The Friendly Societies (Insurance Business) (Amendment) Regulations 1996

• wholly by the society; or wholly or to any extent by another person being a person for whose acts and omissions in managing the fund the society assumes responsibility towards the policyholder as if they were the acts or omissions of the society, and otherwise (if at all) by the society.

PART II — INDICES BY REFERENCE TO WHICH BENEFITS MAY BE DETERMINED

12

An approved index.

PART III — INTERPRETATION

13

Unless the context otherwise requires, words or expressions contained in this Schedule bear the same meaning as in Part IV of these Regulations.

14

For the purposes of this Schedule, “approved index” means either—

• an index which is— calculated independently; published at least once every week; based on constituents, each of which is property falling within paragraphs 1 to 8 or 10 above; and calculated on a basis which is made available to the public and which includes both the rules for including and excluding constituents and the rules for valuation which must use an arithmetic average of the value of the constituents; or a national index of retail prices published by or under the authority of a government of a State belonging to Zone A as defined in Council Directive 89/647/EEC of 18th December 1989 on a solvency ratio for credit institutions; or an index which is— based on constituents, each of which is property falling within paragraphs 1 to 8 or 10 above; and in respect of which a derivative contract is listed.

15

• (1) For the purposes of this Schedule, “permitted derivative contract” means a derivative contract which—

• (a) is covered and—

• (i) is held in connection with property of the type described in paragraph 15(2) below for the purposes of reduction of investment risks or efficient portfolio management; or

• (ii) has the effect of a permitted derivative contract held in connection with such property for such purposes; and

• (b) satisfies the conditions in regulation 30(6) to (8) above except that for this purpose the references in regulation 30 to “an asset for the valuation of which provision is made in this Part of these Regulations” shall be construed as a reference to permitted connected property.

• (2) The property described in this paragraph is either—

• (a) permitted connected property, not being a contract or asset having the effect of a derivative contract; or

• (b) a permitted derivative contract or a contract or asset having the effect of a permitted derivative contract either of which when taken together with the permitted derivative contract mentioned first in paragraph 15(1) above has the effect that the society holds either permitted connected property or a permitted derivative contract in connection with such property.

• (3) For the purposes of this paragraph—

• (a) a derivative contract shall be deemed to be covered if it would not require a significant provision (within the meaning of regulation 30(4)) to be made in respect of it pursuant to regulation 36 of these Regulations if it were a derivative contract to which Part IV of these Regulations applied; and

• (b) “permitted connected property” means property of any of the descriptions in paragraphs 1 to 8 or 10 above and which is not property falling within paragraph 17(a) to (d) below.

16

In this Schedule—

• “collective investment fund” includes a collective investment scheme; and

• “readily realisable”, in respect of an investment, has the meaning set out in paragraph 2 of Schedule 5 to these Regulations.

PART IV — RESTRICTIONS ON DETERMINATION OF BENEFITS BY REFERENCE TO PROPERTY DESCRIBED IN PART I

17

Benefits payable under any contract to which regulation 51 applies shall not be determined by reference to—

• property of any of the descriptions specified in paragraphs 2, 5(b) and 7 above if the value of such property is determined, either wholly or partly, by reference to the value of, the income from, fluctuations in the value of or fluctuations in the income from, property other than property of the descriptions in Part I of this Schedule; property of the description specified in paragraph 2 above in excess of 10 per cent. of the aggregate property linked benefits under the contract; property of the description specified in paragraph 5(b) above which in aggregate value exceeds 10 per cent. of the property linked benefits, unless the contract under which the benefits are payable has been marketed in accordance with any legal restrictions which apply to the marketing of the corresponding collective investment fund; or property of any of the descriptions specified in Part I of this Schedule which has the effect of a derivative contract other than a permitted derivative contract.

Signed

In witness whereof the common seal of the Friendly Societies Commission is hereunto fixed, and is authenticated by me, a person authorised under paragraph 13 of Schedule 1 to the Friendly Societies Act 1992 on 2nd December 1996.

Michael Cook — Secretary to the Commission

We consent to regulations 1, 4–22 and 25–28.

Bowen Wells — Roger Knapman — Two of the Lords Commissioners of Her Majesty’s Treasury — 6 December 1996

Explanatory note

(This note is not part of the Regulations)

These Regulations make amendments to Parts II to VII of the Friendly Societies (Insurance Business) Regulations 1994. They principally concern the valuation of assets and the determination of liabilities of societies for the purposes of the Friendly Societies Act 1992. They also amend Schedule 2 to the 1994 Regulations, concerning the determination of the required margin of solvency in respect of general business (regulation 25), regulation 51 of those Regulations, concerning the methods by which benefits payable to policyholders under linked long-term contracts of insurance may be determined (regulations 22 and 27), and regulations 53 and 56, concerning insurance statistics (regulations 23 and 24).

Regulations 2 and 3 further implement the Agreement on the European Economic Area signed at Oporto on 2nd May 1992 (O.J. No. L1, 3.1.94, p. 3) as adjusted by the Protocol signed at Brussels on 17th March 1993 (O.J. No. L1, 3.1.94, p. 572) by substituting for references to the “European Community” in regulations 17 and 18 (governing localisation of assets and exclusions from the matching and localisation rules) references to the European Economic Area.

Regulations 4 and 5 update the provisions for interpretation of Part IV, largely as a consequence of the changes to that Part.

Regulation 6 makes drafting changes to regulation 20 and new provision concerning the treatment under Part IV of contracts for the conversion of currency.

Regulation 8 introduces a new regulation 22A dealing with the valuation of certain sale and repurchase transactions.

Regulation 9 substitutes a new regulation 23, concerning the valuation of debts and other rights owed to a society. The main change is the introduction of provision for the treatment of “initial margin”.

Regulation 10 substitutes a new regulation 26 for the valuation of securities and beneficial interests in limited partnerships.

Regulation 11 substitutes a new regulation 27 for the valuation of beneficial interests in collective investment schemes.

Regulation 12 substitutes a new regulation 28 for the valuation of deferred acquisition costs.

Regulation 13 substitutes a new regulation 30 dealing with the valuation of derivative contracts.

Regulation 14 substitutes a new regulation 31 dealing with contracts and assets having the effect of derivative contracts.

Regulation 15 substitutes a new regulation 32 dealing with the extent to which certain assets can be taken into account for the purposes of valuation.

Regulations 16 and 18 make minor changes to regulations 33 and 37 concerning the treatment of general business liabilities.

Regulation 17 substitutes a new regulation 36 making provision for adverse changes.

Regulations 23 and 24 further implement the Third Life Directive (Council Directive 92/96/EEC on the co-ordination of laws, regulations and administrative provisions relating to direct life assurance and amending Directives 79/267/EEC and 90/619/EEC (O.J. No. L360, 9.12.92, p. 1)) and the Third Non-Life Directive (Council Directive 92/49/EEC on the co-ordination of laws, regulations and administrative provisions relating to direct insurance other than life insurance and amending Directives 73/239/EEC and 88/357/EEC (O.J. No. L228, 11.8.92, p. 1)) so as to require societies to produce statements of commissions and gross claims (in addition to gross premiums).

Regulation 26 substitutes a revised Schedule 5 which makes provision for the calculations required by regulation 32.

Regulation 27 substitutes a revised Schedule 6 concerning the property and values which may be used for the determination of policyholder benefits under linked long-term contracts.

Regulation 28 makes transitional provision preventing the amendments made by the Regulations to regulation 51 (linked long term contracts) from applying to contracts entered into before the commencement of the Regulations.

Compliance Costs Compliance Cost Assessments were prepared in respect of the Friendly Societies Act 1992 (Amendment) Regulations 1994, the Friendly Societies (Insurance Business) Regulations 1994 and the Friendly Societies (Accounts and Related Provisions) Regulations 1994 and copies are available from the Secretary, Friendly Societies Commission, 15 Great Marlborough Street, London W1V 2LL. These assessments concluded that the cost impact of the Regulations was broadly neutral. These Regulations will not impose any new burden on business, and a further Compliance Cost Assessment has not been prepared.

Footnotes

[^f00001]: 1972 c. 68.

[^f00002]: The European Communities (Designation) (No. 5) Order 1992 (S.I. 1992/3197).

[^f00003]: 1992 c. 40. The Act was amended by the Friendly Societies (Amendment) Regulations 1993 (S.I. 1993/2519), the Friendly Societies Act 1992 (Amendment) Regulations 1994 (S.I. 1994/1984), the Deregulation (Friendly Societies Act 1992) Order 1996 (S.I. 1996/1188) and by the Financial Institutions (Prudential Supervision) Regulations 1996 (S.I. 1996/1669).

[^f00004]: S.I. 1994/1981.

[^f00005]: 1986 c. 60; section 75 was amended by article 6 of the Financial Services Act 1986 (Restriction of Scope of Act and Meaning of Collective Investment Scheme) Order 1990 (S.I. 1990/349) and paragraph 22 of Schedule 7 to the Investment Services Regulations 1995 (S.I. 1995/3275).

[^f00006]: S.I. 1994/1983.

[^f00007]: 1971 c. 80.

[^f00008]: O.J. No. L375, 31.12.85, p.3. The Directive was amended by Directive 88/220/EEC (O.J. No. L100, 19.4.88, p.31) and Directive 95/26/EC (O.J. No. L168, 18.7.95, p.7).

[^f00009]: O.J. No. L386, 30.12.89, p.14.

[^f00010]: These definitions were amended by section 30 of, and Schedule 2 to, the Companies Consolidation (Consequential Provisions) Act 1985 (1985 c. 9) and article 23 of, and Part II of Schedule 1 to, the Companies Consolidation (Consequential Provisions) (Northern Ireland) Order 1986 (S.I. 1986/1035).

[^f00011]: 1985 c. 6; section 262 was inserted by section 22 of the Companies Act 1989 (c. 40).

[^f00012]: Section 31(5) was amended by regulation 5 of the Insurance Companies (Amendment) Regulations 1994 (S.I. 1994/3132).