The Group has a flexible capital structure with the ability to
improve and strengthen its capital base over the next few years.
The Group's core capital objective is to meet or exceed all
relevant regulatory capital requirements and to hold sufficient
economic capital to withstand a worst case loss in economic value
due to risks arising from business activities.
The Group has successfully managed its capital position through
the extreme economic and market conditions experienced over recent
years and continues to strongly capitalised in both its life and
banking businesses.
As of 31st December 2009 the banking business had a Core Tier 1
ratio of 9.2% while the solvency cover of the life assurance
business was 1.6 times the minimum required.
For full commentary on 2009 capital see 2009 Annual Report,
Group Performance
Review, pages 16 -19, and
Analysis of Equity &
Capital, pages 145 -149 .
Bank Capital
The bank's capital requirements are computed under Basel 2
rules. In the absence of the Pillar 2 requirement being determined
an Interim Capital Requirement ("ICR") has applied, equal to 23% of
Pillar 1 capital. The bank's Core Tier 1 ratio of 9.2% at Dec 2009
included €302m of capital in respect of the ICR.
In March 2010 the Irish Financial Regulator announced a new
capital framework for the Irish banking system. This included a
system-wide minimum Core Tier 1 capital requirement of 8%
(including equity of 7%) and, specific to every institution, a
prudential buffer requirement in the calculation of expected
impairments. The ICR was removed.
The Financial Regulator set new capital levels for some of the
main banks covered by the Government (funding) guarantee scheme and
transferring loans into the National Asset Management Agency
("NAMA"). However Irish Life & Permanent was not included in
the initial review as it is not a participant in NAMA, nor a
recipient of capital from the government.
Based on initial discussions with the Financial Regulator the
Group expects that, as currently structured, its capital resources
are sufficient to meet the new regulatory requirements. A formal
Prudential Capital Assessment Review ("PCAR") of Irish Life &
Permanent will be undertaken in the first half of 2010 in the
context of the Group's restructuring plans.
Further details of the new PCAR can be found on the Financial
Regulator's web site:
http://www.financialregulator.ie/
Life Capital
The calculation of the minimum regulatory capital for the life
assurance business is based on the EU Solvency 1 Directive. The
solvency cover for Irish Life Assurance plc, the Group's main life
assurance operation, at 31 December 2009 is 1.6 times the minimum
requirement of €416m.
The EU Solvency 2 Directive, which is expected to be implemented in
2011, will require the calculation of solvency and reserving
requirements on a realistic market consistent basis. The Group
expects that, given the low risk nature of its life business, the
introduction of Solvency 2 will result in a significant reduction
in reserves required to support its insurance and investment
contract liabilities which would in turn result in an increase in
statutory capital surplus.
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