Subordinated guarantees and the quality of capital for insurers

Consultation Paper 9/14
Published on 30 May 2014

Background

This consultation seeks views on a draft supervisory statement which sets out the PRA’s expectations of PRA-authorised insurers (firms) in relation to:

  • the use of subordinated guarantees in connection with capital instruments issued by a company, whereby the payment of coupons and repayment of principal are guaranteed by a firm (the guarantor); 
  • how subordinated guarantees should not undermine the quality of capital held by firms to meet capital requirements (this expectation applies regardless of both the motivation for using a subordinated guarantee and the structure in which a guarantee is used); and
  • how the guarantor’s regulatory capital position should be reported if the liability created by the guarantee serves to undermine the guarantor’s quality of capital.

The draft supervisory statement is intended to apply to all firms and may also be relevant to insurance holding companies and other entities in the same group, together with their advisors. The statement also looks ahead to Solvency II (SII), and is aimed at firms and groups within the scope of the Directive. It is intended to be equally relevant for life insurers, general insurers and mutuals.

The consultation closed on Friday 11 July 2014.

PDFConsultation Paper 9/14

 
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