Chapter IV: Company solvency

I.-The preference shares included in the solvency margin referred to in 1 of I of articles

R. 334-3

and

R. 334-11

must meet the following conditions:

a) These shares carry financial rights defined by the Articles of Association; the payments corresponding to these rights are equivalent to a fraction of the distributable profit for the financial year, within the meaning ofarticle L. 232-11 of the French Commercial Code ;

b) The company may suspend payment of these financial rights under the conditions laid down in the Articles of Association; it must do so if such suspension is necessary for the company to comply with the provisions of Article L. 334-1;

c) In the cases referred to in b), the payment of financial rights may not be deferred to a subsequent financial year;

d) In the event of the liquidation of the debtor insurance or reinsurance undertaking, these securities may only be redeemed once all debts existing on the date of liquidation or contracted for the purposes of the liquidation have been settled;

e) These securities have the capacity to absorb losses, even in the event of continued activity;

f) The articles of association provide that they may be amended only after the supervisory authority has declared, after verifying that the amended contract will continue to meet the conditions laid down in this article, that it has no objection to the proposed amendment;

g) If the articles of association provide for the possibility of redemption of the preference shares by the issuing company or if the conversion of the preference shares into ordinary shares results in a reduction in capital, such redemption or conversion may not take place before five years from the date of issue and requires the prior approval of the supervisory authority.

II - Preference shares included in the solvency margin referred to in 1 of II of articles R. 334-3 and R. 334-11 must meet the conditions set out in I of this article, with the exception of a, b and c.

III - The subordinated loans and securities included in the solvency margin referred to in articles R. 334-3 and R. 334-11 must meet the following conditions:

1° In the event of the liquidation of the debtor insurance or reinsurance undertaking, these securities or loans may only be repaid after all other debts existing on the date of liquidation or contracted for the purposes of the liquidation have been settled;

2° The contract of issue or loan does not include a clause providing that, in specified circumstances other than the liquidation of the debtor insurance or reinsurance undertaking, the debt must be repaid before the agreed maturity date;

3° The contract of issue or loan provides that it may be amended only after the Autorité de contrôle prudentiel et de résolution has declared, after verifying that the amended contract will continue to meet the conditions laid down in this article, that it does not object to the proposed amendment;

4° The issue or loan contract must stipulate a repayment term of at least five years or, where no repayment term is stipulated, at least five years' notice of any repayment.

IV - No later than one year before the date set for the repayment of all or part of the funds referred to in II and III above, the debtor insurance or reinsurance undertaking shall submit to the Autorité de contrôle prudentiel et de résolution a plan showing how the solvency margin will be maintained, after repayment, at the level required by the regulations. This plan is not required if the proportion of the funds included in the solvency margin is gradually and regularly reduced to zero by the insurance or reinsurance undertaking over at least the last five years before the repayment due date.

V.-Funds derived from loans and fixed-term subordinated securities included in the solvency margin may be repaid in advance at the initiative of the debtor insurance or reinsurance undertaking if the Autorité de contrôle prudentiel et de résolution has previously authorised such repayment, after having ascertained that the solvency margin is not in danger of being reduced below the level necessary to guarantee compliance with the margin required by the regulations on a long-term basis.

Under the same conditions, the Autorité de contrôle prudentiel et de résolution may authorise the repayment of funds deriving from loans and subordinated perpetual securities included in the solvency margin without application of the notice period provided for in 4° of III of this article.

In the cases referred to in this paragraph, the debtor insurance or reinsurance undertaking shall submit at least six months in advance to the Autorité de contrôle prudentiel et de résolution, in support of its request for authorisation, a plan showing how the solvency margin will be maintained, after the repayment, at the level required by the regulations. The absence of a decision notified to the undertaking on expiry of a period of six months constitutes authorisation.

However, an issuer may repurchase up to 5% of the securities issued on the stock exchange without prior authorisation, provided that it informs the Autorité de contrôle prudentiel of the repurchases made.

VI - Contracts for the issue of undated loans and securities which formally provide that any redemption is subject to the prior authorisation of the Autorité de contrôle prudentiel et de résolution are not required to provide for the minimum notice period referred to in 4° of III of this article.