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SII Capital Tiers

P

PersistencyRate

Member
Hi folks

I'm having trouble understanding exactly what is meant in the Core Reading in their descriptions of capital tiers.

Free from incentives to redeem
Tier 3: Only redeemable at the option of the insurer or reinsurance undertaking; limited incentives to redeem are permissible.

What is meant exactly by the italicised phrase? How does Tier 3 differ from Tier 1 where the phrase is not present? Can anyone think of an example?


Sufficient duration
... Contractually locked in or replaced at least equivalently on breach of SCR.

What does "Contractually locked in" mean?

I'm working on the basis that these phrases are not superfluous, i.e. the meaning will be different if we were to remove them. And am struggling to figure out what they mean that is not already explained in the respective core reading paragraphs.

Many thanks in advance to anyone who can share comments!

cheers.
 
PersistencyRate said:
limited incentives to redeem are permissible
Click to expand...
undertakings shall consider incentives to redeem in the form of an interest rate step-up associated with a call option as limited where the step-up takes the form of a single increase in the coupon rate and results in an increase in the initial rate that is no greater than the higher of the following amounts:
(a) 100 basis points, less the swap spread between the initial index basis and the stepped-up index basis;
(b) 50 % of the initial credit spread, less the swap spread between the initial index basis and the stepped-up index basis.

PersistencyRate said:
... Contractually locked in or replaced at least equivalently on breach of SCR
Click to expand...
...contractual opportunity to repay or redeem the basic own-fund item(I think they meant that insurer should have contract that it will repay only at redemption date or later( or in lower amount) if the SCR is breached).

Source: Article 73 and 77 of Commission Delegated Regulation 2015/35
 
Many thanks Hemant, for such a detailed response. The references are a great help! I see now that the original rules are far more complicated than what the CR says...
 
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