PINS 8.8.2 Guidance

1 Investment earnings — If the cash flow to be valued depends on future investment earnings, the assumption for investment earnings should reflect the expected investment earnings applicable to the assets on which the cash flows depend.
2 Reinsurance — An insurer should value reinsurance cash flows using methods and assumptions that are at least as prudent as the methods and assumptions used to value the underlying contracts of insurance that have been reinsured.
3 Mortality and morbidity — Assumptions about mortality and morbidity should use prudent rates of mortality and morbidity that are appropriate to the country or territory of residence of the persons whose life or health are insured.
4 Expenses — An insurer should make provisions for expenses, implicitly or explicitly, in its mathematical reserves of an amount that is no less that the amount expected, on prudent assumptions, to be incurred in carrying out its long-term insurance contracts.
5 Options and guarantees — If an insurer establishes its mathematical reserves for a long-term insurance contract, the insurer should include an amount to cover:
(a) any increase in liabilities that might be the direct result of the policyholder exercising an option under that contract, and
(b) all vested, declared or allocated bonuses to which policyholders are collectively or individually entitled under their contracts.
If the surrender value of a contract is guaranteed, the amount of the mathematical reserves for that contract at any time should be at least equal to the value guaranteed at that time.
6 Persistency — Assumptions about voluntary discontinuance rates in the calculation of the mathematical reserves may be made if the assumptions meet the general requirements for prudent assumptions in rule 8.8.1.
Inserted by QFCRA RM/2013-1 (as from 1st January 2015).