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  • Tier 2: Hybrid Capital Instruments

    • CA-1.2.15

      Hybrid capital instruments are instruments that combine the features of debt and equity in that they are structured like debt, but exhibit some of the loss absorption and funding flexibility features of equity.

    • CA-1.2.16

      A hybrid capital instrument must meet the following conditions before it can be included in an insurance firm's upper Tier 2 capital resources:

      (a) It must meet the general conditions described in Paragraph CA-1.2.17;
      (b) It must have no fixed maturity date;
      (c) The contractual terms of the debt agreement must provide for the insurance firm to have the option to defer any interest payment on the debt; and
      (d) The contractual terms of the debt agreement must provide for the loss-absorption capacity of the debt and unpaid interest, whilst enabling the insurance firm to continue its business.
      Amended: January 2007

    • CA-1.2.17

      A hybrid capital instrument cannot form part of the capital resources of an insurance firm unless it meets the following conditions:

      (a) The claims of the creditors must rank behind those of all unsubordinated creditors;
      (b) No amounts due may be payable:
      (i) At a time when the insurance firm is in breach of Paragraph CA-1.2.1; or
      (ii) If the payment would mean that the insurance firm would be in breach of Paragraph CA-1.2.1;
      (c) The only events of default must be non-payment of any amount falling due under the terms of the instrument or the winding-up of the insurance firm;
      (d) The remedies available to the subordinated creditor in the event of non-payment or other breach of the written agreement or instrument must be limited to petitioning for the winding up of the insurance firm or proving the debt in a liquidation of the insurance firm;
      (e) Any events of default and any remedy described in (d) must not prejudice the matters in (a) and (b);
      (f) In addition to the requirements about repayment in (a) and (b), the debt must not become due and payable before its stated final maturity date (if any) except on an event of default complying with (c);
      (g) The debt agreement or terms of the instrument are governed by the laws of Bahrain;
      (h) To the fullest extent permitted under the laws of the relevant jurisdictions, creditors must waive their right to set off amounts they owe the insurance firm against subordinated amounts included in the insurance firm's capital resources owed to them by the insurance firm;
      (i) The terms of the instrument must be set out in a written agreement that contains terms that provide for the conditions set out in (a) to (h);
      (j) The debt must be unsecured and fully paid up; and
      (k) The insurance firm has obtained an external legal opinion stating that the requirements in (a) to (j) have been met.
      Amended: January 2007

    • CA-1.2.18

      Subparagraph CA-1.2.17 (g) does not apply if the insurance firm has obtained an external legal opinion confirming that a degree of subordination has been achieved under the law that governs the debt and the agreement that is equivalent to that which would have been provided under the laws of Bahrain.

      Amended: January 2007

    • CA-1.2.19

      An insurance firm must not amend the terms of the debt and the documents referred to in Subparagraph CA-1.2.17 (i) unless:

      (a) At least one month before the amendment is due to take effect, the insurance firm has given the CBB notice in writing of the proposed amendment; and
      (b) That notice includes confirmation that the legal opinion referred to in Subparagraph CA-1.2.17 (k) continues in full force and effect in relation to the terms of the debt and the documents as proposed to be so amended.
      Amended: January 2007

    • CA-1.2.20

      An insurance firm must notify the CBB of its intention to repay a hybrid capital instrument that is included in its capital resources before its contractual repayment date (if any) at least six months before the date of the proposed repayment, providing details of how it will meet its capital available requirement after such repayment.

      Amended: January 2007

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