4.1. Perpetual qualifying hybrid capital instruments

An AIFC-Incorporated Insurer may only include perpetual qualifying hybrid capital instruments as part of its Tier 2 Capital if:

• (a) they are unsecured, subordinated and fully paid-up;
• (b) they are perpetual; and
• (c) they are available to absorb losses on a going concern basis.

4.2. Subordinated debt

(1) An AIFC-Incorporated Insurer must not include subordinated debt as part of its Tier 2 Capital unless it meets the following conditions:

• (a) the claims of the subordinated creditors must rank behind those of all unsubordinated creditors;
• (b) no interest or principal may be payable:
• (i) at a time when the AIFC-Incorporated Insurer is in breach of its minimum capital requirement; or
• (ii) if the payment would mean that the AIFC-Incorporated Insurer would be in breach of these rules;
• (c) the only events of default must be non-payment of any interest or principal under the debt agreement or the winding-up of the AIFC-Incorporated Insurer;
• (d) the remedies available to the subordinated creditor in the event of non-payment in respect of the subordinated debt must be limited to petitioning for the winding up of the AIFC-Incorporated Insurer or proving for the debt and claiming in the liquidation of the AIFC-Incorporated Insurer;
• (e) any events of default and any remedy described in paragraph (d) must not prejudice the matters in paragraphs (a) and (b);
• (f) in addition to the requirements about repayment in paragraphs (a) and (b), the subordinated debt must not become due and payable before its stated final maturity date except on an event of default complying with paragraph (c);
• (g) the agreement and the debt are governed by the laws of a jurisdiction:
• (i) under which the other conditions mentioned in this subrule can be met; or
• (ii) that is otherwise acceptable, generally or in a particular case, to the AFSA;
• (h) to the fullest extent permitted under the law of the relevant jurisdictions, creditors must waive their right to set off amounts they owe the AIFC-Incorporated Insurer against subordinated amounts owed to them by the AIFC-Incorporated Insurer;

(i) the terms of the subordinated debt must be set out in a written agreement or instrument that contains terms that provide for the conditions set out in paragraphs

• (a) to (h);
• (j) the debt must be unsecured and fully paid up;
• (k) the AIFC-Incorporated Insurer has notified the AFSA that it intends to include subordinated debt as part of its Eligible Capital and the AFSA has not advised the AIFC-Incorporated Insurer in writing within thirty days of the date of the notification that the subordinated debt must not form part of its Eligible Capital.

(2) An AIFC-Incorporated Insurer must not include in its Eligible Capital subordinated debt issued with step-ups in the first 5 years following the date of issue.

(3) For the purposes of calculating the amount of subordinated debt that may be included in its Eligible Capital, an AIFC-Incorporated Insurer must amortise the principal amount on a straight-line basis by 20% per annum in its final 4 years to maturity.

4.3. Legal opinions on Tier 2 Capital instruments

(1) An AIFC-Incorporated Insurer must obtain a written external legal opinion stating that the requirements of rules 4.1 or 4.2 have been met in respect of any perpetual qualifying hybrid capital instrument or subordinated debt that the AIFC-Incorporated Insurer is proposing to include as Eligible Capital.

(2) An AIFC-Incorporated Insurer must provide copies of the opinions referred to in subrule

(1) to the AFSA if requested by the AFSA to do so.

4.4. Other Tier 2 Capital instruments

An AIFC-Incorporated Insurer may include additional items in its Tier 2 Capital with the written approval of the AFSA.