In this Chapter, references to:

  1. (1) reinsurance and contracts of reinsurance include analogous non-reinsurance financing agreements;
  2. (2) reinsured risks, in relation to a contract of reinsurance entered into by a firm, means that part of:
    1. (a) the risks insured by the firm under contracts of long-term insurance entered into by it; and
    2. (b) the other risks arising directly from the firm's long-term insurance business;
    3. that have been transferred to the reinsurer under that contract of reinsurance; and
  3. (3) reinsurance cash outflows include any reduction in policy liabilities recognised as covered under a contract of reinsurance or any reduction of any debt to the firm under or in respect of a contract of reinsurance.


A firm must value reinsurance cash flows using methods and assumptions which are at least as prudent as the methods and assumptions used to value the underlying contract of insurance which have been reinsured.


For purposes of 18.2:

  1. (1) reinsurance recoveries must not be recognised unless the underlying liabilities to which they relate have also been recognised;
  2. (2) reinsurance cash outflows need not to be valued provided that:
    1. (a) in accordance with 18.5 and 18.6, they are unambiguously linked to the emergence as surplus of margins included in the valuation of existing contract of insurance or to the exercise by a reinsurer of its rights under a termination clause; and
    2. (b) the conditions in 18.4 are satisfied;
  3. (3) reinsurance cash inflows that are contingent on factors or conditions other than the reinsured risks must not be valued.


The conditions referred to in 18.3(2)(b) are that:

  1. (1) the reinsurance is not connected with any other transaction, which, when taken together with the reinsurance, could result in the requirements set out in 18.3(2) no longer being satisfied or in the risk transferred under the reinsurance being undermined; and
  2. (2) the present value of the future reinsurance cash outflows that may be disregarded under 18.3(2) must not at any time exceed the value of the aggregate net cash inflows that have already been received by the firm under the contract of reinsurance accumulated at an assumed rate of SONIA + 6% per annum.


For the purposes of 18.3(2), the "link" must be such that a contingent liability to pay or repay the amount to the reinsurer could not arise except when, and to the extent that, the margins in the valuation of the existing contract of insurance emerge as surplus, or the reinsurer exercises its rights under a termination clause in the contract of reinsurance as a result of:

  1. (1) fraudulent conduct by the firm under or in relation to the contract of reinsurance; or
  2. (2) a representation as to the existence, at or before the time the contract of reinsurance is entered into, of a state of affairs which is within the knowledge or control of the firm and which is material to the reinsurer's decision to enter into the contract being discovered to be false; or
  3. (3) the non-payment of reinsurance premiums by the firm; or
  4. (4) a transfer by the firm of the whole or a specified part of its business without the agreement of the reinsurer, except where that agreement has been unreasonably withheld.


  1. (1) Subject to (2), for the purposes of 18.3(2) and 18.5, future surplus may only be offset against future reinsurance cash outflow in respect of surplus on non-profit policies and the charges or shareholder transfers arising as surplus from with-profits policies.
  2. (2) Such charges and transfers may only be allowed for to the extent consistent with the regulatory duty of the firm to treat its customers fairly under any relevant provision of the FCA Handbook.