Prudential Regulation Authority Rulebook

9.1

When calculating technical provisions, firms must take into account:

1. (1) all expenses that will be incurred in servicing insurance and reinsurance obligations;
2. (2) inflation, including expenses and claims inflation; and
3. (3) all payments to policyholders, including future discretionary bonuses, which firms expect to make, whether or not those payments are contractually guaranteed, unless those payments fall within Surplus Funds 2.1.

[Note: Art. 78 of the Solvency II Directive]

9.2

1. (1) When calculating technical provisions, firms must take account of the value of financial guarantees and any contractual options included in contracts of insurance and reinsurance contracts.
2. (2) Any assumptions used by a firm to determine the likelihood that policyholders will exercise contractual options, including lapses and surrenders, must:
1. (a) be realistic and based on current and credible information; and
2. (b) take into account, either explicitly or implicitly, the impact that future changes in financial and non-financial conditions may have on the exercise of those options.

[Note: Art. 79 of the Solvency II Directive]