Friendly Societies (Insurance Business) Regulations 1994

Publication Date:January 01, 1994
 
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1994No. 1981

FRIENDLY SOCIETIES

The Friendly Societies (Insurance Business) Regulations 1994

20thJuly1994

1stAugust1994

1stSeptember1994

ARRANGEMENT OF REGULATIONS

PART I PRELIMINARY

Regulation

1. Citation and commencement

2. Interpretation: general

PART II MARGINS OF SOLVENCY

3. Application: Part II

4. Required margin of solvency

5. Guarantee fund and minimum guarantee fund

6. Minimum guarantee fund: long term business

7. Minimum guarantee fund: general business

8. Valuation of solvency margins

9. Implicit items: future surpluses

10. Implicit items: zillmerising

11. Implicit items: hidden reserves

PART III MATCHING AND LOCALISATION

12. Application: Part III

13. Matching: general requirement

14. Matching: property linked benefits

15. Matching: currency of general business liabilities

16. Matching: exception for certain liabilities

17. Localisation

18. Exclusions from regulations 13 to 17

PART IV VALUATION OF ASSETS

19. Interpretation: Part IV

20. Application: Part IV

21. Shares in and debts due or to become due from dependants

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

23. Debts and other rights

24. Land

25. Equipment

26. Unlisted securities

27. Unit trusts

28. Listed investments

29. Reversionary interests etc.

30. Derivative contracts

31. Other assets

32. Assets to be taken into account only to a specified extent

PART V DETERMINATION OF LIABILITIES

33. Interpretation: Part V

34. Application: Part V

35. Long term and general business

36. Provision for adverse changes

37. General business liabilities

38. Method of calculation

39. Long term liabilities

40. Avoidance of future valuation strain

41. Valuation of future premiums

42. Acquisition expenses

43. Rates of interest

44. Rates of mortality and disability

45. Expenses

46. Options

47. Contracts not to be treated as assets

48. No credit for profits from voluntary discontinuance

49. Nature and term of assets

PART VI CONDUCT OF LONG TERM BUSINESS

50. Application: Part VI

51. Linked long term contracts

52. Statutory notice: long term business

PART VII STATISTICAL INFORMATION

53. Interpretation: Part VII

54. Application: Part VII

55. Insurance statistics: EFTA States

56. Insurance statistics: member States

57. Regulations 55 and 56: supplementary provisions

58. Notification of non-provision of insurance or non-carrying on of business

59. Default in complying with regulations 55 to 58

PART VIII MISCELLANEOUS

60. Annual actuarial investigation: prescribed societies

61. Annual investigations: signature of copy of abstract

62. Transitional provision

63. Revocations

Schedule 1-

Long term business margin of solvency

Schedule 2-

General business solvency margin: first method of calculation (premium basis)

Schedule 3-

General business solvency margin: second method of calculation (claims basis)

Schedule 4-

Value of dependants

Schedule 5-

Assets to be taken into account only to a specified extent

Schedule 6-

Permitted links

Schedule 7-

Statutory notice

Schedule 8-

Notice of cancellation

The Friendly Societies Commission, being a Department designated for the purposes of section 2(2) of the European Communities Act 1972 ( a)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 ( b), 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 ( c) 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 ( d);

"the 1992 Act" means the Friendly Societies Act 1992;

"the 1987 Regulations" means the Friendly Societies (Long Term Insurance Business) Regulations 1987 ( e);

"the 1994 Regulations" means the Insurance Companies Regulations 1994 ( f);

"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;

(a) 1972 c.68.

(b) The European Communities (Designation) (No. 5) Order 1992 (S.I 1992/3197).

(c) 1992 c. 40; section 119(1) contains a definition of "the Commission".

(d) 1982 c. 50.

(e) S.I. 1987/2132.

(f) S.I. 1994/1516.

"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;

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...

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