Prudential Regulation Authority Rulebook

6.1

The adjustment for the loss-absorbing capacity of technical provisions and deferred taxes as referred to in 2.1(3):

1. (1) must reflect potential compensation of unexpected losses through a simultaneous decrease in technical provisions or deferred taxes, or a combination of the two; and
2. (2) must take account of the risk-mitigating effect provided by future discretionary benefits of contracts of insurance.

[Note: Art. 108 of the Solvency II Directive]

6.2

For the purposes of 6.1(2):

1. (1) a firm must take account of the risk-mitigating effect provided by future discretionary benefits to the extent that it can establish that a reduction in future discretionary benefits may be used to cover unexpected losses when they arise;
2. (2) the risk-mitigating effect provided by future discretionary benefits must be no higher than the sum of technical provisions and deferred taxes relating to those future discretionary benefits; and
3. (3) the value of future discretionary benefits under adverse circumstances must be compared to the value of those benefits under the underlying assumptions of the best estimate calculation.

[Note: Art. 108 of the Solvency II Directive]