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(1)An insurance company's solvency loss (if any) for a 12 month period is determined as follows.
(2)Calculate, in the manner set out in subsections (5) to (11)—
(a)whether the total amount of the company's basic own funds at the beginning of the period (“opening BOF”) exceeds the total amount of the company's basic own funds at the end of the period (“closing BOF”), and
(b)if so, the amount by which opening BOF exceeds closing BOF.
(3)The company has a solvency loss for the 12 month period only if an excess of opening BOF over closing BOF is found under subsection (2)(a).
(4)The amount found under subsection (2)(b) is the amount of the solvency loss.
(5)The method of calculation under subsection (2) must fairly represent the method by which the company calculates its solvency capital requirement.
But this is subject to subsections (6) to (10).
(6)Closing BOF is to be calculated on the assumption that the 12 month period mentioned in subsection (1) is a solvency shock period in relation to the company.
(7)The following adjustments are to be made in calculating the company's basic own funds at the beginning and end of the period—
1Find (with respect to each of those times) what that amount would be in the absence of this subsection.
2Find the surplus in respect of each relevant ring-fenced fund of the company (at the time in question).
3Deduct the total of the amounts found under paragraph 2 from the amount found under paragraph 1.
The result is to be taken to be the amount of the company's basic own funds at the beginning, or (as the case may be) the end, of the period.
(8)The surplus in respect of a relevant ring-fenced fund (at any time) is equal to—
(a)the amount of basic own funds attributable to policyholders, or
(b)zero, if greater.
(9)For any relevant ring-fenced fund, the amount of basic own funds attributable to policyholders (at any time) is equal to—
where—
A is the amount of basic own funds within the relevant ring-fenced fund;
B is the total of any items in the fund that fall within subsection (10).
(10)The items are—
(a)the value of future transfers attributable to shareholders;
(b)any restricted own-fund item in relation to which the company's with-profits actuary provides a written opinion confirming that the condition in subsection (4) of section 269ZN is met.
(11)In subsection (5) the reference to the “method” of a calculation is to the—
(a)taking into account, and
(b)leaving out of account,
of variations in items of basic own funds for the purposes of the calculation.
(12)If the company is a third-country insurance undertaking, subsections (1) to (11) have effect in relation to it as if it were an insurance undertaking.]
Textual Amendments
F1Pt. 7ZA inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 16
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