8.4.1. Treatment of policy benefits due before Solvency Reference Date

An Insurer carrying on Long-Term Insurance Business must recognise as a liability the amount of policy benefits that are due for payment on or before the Solvency Reference Date.

8.4.2. Treatment of net value of future policy benefits

An Insurer carrying on Long-Term Insurance Business must recognise as a liability the net valueof future policy benefits under policies that are in force as at the Solvency Reference Date, taking into account all prospective liabilities as determined by the policy conditions for each existing contract, and taking credit for premiums payable after the Solvency Reference Date.

8.4.3. Measuring net value of policy benefits as liability

In measuring the liability associated with future policy benefits, an Insurer carrying on LongTerm Insurance Business must:

• (a) use actuarial principles;
• (b) provide for all liabilities based on assumptions that meet the general requirements for prudent assumptions in PINS 8.2.3 (Methods and assumptions that may be used) including appropriate margins for adverse deviation of relevant factors that are sufficient to ensure that there is no significant foreseeable risk that liabilities to policyholders for long-term insurance contracts will not be met as they fall due; and
• (c) take into account:
• (i) all guaranteed policy benefits, including guaranteed surrender values;
• (ii) vested, declared or allotted bonuses to which policyholders are already either collectively or individually contractually entitled;
• (iii) all options available to the policyholder under the terms of the contract;
• (iv) discretionary charges and deductions from policy benefits, in so far as they do not exceed the reasonable expectations of policyholders;
• (v) expenses, including commissions; and
• (vi) any rights under contracts of reinsurance in respect of Long-Term Insurance Business.

8.4.4. Negative values for reserves—Long-Term Insurance

An Insurer carrying on Long-Term Insurance Business must not value its mathematical reserves for a Long-Term Insurance Contract at less than zero unless:

• (a) the calculation is based on assumptions that meet the general requirements for prudent assumptions in PINS 8.2.3 (Methods and assumptions that may be used);
• (b) the contract does not have a guaranteed surrender value at the actuarial valuation date; and
• (c) the total mathematical reserves established by the Insurer have a value of at least:
• (i) if the Insurer’s Long-Term Insurance Contracts include linked long-term contracts—the sum of the surrender values of all its linked long-term contracts at the actuarial valuation date; and
• (ii) in any other case—zero.