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Ancillary own funds

Approval of ancillary own funds (AOF)

Overview of the measure

As well as basic own funds, institutions may recognise ancillary own funds (AOF) when determining their prudential own funds.

The amounts (monetary amounts or calculation method) of the items of ancillary own funds that may be taken into account must be submitted to the ACPR for prior approval.

Regulatory references

Rules governing the recognition of ancillary own funds are laid down in Articles L.351-6, R.351-19 and R.351-20 of the Insurance Code, applicable to institutions covered by each of the three codes, which transpose Articles 89 and 90 of Directive 2009/138/EC, known as “Solvency II”. These provisions are detailed in Articles 62 and following of Delegated Regulation (EU) 2015/35, known as “Level 2”.

The content of the application and the various stages in the approval procedure are laid down in Implementing Regulation (EU) 2015/499 defining Implementing Technical Standards (ITS) regarding the procedures to be used by supervisory authorities to approve the use of items of ancillary own funds.

The eligibility of ancillary own funds within a group is governed by Article R.356-12 of the Insurance Code, applicable to groups covered by each of the three codes, supplemented by Article 330 of the Delegated Regulation.

Content of the application

A full list of documents to be submitted is laid down in the aforementioned implementing regulation. In summary, the application must include the following for each item of ancillary own funds submitted for approval:

  • an overview letter covering the items listed in Article 2 of the Implementing Technical Standard on ancillary own funds, including in particular the following:
    • contractual or legal provisions governing the item of ancillary own funds covered by the application
    • the amount of the item of ancillary own funds covered by the application
    • the economic substance of the item of ancillary own funds, and in particular how the instrument in question increases basic own funds when called
  • documentation justifying the amount of the application or explaining the method used to determine the amount of the item of ancillary own funds, covering the items listed in Article 3 of the Implementing Technical Standard on ancillary own funds, including in particular the following:
    • for applications for approval of a given amount, an explanation of how that amount is calculated
    • for applications for approval of a method of estimation, an explanation of the method, the associated assumptions and the internal sign-off process
  • documentation evidencing compliance with the criteria concerning the classification of the item of ancillary own funds in question, covering the items listed in Article 4 of the Implementing Technical Standard on ancillary own funds, including in particular the following:
    • a demonstration of the loss-absorbing capacity of the item of ancillary own funds in question
    • a demonstration of the institution’s ability to recover the item of ancillary own funds if need be
    • information on past calls on the item of ancillary own funds in question
    N.B. Where an institution requests approval to recognise an item of ancillary own funds which, when called, takes the form of an unlisted item, it must also request authorisation for the admission and classification of unlisted own funds.

Procedure

Applications should be sent by post to the following address, as well as by e-mail to the inspection team responsible for the group:

Secrétariat général de l’Autorité de contrôle prudentiel et de résolution
Brigade de contrôle des organismes d’assurance
61, rue Taitbout
75436 Paris Cedex 09

The ACPR will reach its authorisation decision within a maximum of three months from receipt of the completed application, apart from in exceptional circumstances, when this period may be extended to six months.

Consequences for the group

Ancillary own funds recognised for an institution that is a member of a group are presumed not to be effectively available for the group. As such, they may only be taken into account when calculating the group’s solvency up to the amount of the contribution made by the institution in question to the group’s solvency capital requirement.

Subject to ACPR approval, the group may take into account a larger proportion of ancillary own funds in its solvency calculation if it can demonstrate how those funds can effectively be made available for the group.

Validity of authorisations

Following approval, institutions must immediately notify the ACPR in writing of any change in the items making up the initial application and any factor that could affect the measurement or classification of the ancillary own funds in question.

If the change(s) in question is (are) considered material by the ACPR, a new application will need to be submitted.

Last update 02/10/2015

Updated on: 07/13/2017 16:38