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LLD 19.3 Capital resources

Application of PRU 2.2

LLD 19.3.1R

Subject to LLD 19.3.3 R, LLD 19.3.4 R and LLD 19.3.6 R, PRU 2.2 applies to managing agents and to the Society in accordance with:

  1. (1)

    for managing agents, LLD 16.3.3 R; and

  2. (2)

    for the Society, LLD 16.3.1 R.

LLD 19.3.2G

PRU 2.1 sets out minimum capital resources requirements for a firm and for Lloyd's members. PRU 2.2 sets out how, for the purpose of these requirements, capital resources are defined and measured. PRU 2.2 applies:

  1. (1)

    to managing agents for their calculation of the capital resources managed by them in respect of each syndicate they manage (by reference, where there is a change in the underlying capital provision, to each open syndicate year); and

  2. (2)

    to the Society for its calculation of:

    1. (a)

      each member's capital resources; and

    2. (b)

      its own capital resources.

LLD 19.3.3R

PRU 2.2.15 G to PRU 2.2.26 R (Limits on the use of different forms of capital) do not apply to managing agents.

LLD 19.3.4R

PRU 2.2.15 G to PRU 2.2.26 R (Limits on the use of different forms of capital) apply to the Society with respect to:

  1. (1)

    the capital resources requirements for the members in aggregate; and

  2. (2)

    the aggregate capital resources supporting the insurance business of all the members.

LLD 19.3.5R

PRU 2.2.72 R does not apply to the Society or to managing agents.

LLD 19.3.6R

In this Chapter LLD 19, "the aggregate capital resources supporting the insurance business of all the members" are:

  1. (1)

    the aggregate of all the members' capital resources calculated under LLD 19.3.10 R; and

  2. (2)

    the Society's capital resources excluding callable contributions.

Calculation of capital resources

LLD 19.3.7R

Table PRU 2.2.14 R applies with the modifications that:

  1. (1)

    (A) CORE TIER ONE CAPITAL includes Lloyd's members' contributions in accordance with LLD 19.3.19 R, subject, in the case of letters of credit, guarantees and verifiable sums arising out of life assurance policies, to compliance with LLD 18.3.3 G to LLD 18.3.9 G; and

  2. (2)

    the Society may also recognise and value callable contributions, pursuant to LLD 19.3.9 R.

LLD 19.3.8G

Lloyd's member's contributions are admissible assets under LLD 19.3.19 R and include letters of credit, guarantees and verifiable sums arising out of life assurance policies held as funds at Lloyd's. Assets that may be valued as part of capital resources under PRU are not necessarily, however, permitted investments for members under the terms of any Lloyd's trust deed.

LLD 19.3.9R

In calculating its capital resources, the Society may, subject to LLD 18.3.10 G to LLD 18.3.12 R, recognise and value callable contributions.

LLD 19.3.10R

The Society must calculate each member's capital resources as the sum of:

  1. (1)

    a member's proportionate share of the capital resources held at syndicate level for each syndicate in which the member participates; and

  2. (2)

    the value of a member's funds at Lloyd's after deducting liabilities in compliance with LLD 18.3.17 R.

LLD 19.3.11R

In order to comply with PRU 2.1.9 R the Society must ensure at all times that:

  1. (1)

    each member's capital resources requirement is covered by:

    1. (a)

      that member's capital resources, calculated according to LLD 19.3.10 R; and

    2. (b)

      to the extent that (a) is insufficient, by the Society's own capital resources; and

  2. (2)

    the Society GICR is covered by the aggregate capital resources supporting the insurance business of all the members.

LLD 19.3.12R

For the purposes of LLD 19.3.11R (1)(b), the Society must maintain at all times capital resources sufficient to meet the aggregate of, for each member, the amount, if any, by which the member's capital resources fall short of the member's capital resources requirement.

LLD 19.3.13R

The Society must calculate each member's share of the amount of capital resources required to comply with PRU 2.2.17 R as the higher of:

  1. (1)

    1/3 of the long-term insurance capital requirement for the members in aggregate; and

  2. (2)

    the base capital resources requirement;

allocated between the members in proportion to the result for each member of LLD 19.2.7R (2).

LLD 19.3.14R

For the purposes of PRU 2.2.18 R, the Society must ensure that the aggregate capital resources supporting the insurance business of all the members meet the higher of:

  1. (1)

    1/3 of the general insurance capital requirement for the members in aggregate; and

  2. (2)

    1/3 of the Society GICR; and

  3. (3)

    the base capital resources requirement;

with the sum of the items listed in PRU 2.2.18 R.

LLD 19.3.15R

The Society must calculate each member's share of the amount of capital resources required to comply with PRU 2.2.18 R as the higher of:

  1. (1)

    1/3 of the general insurance capital requirement for the members in aggregate; and

  2. (2)

    1/3 of the Society GICR; and

  3. (3)

    the base capital resources requirement;

allocated between the members in proportion to the result for each member of LLD 19.2.11 R.

Characteristics of tier one capital

LLD 19.3.16R

A Lloyd's member's contribution may be included in tier one capital resources to the extent that:

  1. (1)

    the proceeds are immediately and fully available in respect of the member's insurance business at Lloyd's;

  2. (2)

    (except in relation to letters of credit), it complies with PRU 2.2.29 R (3) or cannot be repaid to a member until all of the member's liabilities in respect of its insurance business at Lloyd's have been extinguished, covered or reinsured by an approved reinsurance to close;

  3. (3)

    it otherwise complies with PRU 2.2.29 R (5) to PRU 2.2.29 R (8).

Adjustments for related undertakings

LLD 19.3.17R

PRU 2.2.90 R applies to the Society with the modification that the Society must also value its insurance undertakings in accordance with PRU 2.2.90 R.

LLD 19.3.18R

If a related undertaking is an insurance undertaking which has a deficit in the capital resources available to cover its capital resources requirement, the Society must make provision for:

  1. (1)

    its proportionate share of that deficit; or

  2. (2)

    in the case of a subsidiary undertaking, the whole of that deficit.

Modification of Annex 1R for Lloyd's

LLD 19.3.19R

In the case of members, Lloyd's members' contributions are included in PRU 2 Annex 1R and include:

  1. (1)

    letters of credit;

  2. (2)

    guarantees; and

  3. (3)

    verifiable sums arising out of life assurance policies;

held as funds at Lloyd's.

LLD 19.3.20G

The effect of LLD 19.3.19 R is that Lloyd's members' contributions, including letters of credit, guarantees and life assurance policies, are admissible assets.