Chapter 15 page 26, first paragraph. I don't think this is worded very well. At first I thought it meant own funds = Assets - (TP + Subordinated liabilities) ... But I'm pretty sure it means own funds = (Assets - TP) + Subordinated liabilities
Hi Elroy I actually think your first interpretation is the 'correct' one. Essentially, on the solvency ii basis, insurers would expect to pay their subordinated liabilities and so should reduce their own funds by this amount. Your second interpretation implicitly doesn't recognise a need for the insurer to repay the subordinated liabilities (akin to peak 1 of the current regime), which many may say is unrealistic.
Article 87 of the Solvency II Directive states: "Basic own funds Basic own funds shall consist of the following items: (1) the excess of assets over liabilities, valued in accordance with Article 74 and Section 2; (2) subordinated liabilities. The excess amount referred to in point (1) shall be reduced by the amount of own shares held by the insurance or reinsurance undertaking." I'm sorry this ambiguity in the Core Reading isn't cleared up in our Notes. It's worth noting that there are fairly strict criteria to be satisfied before inclusion under (2) above is allowed.
