Prudential Regulation Authority Rulebook

2.1

A firm must calculate the required margin of solvency in respect of classes I and II as the aggregate of the results arrived at by applying the calculation described in 2.2 and the calculation described in 2.3.

2.2

A firm must calculate the following:

1. (1) a sum equal to 4% of the mathematical reserves for direct insurance business and reinsurance acceptances without any deduction for reinsurance cessions;
2. (2) the amount of the mathematical reserves at the end of the last preceding financial year after the deduction of reinsurance cessions, expressed as a percentage of the amount of those mathematical reserves before any such deduction; and
3. (3) the sum mentioned in (1) must be multiplied:
1. (a) where the percentage arrived at under (2) is greater than 85%, by that percentage; or
2. (b) in any other case, by 85%.

2.3

A firm must calculate the following:

1. (1) subject to (4) and (5), a sum equal to 0.3% of the capital at risk for contracts on which the capital at risk is not a negative figure;
2. (2) the amount of the capital at risk at the end of the last preceding financial year for contracts on which the capital at risk is not a negative figure, after the deduction of reinsurance cessions, expressed as a percentage of the amount of that capital at risk before any such deduction; and
3. (3) the sum arrived at under (1) must be multiplied:
1. (a) where the percentage arrived at under (2) is greater than 50%, by that greater percentage; or
2. (b) in any other case, by 50%.
4. (4) Where a contract provides for benefits payable only on death within a specified period and:
1. (a) is valid for a period of not more than three years from the date when the contract was first made, the percentage to be taken for the purposes of (1) must be 0.1%; or
2. (b) is valid for a period of more than three years but not more than five years from the date when the contract was first made, the percentage to be taken for the purposes of (1) must be 0.15%.
5. (5) For the purposes of (4), the period of validity of the contract evidencing a group policy is the period from the date when the premium rates under the contract were last reviewed for which the premium rates are guaranteed.

2.4

A firm must calculate the amount of mathematical reserves referred to in 2.2(1) and the capital at risk referred to in 2.3(1) as at the day on which the required margin of solvency is determined.

2.5

For the purposes of calculating the capital at risk, a firm must calculate the mathematical reserves:

1. (1) in respect of 2.3(1), on the day on which the capital at risk is calculated; and
2. (2) in respect of 2.3(2), as at the last preceding financial year.