10

### Investment and Reinvestment

10.1

The *risk-adjusted yield* assumed for the investment or reinvestment of sterling sums (other than sums expected to be received within the next three years) must not exceed the lowest of:

- (1) the higher of:
- (a) the long-term gilt yield; and
- (b) the greater of:
- (i) the forward gilts yield; and
- (ii) the forward rate on sterling interest rate swaps, reduced to exclude that part of the rate that represents compensation for credit risk;

where the forward yields and forward rates corresponding to the time when the sums are expected to be received are weighted so as to reflect the investment and reinvestment characteristics of the liabilities covered;

- (2) 3% per annum, increased by two thirds of the excess, if any, of the percentage in (1) over 3% per annum; and
- (3) 6.5% per annum.

- 01/01/2016

10.2

The *risk-adjusted yield* assumed for the investment or reinvestment of those sterling sums expected to be received within the next three years must not exceed the *risk-adjusted yield* on the assets actually held adjusted linearly over the three-year period to the *risk-adjusted yield* determined under 10.1.

- 01/01/2016

10.3

The *risk-adjusted yield* assumed for the investment or reinvestment of sums denominated in a currency other than sterling must be at least as prudent as in 10.1 and 10.2 taking into account the yields on government securities denominated in that currency.

- 01/01/2016

10.4

For the purpose of 10.3 the yields on the government securities must be reduced to exclude that part of the yield that represents compensation for credit risk unless, in relation to the *issuer* of those securities, a credit rating is available from at least one of the following rating agencies in the corresponding rating categories;

- (1) for A.M. Best Company, ‘aaa’ or ‘aa’;
- (2) for Fitch Ratings, ‘AAA’ or ‘AA’;
- (3) for Moody's Investors Service ‘Aaa’ or ‘Aa’; or
- (4) for Standard & Poor's Corporation ‘AAA’ or ‘AA’.

- 01/01/2016