IPTM7740 | Personal portfolio bonds (PPB): permitted property: internal linked funds: ITTOIA05/S520

The first category on the list of permitted property at ITTOIA05/S520 is ‘property which the insurance company has appropriated to an internal linked fund’.

A policyholder may have the ability to select any property that the insurer has appropriated to an internal linked fund without causing the policy to be a PPB, so long as the selection rules described in IPTM7780 to IPTM7790 are satisfied.

It is not necessary for the property in the internal linked fund to fall within any of the other categories of permitted property, so for instance shares in an FTSE company could be selected. However, if the property were personal to the policyholder, for instance a residential property, then the selection rules would not be satisfied and the policy would be a PPB.

Definition of internal linked fund

As specified at ITTOIA05/S520(4), the PPB legislation adopts the definition of internal linked fund from the rules made by the Prudential Regulation Authority under FSMA 2000.

An internal linked fund means an account to which an insurer appropriates certain linked assets and which may be sub-divided into units the value of each of which is determined by the insurer by reference to the value of those linked assets.

Linked assets are defined in relation to an insurer as long term insurance business assets of the insurer which are, for the time being, identified in the records of the insurer as being assets by reference to the value of which property linked benefits are to be determined.

So, whether an asset has been appropriated to an insurer’s internal linked fund is an insurance accounting and regulatory question. For PPB purposes, the treatment follows the treatment of the asset by the insurer.

Overseas insurers

The Interim Prudential Sourcebook for Insurers only applies to UK insurers, but the adoption of the definition of ‘internal linked fund’ is not so limited. For the purposes of the PPB legislation the definition applies to policies of a non-UK insurer on similar lines.