Instructions for completion of Form 3

1. An insurer (other than a Swiss general insurer or an EEA-deposit insurer) must complete Form 3 in respect of its entire business. An external insurer (other than a non-EEA insurer whose insurance business in the United Kingdom is restricted to reinsurance or an insurer whose head office is in any EEA State except the United Kingdom whose insurance business in the EEA is restricted to reinsurance), an EEA-deposit insurer or a Swiss general insurer must complete Form 10 in respect of business carried on through a branch in the United Kingdom. An UK-deposit insurer must complete Form 10 in respect of business carried on through its branches in EEA States taken together.

2. An insurer that is carrying on long-term insurance business, other than a mutual not carrying on general insurance business, that includes within its capital resources any capital instruments issued by its long-term insurance fund, must include a supplementary note (code 0302) analysing those instruments.

3. In the case of a marine mutual completing an abbreviated return under rule 9.36A, units must be the same as those used in Form M1. If units are in US$ or US$000, then the bases of conversion used in determining the base capital resources requirement must be those used in Forms 11 and 12.

4. Amounts in columns 1 and 2 refer to capital supporting the general insurance business and the long-term insurance business respectively. For a firm carrying on only general insurance business column 2 should be blank. For a firm carrying on only long-term insurance business column 1 should be blank. All items relating to the long-term insurance fund should be included in column 2. For a composite firm capital items arising outside the long-term insurance fund should be allocated between general insurance business and long-term insurance business in a manner consistent with the firm's view of what business that capital supports. Where there is a material change in way capital items are allocated from one year to the next, the firm should explain the change in a supplementary note (code 0303).

5. Column 3 is the sum of columns 1 and 2.

6. For financial years commencing on or before 31 December 2004 column 4 must be blank.

7. Amounts at lines 11-13 should be taken from the firm's stand-alone accounts prepared under the Companies Act 1985 or 2006, as appropriate, (for firms not preparing accounts under the Companies Act legislation) equivalent overseas legislation or the applicable UK legislation.

8. The entry at line 15.2 must be the FFA taken from the firm's stand-alone accounts prepared under the Companies Act 1985 or 2006, as appropriate, (for firms not preparing accounts under the Companies Act legislation) equivalent overseas legislation or the applicable United Kingdom legislation. The entry at line 15 column 1 must be blank.

9. GENPRU 2.2.105R and 2.2.106G explain how to calculate the valuation differences for inclusion at line 14 or 35. Inadmissible assets or assets in excess of market risk and counterparty limits are not be included in the valuation differences. Net valuation differences are shown at line 14 if positive or in line 35 if negative. The firm must state in a supplementary note (code 0310) to this form -

(a) The amount of positive valuation differences included within line 14 or 35 in respect of assets where valuation in GENPRU and INSPRU exceeds the valuation that the firm uses for external financial reporting purposes, together with a brief explanation indicating the nature of those assets;

(b) The amount of positive valuation differences included within line 14 or 35 in respect of liabilities where valuation in GENPRU and INSPRU is lower than the valuation that the firm uses for external financial reporting purposes, together with a brief explanation indicating the nature of those liabilities;

(c) The amount of negative valuation included within line 14 or 35 in respect of assets where valuation in GENPRU and INSPRU is lower than the valuation that the firm uses for external financial reporting purposes (excluding inadmissible assets and assets in excess of market risk and counterparty limits), together with a brief explanation indicating the nature of those assets; and

(d) The amount of negative valuation included within line 14 or 35 in respect of liabilities where valuation in GENPRU and INSPRU exceeds the valuation that the firm uses for external financial reporting purposes (excluding amounts deducted from technical provisions for discounting shown at line 34), together with a brief explanation indicating the nature of those liabilities.

The amount in (a) plus the amount in (b) less the amount in (c) less the amount in (d) should equal the amount shown at line 14 if positive or at line 35 if negative."

Instructions 10-32 only apply to firms that do not meet the conditions specified in GENPRU 2.1.9R(2), i.e. that are not required to perform an adjusted solo calculation under INSPRU 6.1.

10. The entries at line 16 must be nil.

11. Amounts may only appear in lines 21 and 22 if the PRA has issued a waiver permitting these amounts to count as tier one capital (tier one waivers). These amounts are restricted by GENPRU 2.2.29R (1), so that amounts in line 24 may not be greater than the sum of the corresponding amounts in lines 19 and 37. If the PRA has issued a waiver permitting amounts to count as tier two capital (tier two waivers), these are to be included at line 41, together with any amounts that arise from the restriction at GENPRU 2.2.29R(1).

12. The entries at line 23 must be nil.

13. The entries at lines 25 and 27 must be restricted to comply with GENPRU 2.2.29R and 2.2.30R, so that the total of the amounts in lines 24, 25 and 27 is not greater than the total amount in line 19 plus line 37, and the amount in line 27 is not greater than 15/85 of the total of the amounts in lines 19, 24 and 25 minus line 37. Amounts in excess of the limits are entered at lines 42 and 43 respectively.

14. The entries at lines 26 and 28 must be nil.

15. The entries at line 32 for investments in own shares should, in the majority of cases, be zero.

16. For the purpose of completing line 33, the firm should refer to GENPRU 2.2.155R and GENPRU 2.2.156G.

17. The amounts in line 34 must be calculated in accordance with GENPRU 2.2.107R(1) and GENPRU 2.2.107R(2).

18. The entries at line 36 must be nil.

19.The entries at lines 45 and 46 for perpetual cumulative preference shares, subordinated debt and securities must be the total, unrestricted, amounts that the firm can include in upper tier two capital in accordance with GENPRU 2.2.159R to 2.2.174R, GENPRU 2.2.177R to 2.2.181R and GENPRU 2.2.270R to 2.2.271R.

20. The entries at line 47 must be nil.

21. The types of capital instrument that a firm can include within its lower tier two capital are set out at GENPRU 2.2.159R to 2.2.174R, GENPRU 2.2.194R to 2.2.196R and GENPRU 2.2.270R to 2.2.271R. These should be split between fixed term preference shares and other tier two instruments and entered at lines 51 and 52 respectively.

22. The entries at line 53 must be nil.

23. The effect of the restrictions at GENPRU 2.2.37R applying to tier two capital are shown at lines 62 and 63. Line 62 relates to tier two capital as a whole and equals the excess (if any) of line 61 over line 39. Line 63 relates to lower tier two capital and equals the excess (if any) of line 59 over the sum of line 62 and 1/2 line 39.

24. Line 71 must show positive adjustments for related undertakings that are regulated related undertakings (other than insurance undertakings) required by GENPRU 2.2.256R.

25. Line 73 must show the deductions for assets that are not admissible assets required by GENPRU 2.2.251R.

26. Line 74 must show the assets in excess of market risk and counterparty limits in INSPRU 2.1.22R.

27. Line 75 must show negative adjustments for related undertakings that are ancillary services undertakings required by GENPRU 2.2.255R.

28. Line 76 must show negative adjustments for related undertakings that are regulated related undertakings (other than insurance undertakings) required by GENPRU 2.2.256R.

29. The entries at line 77 must be nil.

30. The entry at line 81 is determined as the amount of the firm's capital resources available to meet its guarantee fund requirement, having regard to GENPRU 2.2.33R, GENPRU 2.2.34R, GENPRU 2.2.34AR and GENPRU 2.2.35R. Unless some innovative tier one capital does not meet the conditions for it to be treated as upper tier two capital (when an adjustment may be needed), line 81 must be either:

  • line 79; or
  • (if less) the sum of lines 19, 25, 27, 42, 43, 45, 46 and 59 less the sum of lines 37, 62 and 63 less the greatest of:
    • zero;
    • the sum of lines 27, 37, 43, 45, 46, 59, 73, 74, 75 and 76 less the sum of lines 19, 25, 42, 62, 63 and 71; and
    • line 59 plus one-third of the sum of lines 37, 73, 74, 75 and 76 less the sum lines 62 and 63 less one-third of the sum of lines 19, 25, 27, 42, 43, 45, 46 and 71

31. The entry at line 82 is determined as the amount of the firm's capital resources available to meet 50% of its minimum capital requirement, having regard to GENPRU 2.2.32R. Line 82 must be either:

  • line 79; or
  • (if less) the sum of lines 19, 24, 25 and 42 less line 37.

32. The entry at line 83 is determined as the amount of the firm's capital resources available to meet 75% of its minimum capital requirement, having regard to GENPRU 2.2.38R and GENPRU 2.2.39R. Unless some innovative tier one capital does not meet the conditions for it to be treated as upper tier two capital (when an adjustment may be needed), line 83 must be either:

  • line 79; or
  • (if less) the sum of lines 19, 24, 25, 27, 41, 42, 43, 45 and 46 less the sum of line 37 and any excess of the sum of lines 27, 37, 41, 43, 45 and 46 over the sum of lines 19, 24, 25 and 42.

Instructions 33-57 only apply to firms that meet the conditions specified in GENPRU 2.1.13R(2), i.e. that perform the adjusted solo solvency calculation in accordance with INSPRU 6.1.

33. Tier one capital resources must be calculated in accordance with the rules in INSPRU 6.1.41R in relation to restricted assets.

34. The entries at line 16 must equal the net contribution to core tier one capital resources of the firm's related undertakings in accordance with the calculation in INSPRU 6.1.55R (2).

35. Amounts may only appear in lines 21-23 if the PRA has issued a waiver permitting these amounts to count as tier one capital (tier one waivers). These amounts are restricted by INSPRU 6.1.45R (1)(c), so the amounts in line 24 may not be greater than the sum of the corresponding amounts in lines 19 and 37. If the PRA has issued a waiver permitting amounts to count as tier two capital (tier two waivers), these are to be included at line 41, together with any amounts that arise from the restriction at INSPRU 6.1.45R (1)(c).

36. The entries at line 26 must include the net contribution to the firm of perpetual non-cumulative preference shares issued by the firm's related undertakings – ie. the capital represented by perpetual non-cumulative preference shares of each of the firm's related undertakings that is a regulated related undertaking after deduction of the sum of the book value of the investments by the firm in the perpetual non-cumulative preference shares of each of its related undertakings that is a regulated related undertaking and the book value of the investments by related undertakings of the firm in the perpetual non-cumulative preference shares of each of its related undertakings that is a regulated related undertaking – in a manner consistent with the calculation of GCR in INSPRU 6.1.

37. The entries at line 28 must equal the net contribution to innovative tier one capital resources of the firm's related undertakings in accordance with the calculation in INSPRU 6.1.53R (2).

38. The entries at lines 25-28 must be restricted to comply with INSPRU 6.1.45R, so that the total of the amounts in lines 24-28 is not greater than the total amount in line 19 plus line 37, and the total amount in lines 27 and 28 is not greater than 15/85 of the total of the amounts in lines 19, 24, 25, and 26 minus line 37. Amounts in excess of the limits are entered at lines 42 and 43 as appropriate. If line 42 or 43 includes amounts excluded from line 26 or 28, these amounts must be stated in a supplementary note (code 0304).

39. The entries at line 32 for investments in own shares should, in the majority of cases, be zero.

40. For the purpose of completing line 33, the firm should refer to GENPRU 2.2.155R and 2.2.156R.

41. The amounts in line 34 must be calculated in accordance with GENPRU 2.2.107R(1) and 2.2107R(2).

42. The entries at line 36 must equal the total of any of the deductions of the type specified in lines 32-35 that apply to the firm's related undertakings.

43. The entries at lines 45 and 46 for perpetual cumulative preference shares, subordinated debt and securities must be the total, unrestricted, amounts that the firm can include in upper tier two capital in accordance with GENPRU 2.2.159R to 2.2.174R, GENPRU 2.2.177R to 2.2.181R and GENPRU 2.2.270R to 2.2.271R.

44. The entries at line 47 must equal the net contribution to upper tier two capital resources of the firm's related undertakings – ie. the sum of the firm's share of the upper tier two capital resources of each related undertaking less the book value of the firm's investment in the upper tier two capital of its related undertakings – in a manner consistent with the calculation of GCR in INSPRU 6.1.

45. The types of capital instrument that a firm can include within its lower tier two capital are set out at GENPRU 2.2.159R to 2.2.174R, GENPRU 2.2.194R to 2.2.196R and GENPRU 2.2.271R. These should be split between fixed term preference shares and other tier two instruments and entered at lines 51 and 52 respectively.

46. The entries at line 53 must equal the net contribution to lower tier two capital resources of the insurer'srelated undertakings in accordance with the calculation in INSPRU 6.1.57R(2).

47. The effect of the restrictions at INSPRU 6.1.45R applying to tier two capital are shown at lines 62 and 63. Line 62 relates to tier two capital as a whole and equals the excess (if any) of line 61 over line 39. Line 63 relates to lower tier two capital and equals the excess (if any) of line 59 over the sum of line 62 and 1/2 line 39.

48. The entries at line 71 must be nil.

49. Line 73 must show the deductions for inadmissible assets required by INSPRU 6.1.59R.

50. Line 74 must show the assets in excess of market risk and counterparty limits in INSPRU 6.1.70R.

51. Line 75 must show negative adjustments for related undertakings that are ancillary services undertakings required by INSPRU 6.1.62R.

52. The entries at line 76 must be nil.

53. The entries in line 77 must show the total amount calculated in respect of ineligible surplus in accordance with INSPRU 6.1.65R.

54. The entry at line 81 is determined as the amount of the firm's capital resources available to meet its guarantee fund requirement, having regard to INSPRU 6.1.45R(2). Unless some innovative tier one capital does not meet the conditions for it to be treated as upper tier two capital (when an adjustment may be needed), line 81 must be either:

  • line 79; or
  • (if less) the sum of lines 39 and 69 less the sum of lines 24 and 41 less the greatest of:
    • zero;
    • the sum of lines 27, 28, 37, 43, 45, 46, 47, 59 and 72 less the sum of lines 19, 25, 26, 42, 62, 63, 71 and 79.
    • line 59 plus one-third of the sum of lines 24, 41 and 72 less the sum of lines 62 and 63 less one-third of the sum of lines 49, 71 and 79.

55. The entry at line 82 is determined as the amount of the firm's capital resources available to meet 50% of its minimum capital requirement, having regard to INSPRU 6.1.45R(1)(a). Line 82 must be either:

  • line 79; or
  • (if less) sum of lines 19, 24, 25, 26 and 42 less line 37.

56. The entry at line 83 is determined as the amount of the firm's capital resources available to meet 75% of its minimum capital requirement, having regard to INSPRU 6.1.45R(1)(b). Line 83 must be either:

  • line 79; or
  • (if less) the sum of lines 19, 24, 25, 26, 41, 42, 45, 46 and 47 less line 37 and any excess of line 62 over line 59.

57. Amounts relating to financial engineering shown in lines 91-96 must not include amounts in related undertakings.

Instructions 58 onwards apply to all firms

58. Any arrangement relating to long-term insurance business which is not entered in lines 91 to 95, but which falls within the definition of financing arrangement in paragraph 9(3) of Appendix 9.4 (Abstract of valuation report) must be disclosed in a supplementary note (code 0305) to this Form.

59. The entry at line 91 (implicit items) must equal the sum of the entries at lines 22 and 41. Lines 92 to 95 do not apply to general insurance business and line 91 is only likely to apply to long-term insurance business.

60. The entry at line 92 must equal the gross amount of any contingent liability to repay a debt to or recapture a liability from a reinsurer not already recognised in Form 14. The firm must provide in a supplementary note (code 0306) to this Form the following information on each material reinsurance arrangement:

  • the amount of any reinsurance offset (i.e. the amount of the difference between the mathematical reserves at the end of the financial year in question were that reinsurance to be ignored and the amount of the mathematical reserves after deducting the mathematical reserves reinsured);
  • the amount of the contingent liability for payment to the reinsurer; and
  • the commutation value at the end of the financial year in question of the reinsurance arrangement.

61. The entry at line 93 must equal the amount of any contingent asset receivable from a cedant not already recognised in Form 13 or 14. The firm must provide in a supplementary note (code 0307) to this Form the following information on each material outgoing reinsurance arrangement:

  • the amount of any reinsurance liability (i.e. the amount of the difference between the mathematical reserves at the end of the financial year in question including the mathematical reserves reinsured ‘in’, and the amount of the mathematical reserves were that reinsurance to be ignored);
  • the amount of the contingent asset for payments from cedants; and
  • the commutation value at the end of the financial year in question of the reinsurance arrangement.

62. The amount to be shown for contingent loans at line 94 must be the amount, including any interest accrued, still to be repaid from future profits under the arrangements, as at the end of the financial year in question, not already recognised in Form 14.

63. Line 95 must include the potential charge against future profits in respect of any other types of financial engineering not included in lines 91 to 94 where the gross amount of any contingent liability is not already recognised in Form 14.

64. The firm must provide an explanation of the nature of the adjustments in line 94 and 95 in a supplementary note (code 0308) to this Form, together with the amount of the adjustment for each material arrangement. As part of this note, the commutation value of each of the items included at lines 94 and 95, to the extent that value is not already a component of line 79, must be disclosed.

65. Details of any promises to long-term insurance business policyholders conditional upon future profits (other than bonuses not yet declared), or other charges to future profits not already disclosed, must be provided in a supplementary note (code 0309) to this Form.

66. A reconciliation of net admissible assets to total capital resources after deductions (line 79) must be provided as a supplementary note (code 0301). The reconciliation must contain the following items:

(i) Net admissible assets [Form 13 line 89 (other than long-term business) plus Form 13 line 89 (long-term) less the sum of lines 11, 12 and 49 in Form 14 less Form 15 line 69]

(ii) Any components of capital resources that are treated as a liability in Form 14 or 15 (each to be specified and identified to the entries on Forms 3 and 14/15). (In particular this would include any subordinated loan capital.) [These items would be added to net admissible assets in the reconciliation]

(iii) Any components of capital resources, not included in (ii), that arise as a result of a waiver and are not represented by admissible assets included in Form 13 (each to be specified and identified to the entries on Form 3). (In particular this would include any implicit items included as a result of a waiver within capital resources.) [These items would be added to net admissible assets in the reconciliation]

(iv) Any other items, each such item to be separately specified. An explanation of each such item is to be provided together with, if applicable, the reference to where the item is included elsewhere in the return or in the firm's stand-alone accounts prepared under the Companies Act 1985 or 2006, as appropriate, (for firms not preparing accounts under the Companies Act legislation) equivalent overseas legislation or the applicable United Kingdom legislation). [These items would be added to or deducted from net admissible assets in the reconciliation as appropriate.]

The net admissible assets in item (i) plus or minus the additions and deductions in items (ii) to (iv), should equal line 79 (Total capital resources after deductions).

67. Where a direction under section 148 of the Act has been issued to an insurer permitting it to take into account implicit items on long-term insurance business, that direction may specify that a note is to be included in the return explaining such items. That note must be included as a note to Form 3 (Code 0312).

68. A reconciliation of profit and loss account and other reserves (line 12) as at the end of this financial year and the end of the previous financial year (columns 3 and 4) to the profit and loss retained (Form 16 line 59) must be provided as a supplementary note (code 0313).

FSA Form Instructions
List of Supplementary Notes

This is a list of all current supplementary notes which you may be required to supply with your return

FSA Resource Sources

GENPRU - the general prudential requirements for regulated firms.

INSPRU - the specialised sourcebook for insurers

IPRU(INS) - [Version 20130610] the residual prudential and notification requirement for insurers.

E&Y FSA Returns Guide

Ernst & Young's Insurance Returns guide - updated for 2012/3 - covers virtually everything you will need to know about completing your PRA return