Application provision

5.1 This Chapter applies only to a firm that undertakes long-term insurance business.



This Chapter applies only to a firm that undertakes long-term insurance business.



A firm, except a firm to which 11.1 applies, must complete and file with the PRA the Forms as required in this Chapter.



A firm must complete Form 2.



firm must complete Form 13 in respect of:

  1. (1) its total long-term insurance assets; and 
  2. (2) the long-term insurance asset appropriated by it in respect of each long-term insurance fund or, where such assets have been appropriated for a group of funds, those assets.



firm must complete Form 14 in respect of:

  1. (1) its total long-term insurance liabilities and margins; and 
  2. (2) the long-term insurance liabilities and margins for each long-term insurance fund or where long-term insurance assets  have been appropriated in respect of a group of funds.



firm must ensure separate accounts are prepared in Form 40 in respect of:

  1. (1) each long-term insurance fund maintained by it; and
  2. (2) except where the information is provided by virtue of (1), each with-profits fund,

and where there is more than one Form 40 the firm must also prepare a summary Form 40 for the total long-term insurance business.



firm must, in respect of the financial year in question prepare:

  1. (1) Forms 41 to 43 in respect of each revenue account prepared separately under rule 5.6;
  2. (2) summary Forms 41 to 43 if a summary Form 40 is required under 5.6; and
  3. (3) Forms 44 to Form 60,

as appropriate, together with the information specified in relation to those Forms.



A firm must ensure that an investigation is made annually into its financial condition in respect of its long-term insurance business, in accordance with the methods and assumptions determined by the firm, by the person or persons who for the time being are appointed to perform the actuarial function.



When an investigation into the financial condition of the firm in respect of its long-term insurance business has been made other than under 5.8 either:

  1. (1) with a view to the distribution of profits; or 
  2. (2) where the results of which are made public, 

firm must ensure a valuation report is prepared which includes a full description of each of the changes in the methods and assumptions used in the investigation for the purposes of rule 5.10 since the previous investigation under 5.8 (or if there has been no such change, a statement to that effect).



An investigation under 5.8 must include:

  1. (1) a determination of the liabilities of the firm attributable to its long-term insurance business; and
  2. (2) a valuation of any excess over those liabilities of the assets representing each long-term insurance fund and, where any rights of any long-term policy holders to participate in profits relate to particular parts of such a fund, a valuation of any excess of assets over liabilities in respect of those parts.



For the purposes of any investigation under 5.8, the value of any assets and the amount of any liabilities must be determined in accordance with the Insurance Company – Overall Resources and Valuation Part and any specific valuation rule.



Where an annual investigation into the financial condition of the firm has been made under 5.8, a valuation report must be prepared and contain the information as specified in the table at 5.13.



The following information must be provided in the reports required under 5.12, with the answers being numbered to accord with the numbers of the corresponding row below:

1) (1) The date to which the actuarial investigation relates, namely, the ‘valuation date’;
  (2) The previous valuation; and
  (3) The dates of any interim valuations carried out since the previous valuation date.
2) Any significant changes in products during the financial year (which includes new products, new bonus series, products withdrawn, changes to options or guarantees under existing products), including product brand names and charging methods, but not the amounts of the charges where these form part of the product terms. A statement for each with-profit subfund categorising that subfund into one of the categories below:
  (a) open to new with-profits insurance business;
  (b) open only to new non-profit business;
  (c) open but was not actively marketing in the previous financial year; or
  (d) closed to new business except by increment.
3) Valuation basis (other than for special reserves)
  (1) The valuation methods used and the types of products to which each method applies, including a description of any non-standard method. See rows 4 to 6 for special reserves;
  (2) A table of the interest rates used, showing the product group, the rate used at the end of the financial year in question, and the rate used at the end of the previous financial year. Where the valuation with respect to a product involves more than one interest rate (e.g. a rate in deferment and a rate in possession), both interest rates must be shown;
  (3) How the yield was adjusted to allow for risk for equity shares, property and other fixed interest securities to determine the risk adjusted yield;
  (4) A table of mortality bases used, showing the product group and the bases used at the end of the financial year
 in question and at the end of the previous financial year;
  (5) A table of morbidity bases used, showing the product group and the bases used at the end of the financial year in question and at the end of the previous financial year;
  (6) A table of expense bases used, showing the product group, the basis for the financial year in question, and the basis for the previous financial year. The table must show zillmer adjustments, expense assumptions for prospective methods where no further premiums are payable, expense assumptions for gross premium valuations of with-profits and non-profit premium paying business and expense assumptions for non-unit liability calculations for linked business, identifying monetary amounts and the percentages of premiums.  Expenses must be shown before adjustment for tax relief and the assumed rate of tax relief must be stated;
  (7) A table showing the unit growth rates for gross and net linked business before management charges and the inflation rates assumed for future expenses and future increases in policy charges;
  (8) Future bonus rates for gross premium valuations of with-profits insurance business and for valuations of unitised with-profits insurance business;
  (9) A summary of the lapse, surrender and paid-up assumptions; and
  (10) Any other material basis assumptions not stated elsewhere.
4) Expense reserves
  (1) The aggregate amount of expense loadings, grossed up for taxation where appropriate, expected to arise during the 12 months from the valuation date from implicit and explicit reserves made at the valuation date to meet expenses in fulfilling contracts in force at the valuation date;
  (2) A brief statement of the basis of calculating implicit allowances;
  (3) Where the amount of maintenance expenses is significantly different from the maintenance expenses shown on Form 43, an explanation of this;
  (4) New business expense overrun reserve, including the method and basis of calculation (whether or not a reserve is required) in respect of the expenses of continuing to transact new business during the 12 months following the valuation date and the amount of the reserve so calculated; and
  (5) The maintenance expense overrun reserve or, where an explicit reserve has not been made for meeting the expenses likely to be incurred in future in fulfilling the existing contracts on the basis of specific assumptions in regard to the relevant factors, detailing of the basis used to test the adequacy of the reserves to satisfy Insurance Company - Mathematical Reserves  14.1, in either case stating whether redundancy costs or costs of terminating management agreements have been taken into account (with or without stating the amount of such costs).
5) Mismatching reserves
  (1) Subject to (2), a table of the sum of the mathematical reserves (other than liabilities for property-linked benefits) and the liabilities in respect of the deposits received from reinsurers as shown in Form 14, analysed by reference to the currencies in which the liabilities are expressed to be payable, together with the value of the assets, analysed by reference to currency, which match the liabilities;
  (2) Liabilities totalling up to 2% of the total under (1) may be grouped together as ‘other currencies’ and the assets matching those liabilities are not required to be analysed by reference to currencies as long as the proportion of such liabilities which are matched by assets in the same currency is stated;
  (3) The amount of reserve for currency mismatching and a description of the method used to calculate the reserve;
  (4) A statement of the most onerous scenario under Insurance Company - Capital Resources Requirements 20.6 for assets invested in the UK and other assets that fall under Insurance Company - Capital Resources Requirements 20.6 for the purposes of calculating the resilience capital requirement in Insurance Company - Capital Resources Requirements 20.1- 20.5;
  (5) A statement of the most onerous scenario under Insurance Company - Capital Resources Requirements 20.8 for each significant territory in which assets are invested outside the UK for the purposes of calculating the resilience capital requirement in Insurance Company - Capital Resources Requirements 20.1 – 20.5;
  (6) In respect of the scenarios described under (4) and (5) which produce the most onerous requirement (whether or not a resilience capital requirement is required):
    (a) the amount of the resilience capital requirement if such a requirement arises;
    (b) the change in the aggregate amount of the long-term insurance liabilities, and
    (c) the aggregate amount by which the assets allocated to match such liabilities in the scenario have changed in value from the amount of those assets shown in Form 13.
  (7) A statement of any further reserve made arising from the test on assets in Insurance Company - Technical Provisions 6.16.3 together with a brief description of the method used and assumptions made to calculate any such reserve.
6) For other special reserves which exceed the lesser of total mathematical reserves, the nature and amount of the reserves.
7) For long-term insurance business ceded to a reinsurer who is not an authorised person carrying on insurance business in the UK at any time during the reporting period, the amount of premiums payable by the insurer to each such reinsurer the amount of mathematical reserves ceded and the aggregate amount deposited at the valuation date under any deposit back arrangement.