Permitted property: internal linked funds
A policyholder may have the ability to select any property that the insurer hasappropriated to an internal linked fund without causing the policy to be a PPB, so long asthe selection rules described in IPTM7780 to IPTM7790 aresatisfied.
It is not necessary for the property in the internal linked fund to fall within any of theother categories of permitted property, so for instance shares in an FTSE company could beselected. However, if the property were personal to the policyholder, for instance aresidential property, then the selection rules would not be satisfied and the policy wouldbe a PPB.
Definition of internal linked fund
The PPB legislation adopts the definition of internal linked fund from section 11.1 ofthe Financial Services Authoritys Interim Prudential Sourcebook for Insurers, IPRU(INS).
An internal linked fund means an account to which an insurer appropriatescertain linked assets and which may be sub-divided into units the value of each of whichis determined by the insurer by reference to the value of those linked assets.
Linked assets are defined in relation to an insurer as long terminsurance business assets of the insurer which are, for the time being, identified in therecords of the insurer as being assets by reference to the value of which property linkedbenefits are to be determined.
So, whether an asset has been appropriated to an insurers internal linked fund is aninsurance accounting and regulatory question. For PPB purposes, the treatment follows thetreatment of the asset by the insurer.
The Interim Prudential Sourcebook for Insurers only applies to UK insurers, but theadoption of the definition of internal linked fund is not so limited. For thepurposes of the PPB legislation the definition applies to policies of a non-UK insurer onsimilar lines.
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