• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

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.
 
limited incentives to redeem are permissible
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.

... Contractually locked in or replaced at least equivalently on breach of SCR
...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...
 
Back
Top