Prudential Regulation Authority Rulebook

11B.1

1. (1) A firm must validate the calculation of technical provisions, in particular by comparison against experience as referred to in 4.4 and Technical Provisions 13, at least once a year and when there are indications that the data, assumptions or methods used in the calculation or the level of the technical provisions are no longer appropriate.
2. (2) The validation referred to in 11B.1(1) must cover the following:
   1. (a) the appropriateness, completeness and accuracy of data used in the calculation of technical provisions as set out in Technical Provisions - Further Requirements 4;
   2. (b) the appropriateness of any grouping of policies in accordance with Technical Provisions - Further Requirements 19;
   3. (c) the remedies to limitations of the data referred to in Technical Provisions - Further Requirements 5;
   4. (d) the appropriateness of approximations referred to in Technical Provisions - Further Requirements 6 for the purposes of calculating the best estimate;
   5. (e) the adequacy and realism of assumptions used in the calculation of technical provisions for the purposes of meeting the requirements in Technical Provisions - Further Requirements 7 to 11;
   6. (f) the adequacy, applicability and relevance of the actuarial and statistical methods applied in the calculation of technical provisions; and
   7. (g) the appropriateness of the level of the technical provisions as referred to in Chapter 14 of the Technical Provisions Part necessary to comply with the firm’s technical provisions as set out in Technical Provisions 2.1 to 2.3.

11B.2

For the purposes of 11B.1(2)(d), a firm must assess the impact of changes in the assumptions on future management actions on the valuation of the technical provisions. Where changes in an assumption on future management action have a significant impact on the technical provisions, a firm must be able to explain the reasons for this impact and how the impact is taken into account in its decision-making process.

11B.3

A firm must ensure that the validation referred to in 11B.1(1) is:

1. (1) carried out separately for homogeneous risk groups.
2. (2) carried out separately for the best estimate, the risk margin and technical provisions calculated according to the market value of financial instruments which reliably replicate future cash-flows in accordance with Technical Provisions - Further Requirements 22.
3. (3) carried out separately for technical provisions where the matching adjustment is applied.
4. (4) in relation to the best estimate, carried out separately for the gross best estimate and amounts recoverable from reinsurance contracts and special purpose vehicles.
5. (5) in relation to general insurance and reinsurance obligations, carried out separately for premium provisions and provisions for claims outstanding.