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  • Tier 2 Capital

    • CA-1.2.12

      Tier 2 capital includes the following liabilities of an insurance firm, to the extent permissible by Paragraph CA-1.2.7:

      (a) Interim net income, excluding 55% of any unrealised fair value gains arising from investments held to maturity as per IAS 39, reviewed by the external auditors in accordance with International Standards on Auditing (ISA);
      (b) Perpetual cumulative preference shares;
      (c) Mandatory convertible notes and similar capital instruments;
      (d) Perpetual subordinated debt;
      (e) Any other hybrid (debt/equity) capital instruments of a permanent nature;
      (f) Dated subordinated debt with an original term of at least 5 years;
      (g) Limited life redeemable preference shares with an original term of at least 5 years;
      (h) Any other similar limited life capital instruments with an original term of at least 5 years; and
      (i) Investment fair value reserve (IAS 39) on investments held available for sale, discounted to 45%.
      Amended: January 2007

    • CA-1.2.13

      Tier 2 capital includes forms of capital that do not meet the requirements for permanency and absence of fixed servicing costs that apply to Tier 1 capital. Tier 2 capital resources are split into upper and lower tiers, based on the permanency of the instruments. For example:

      (a) Capital which is perpetual (that is, has no fixed term) but cumulative (that is, servicing costs cannot be waived at the issuer's option, although they may be deferred — for example cumulative preference shares) may be included in upper Tier 2 capital; and
      (b) Capital which is dated, i.e. not perpetual (that is, it has a fixed term) and which may also have fixed servicing costs that cannot generally be either waived or deferred, such as subordinated debt, are included in lower Tier 2 capital. Such capital should normally be of a medium to long-term maturity (that is, an original maturity of at least five years).
      Amended: January 2007

    • CA-1.2.14

      Lower Tier 2 capital instruments (ref CA-1.2.12 (f) to (h)), must have a minimum fixed term to maturity in excess of 5 years. During the last 5 years to maturity, a cumulative discount (or amortisation) factor of 20% per year must be applied to reflect the diminishing value of these instruments as a continuing source of strength.

      Amended: January 2007