the value of the securities to be transferred to it.

Land

24

• (1) The value of any land of a society (other than land held by the society as security for a debt or to which paragraph (2) of this regulation or regulation 29 below applies) shall 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 society and any such land of which there is no proper valuation shall be left out of account for the purposes for which this Part of these Regulations applies.

• (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

25

• (1) The value of any computer equipment of a society—

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

• (b) in the first financial year thereafter, shall not be 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 Part of these Regulations applies.

• (2) The value of any office machinery (other than computer equipment), furniture, motor vehicles and other equipment of a society, shall be, in the financial year of the society 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 Part of these Regulations applies.

Unlisted securities

26

• (1) This regulation does not apply to the valuation of shares in a dependant of a society.

• (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 paragraph (2) above applies, shall not be 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 regulation, the average amount of the profits of a company for any specified years shall be the amount represented by the formula—

$$P-LY$ 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 no 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 regulation, the proportionate amount attributable to any share of the average amount of any 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 paragraph (3) above 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 years 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 paragraphs (3) to (6) above shall be left out of account for the purposes for which this Part of these Regulations applies if—

• (a) no amount is attributable thereto in accordance with paragraph (3) above;

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

• (c) the value of the share cannot be ascertained in accordance with paragraphs (3) to (6) above 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) above; or

• (d) no amount is realisable in the short term.

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

Unit trusts

27

The value of any holding of units, or other beneficial interest, under an authorised unit trust scheme or a recognised scheme within the meaning of the Financial Services Act 1986[^f00018] shall be the price at which the managers under the scheme would purchase the holding of units or other beneficial interest if required to do so.

Listed Investments

28

• (1) The value of any listed debenture which is not a debenture issued by a dependant of a society, and of any listed share, which is not a share in such a dependant nor a share in any body specified in regulation 31(2) below, shall be the middle market quotation.

• (2) Where the listing of any listed debenture or listed share, the value of which falls to be determined in accordance with this regulation, 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, that 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 the 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 paragraph (2) above, a day which is a Saturday or a Sunday or a bank holiday in any part of the United Kingdom shall be disregarded.

Reversionary interests etc

29

The value of any long term business asset of a society consisting of an interest in property which is a remainder, reversionary interest, right of fee subject to a liferent or other future interest, whether vested or contingent shall be the amount which would reasonably be paid by way of consideration for an immediate transfer or assignment thereof.

Derivative contracts

30

• (1) Subject to paragraph (2) below, the value of rights under a derivative contract to which this regulation applies shall be—

• (a) in the case of a listed derivative contract, 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 contract which the society—

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

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

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

• (2) There shall be deducted from the amount calculated in accordance with paragraph (1) above the amount of any cash or other assets as shall at the relevant date have been paid or transferred to the society in respect of that contract.

• (3) This regulation applies to an approved derivative contract—

• (a) which is held for the purposes of reduction of investment risks or efficient portfolio management, and which—

• (i) is held in connection with assets to which this Part of these Regulations applies for such purposes; or

• (ii) has the equivalent effect to such a contract held in connection with such assets for such purposes; and

• (b) in respect of which, having regard to its assets and liabilities, the society will have, so far as can reasonably be foreseen and (if applicable) in the appropriate fund maintained by it, assets at the settlement date which match its obligations under that contract and from which it will fulfil those obligations.

• (4) In this regulation “approved derivative contract” means a contract entered into by a society to which section 37(2) or (3) of the 1992 Act applies and which is—

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

• (i) an asset for the valuation of which provision is made in this Part of 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 arithmetic average of the value of the assets which comprise the index; or

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

• (b) a futures contract or an option, in each case providing for the acquisition or disposal of assets for the valuation of which provision is made in this Part of these Regulations.

Other assets

31

• (1) The value of any approved securities shall be—

• (a) in the case of listed securities, the middle market quotation;

• (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

32

• (1) The extent to which assets of a society shall be taken into account shall be determined on the basis of the society’s aggregate exposure to such assets.

• (2) Where the aggregate exposure of the society to assets of any one description exceeds the maximum admissible value for assets of that description, there shall be left out of account assets equal in value to the excess comprising—

• (a) assets of that description; and

• (b) where there are insufficient assets of that description held, any other assets.

• (3) In this regulation, “aggregate exposure” means the value of such assets held by the society (if any) adjusted—

• (a) to take account of the value of assets of that description which the society is deemed to have acquired or disposed of by the application of paragraphs (6) to (8) below; and

• (b) to include the value of assets of that description which have been transferred to another party by the society under a stock lending transaction.

• (4) In this regulation, the “maximum admissible value” means—

• (a) for a society carrying on general business, whether or not also carrying on long term business, in the case of general business assets of a description specified in Part I of Schedule 5, an amount equal to the percentage of the general business amount specified in Schedule 5 for assets of that description;

• (b) for a society carrying on only long term business, for all assets of a description specified in Part I of Schedule 5, an amount equal to the percentage of the long term business amount specified in Schedule 5 for assets of that description;

• (c) for a society carrying on general business and long term business, in the case of long term business assets of a description specified in Part I of Schedule 5, an amount equal to the percentage of the long term business amount specified in Schedule 5 for assets of that description;

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

• (5) For the purposes of determining whether, in pursuance of paragraphs 6, 8, 9, 10, 12, 13 and 14 of Schedule 5, assets should be left out of account by reason that the aggregate exposure exceeds the maximum admissible value, account may be taken of any amount which has already been left out of account in respect of assets of any of the descriptions in those paragraphs.

• (6) Where the society is a part to a contract which is (wholly or in part) a futures contract which—

• (a) provides for the acquisition of assets by the society; or

• (b) is listed and provides for the disposal of assets by the society; or

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

for the purposes of calculating its aggregate exposure the society shall be deemed at the relevant date to have acquired or disposed of such assets.

• (7) Where the society is a party to a contract which is (wholly or in part) an option which—

• (a) provides for the acquisition of assets by the society; or

• (b) is listed and provides for the disposal of assets by the society; or

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

and it is prudent at the relevant date to assume that such option will be exercised, for the purposes of calculating its aggregate exposure to such assets, the society shall be deemed to have acquired or disposed of such assets at that date.