Prudential Regulation Authority Rulebook

9.1

Where further specified premiums are payable by the policyholder under a contract (not being a linked long-term contract of insurance) under which the policyholder is eligible to participate in any established surplus and benefits (other than benefits arising from a distribution of surplus) are determined from the outset in relation to the total premiums payable thereunder, then, subject to 9.4 and 10:

1. (1) where the premiums under the contract are at a uniform rate throughout the period for which they are payable, the premiums to be valued must not be greater than such level premiums as, if payable for the same period as the actual premiums under the contract and calculated according to the rates of interest and rates of mortality or disability which are to be employed in calculating the liability under the contract, would have been sufficient at the outset to provide for the benefits under the contract according to the contingencies upon which they are payable, exclusive of any additions for profits, expenses or other charges;
2. (2) where the premiums under the contract are not at a uniform rate throughout the period for which they are payable, the premiums to be valued must not be greater than such premiums as would be determined on the principles set out in (1) modified as appropriate to take account of the variations in the premiums payable by the policyholder in each year,

save that a premium to be valued must in no year be greater than the amount of the premium payable by the policyholders.

9.2

Where the terms of the contract have changed since the contract was first made (the terms of the contract being taken to change, for the purposes of this rule, if the change is indicated in an endorsement on the policy but not if a new policy is issued), then, for the purposes of 9.1 one of the following assumptions must be made, namely that;

1. (1) the change from the date it occurred was provided for in the contract when it was made;
2. (2) the terms of the contract are those which apply from the date of the change except that a single premium is payable, at the date of the change, of an amount equal to the liability under the policy immediately before the change, calculated on a basis consistent with this Part and with the premiums actually payable from the date of the change; or
3. (3) the contract is in two parts, the first of which is for the benefits purchased by the actual premiums payable from the date of the change under the firm’s scales of premiums at that date, and the second of which is for all other benefits under the policy for which no premiums are payable after that date.

9.3

Where under a contract (not being a linked long-term contract of insurance) the policyholder is eligible to participate in any established surplus; and

(1) each premium paid increases the benefits (other than benefits arising from a distribution of surplus) provided under the contract; or

(2) the amount of a premium payable in future is not determinable until it comes to be paid,

future premiums and the corresponding liability may be left out of account so long as adequate provision is made against any risk that the increase in the liabilities of the firm resulting from the payment of future premiums might exceed the amount of the premiums.

9.4

An alternative valuation method to that described in 9.1 to 9.3 may be used where it can be demonstrated that the alternative method results in reserves no less, in aggregate, than would result from use of the method described in 9.1 to 9.3.