Prudential Regulation Authority Rulebook

8.1

In calculating the present value of future net cash flows, a firm must determine the rates of interest to be used in accordance with 8.2, 9 and 10.

8.2

1. (1) The rates of interest required by 8.1 to be used by a firm for the calculation of the present value of a long-term insurance liability must not exceed 97.5% of the risk-adjusted yield that is expected to be achieved on:
1. (a) the assets allocated to cover that liability;
2. (b) the reinvestment of sums expected to be received from those assets; and
3. (c) the investment of future premium receipts.
2. (2) The requirements in (1) do not apply to a contract of long-term insurance in respect of which the firm has calculated a negative value for the mathematical reserves in accordance with 5.1.
3. (3) For the purposes of (1), the rates of interest assumed must allow appropriately for the rates of tax that apply to the investment return on policyholder assets.
4. (4) For the purposes of (3), the rates of tax assumed must be such that the firm's total implied liability for tax arising from the allocation of assets to liabilities is not less than the firm's actual expected liability for tax for the period in respect of which tax is to be assessed.