Corporation Tax Act 2010 section 269ZN

Determination of shock loss threshold

Section 269ZN sets out how an insurance company calculates its shock loss threshold for a 12-month period, which broadly represents 90% of the shareholders' share of the company's solvency capital requirement.

• The company first calculates its solvency capital requirement at the start of the period, adjusting for the loss-absorbing capacity of deferred taxes on the assumption that the period is a solvency shock period, to produce an "adjusted SCR".
• A deductible amount is then calculated for each relevant ring-fenced (with-profits) fund, being the lower of the policyholders' basic own funds in that fund and the fund's notional solvency capital requirement.
• The total of those deductible amounts is subtracted from the adjusted SCR, and the result is multiplied by 90% to give the shock loss threshold.
• Third-country insurance undertakings must calculate their shock loss threshold as though they were Solvency II insurance undertakings, applying the same steps with appropriate modifications.