Prudential Regulation Authority Rulebook

3.1

The best estimate must:

1. (1) correspond to the probability-weighted average of future cash-flows, taking into account the time value of money (expected present value of future cash-flows) using the relevant risk-free interest rate term structure; and
2. (2) be calculated:
1. (a) based upon up-to-date and credible information and realistic assumptions;
2. (b) using adequate, applicable and relevant actuarial and statistical methods; and
3. (c) gross, without deduction of the amounts recoverable from reinsurance contracts and UK ISPVs, which firms must calculate separately in accordance with 11.

[Note: Art. 77(2) of the Solvency II Directive]

3.2

The cash-flow projection used in the calculation of the best estimate (whether valued separately or determined on the basis of financial instruments in accordance with 2.5) must take into account all the cash in- and out-flows required to settle the insurance and reinsurance obligations over their lifetime.

[Note: Art. 77(2) of the Solvency II Directive]