PIN A3.5 PIN A3.5 Hybrid capital adjustment
Guidance1. This section acts to limit hybrid capital to 15% of an Insurer's adjusted equity.2. The purpose of the hybrid capital adjustment is to limit the extent to which an Insurer may rely for its Adjusted Capital Resources on instruments that do not or may not constitute permanent capital of the Insurer. Such instruments include share capital contributed by a Holding Company, where the Holding Company's investment is financed by debt rather than by its own capital.
Hybrid capital includes the following items:(a) subordinated debt;(b) preference shares;(c) Owners' Equity in a Takaful Insurer, of the type described in Rule A3.3.3; and(d) ordinary shares issued by an Insurer to a Holding Company whose own paid-up ordinary share capital, taken together with its general reserves, is lower than that of the Insurer.
Subject to Rule A3.5.3, an Insurer must calculate its hybrid capital adjustment as the amount by which the total amount of hybrid capital exceeds 15% of adjusted equity.
The Regulator may at its discretion and on the application of an Insurer, permit that Insurer to apply Rule A3.5.2 as though the figure of 15% was replaced with a higher figure approved in writing by the Regulator. The approved figure may not be more than the actual percentage which the hybrid capital represents of adjusted equity, and may not in any case exceed 30%.