Prudential Regulation Authority Rulebook

1.

The NSLT health underwriting risk sub-module must consist of the following sub-modules:

1. (1) the NSLT health premium and reserve risk sub-module; and
2. (2) the NSLT health lapse risk sub-module.

2.

A firm must calculate the capital requirement for NSLT health underwriting risk in accordance with the following formula:

$${SCR}_{NSLTh}=\sqrt{{SCR}_{(NSLTh,pr)}^2+{SCR}_{(NSLTh,lapse)}^2}$$

where:

1. (1) SCR_{(NSLTh, pr)} denotes the capital requirement for NSLT health premium and reserve risk; and
2. (2) SCR_{(NSLTh, lapse)} denotes the capital requirement for NSLT health lapse risk.

1.

A firm must calculate the capital requirement for NSLT health premium and reserve risk in accordance with the following formula:

$${SCR}_{(NSLT,pr)}=3\cdot {\sigma }_{NSLTh}\cdot V_{NSLTh}$$

where:

1. (1) σ_NSLTh denotes the standard deviation for NSLT health premium and reserve risk determined in accordance with 3C5; and
2. (2) V_NSLTh denotes the volume measure for NSLT health premium and reserve risk determined in accordance with 3C3.

1.

A firm must calculate the volume measure for NSLT health premium and reserve risk as equal to the sum of the volume measures for premium and reserve risk of the segments set out in 3C4.

2.

For all segments set out in 3C4 a firm must calculate the volume measure of a particular segment s in accordance with the following formula:

$$V_s=(V_{(prem,s)}+V_{(res,s)})\cdot (0.75+0.25\cdot {DIV}_s)$$

where:

1. (1) V_{(prem, s)} denotes the volume measure for premium risk of segment s;
2. (2) V_{(res, s)} denotes the volume measure for reserve risk of segment s; and
3. (3) DIV_s denotes the factor for geographical diversification of segment s.

3.

For all segments set out in 3C4 a firm must calculate the volume measure for premium risk of a particular segment s in accordance with the following formula:

$$V_{(prem,s)}=max(P_s;P_{(last,s)})+{FP}_{(existing,s)}+{FP}_{(future,s)}$$

where:

1. (1) P_s denotes an estimate of the premiums to be earned by the firm for the segment s during the following 12 months;
2. (2) P_{(last, s)} denotes the premiums earned by the firm for the segment s during the last 12 months;
3. (3) FP_{(existing, s)} denotes the expected present value of premiums to be earned by the firm for the segment s after the following 12 months for existing contracts of insurance; and
4. (4) FP _{(future, s)} denotes the following amount with respect to contracts of insurance where the initial recognition date falls in the following 12 months:
   1. (a) for all such contracts of insurance with an initial term of one year or less, the expected present value of premiums to be earned by the firm for the segment s, but excluding the premiums to be earned during the 12 months after the initial recognition date; and
   2. (b) for all such contracts of insurance with an initial term of more than one year, the amount equal to 30% of the expected present value of premiums to be earned by the firm for the segment s after the following 12 months.

4.

For all segments set out in 3C4, a firm may, as an alternative to the calculation set out in 3C3.3, choose to calculate the volume measure for premium risk of a particular segment s in accordance with the following formula:

$$V_{(prem,s)}=P_s+{FP}_{(existing,s)}+{FP}_{(future,s)}$$

provided that all of the following requirements are met:

1. (1) the governing body of the firm has decided that its earned premiums for the segment s during the following 12 months will not exceed P_s;
2. (2) the firm has established effective control mechanisms to ensure that the limits on earned premiums referred to in (1) will be met; and
3. (3) the firm has informed the PRA in writing about the decision referred to in (1) and the reasons for it.

5.

For the purposes of 3C3.4, the terms P_s, FP_{(existing, s)} and FP_{(future, s)} must be determined in accordance with 3C3.3(a), (c) and (d).

7.

For all segments set out in 3C4, a firm must calculate the volume measure for reserve risk of a particular segment as equal to the best estimate for the provision for claims outstanding for the segment, after deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles, provided that:

1. (1) the reinsurance contracts or special purpose vehicles comply with 3G2, 3G3, 3G5 and 3G7; and
2. (2) the volume measure must not be a negative amount.

8.

For all segments set out in 3C4, the default factor for geographical diversification must be either equal to 1 or calculated in accordance with 3A5.

1.

A firm must calculate the standard deviation for NSLT health premium and reserve risk in accordance with the following formula:

$${\sigma }_{NSLTh}=\frac{1}{V_{NSLTh}}\cdot \sqrt{\sum _{s,t}{CorrHS}_{(s,t)}\cdot {\sigma }_s\cdot V_s\cdot {\sigma }_t\cdot V_t}$$

where:

1. (1) V_NSLTh denotes the volume measure for NSLT health premium and reserve risk;
2. (2) the sum covers all possible combinations (s, t) of the segments set out in 3C4;
3. (3) CorrHS_{(s, t)} denotes the correlation coefficient for NSLT health premium and reserve risk for segment s and segment t set out in 3C6;
4. (4) σ_s and σ_t denote standard deviations for NSLT health premium and reserve risk of segments s and t respectively; and
5. (5) V_s and V_t denote volume measures for premium and reserve risk of segments s and t, referred to in 3C4, respectively.

2.

For all segments set out in 3C4, a firm must calculate the standard deviation for NSLT health premium and reserve risk of a particular segment s in accordance with the following formula:

$${\sigma }_s=\frac{\sqrt{{\sigma }_{(prem,s)}^2\cdot V_{(prem,s)}^2+{\sigma }_{(prem,s)}\cdot V_{(prem,s)}\cdot {\sigma }_{(res,s)}\cdot V_{(res,s)}+{\sigma }_{(res,s)}^2\cdot V_{(res,s)}^2}}{V_{(prem,s)}+V_{(res,s)}}$$

where:

1. (1) σ_{(prem, s)} denotes the standard deviation for NSLT health  risk of segment s determined in accordance with 3C5.3;
2. (2) σ_{(res, s)} denotes the standard deviation for NSLT health reserve risk of segment s as set out in 3C4; and
3. (3) V_{(prem, s)} denotes the volume measure for premium risk of segment s referred to in 3C3;
4. (4) V_{(res, s)} denotes the volume measure for reserve risk of segment s referred to in 3C3.

3.

For all segments set out in 3C4, a firm must calculate the standard deviation for NSLT health premium risk of a particular segment as equal to the product of the standard deviation for NSLT health gross premium risk of the segment set out in 3C4 and the adjustment factor for non-proportional reinsurance, which, for all segments set out in 3C4 must be equal to 100%.

1.

The correlation coefficient CorrHS_{(s, t)} referred to in 3C5.1 must be equal to the item set out in row s and in column t of the following correlation matrix. The headings of the rows and columns denote the numbers of the segments set out 3C4:

1.

A firm must calculate the capital requirement for NSLT health lapse risk as equal to the loss in its basic own funds that would result from the combination of the following instantaneous events:

1. (1) the discontinuance of 40% of the insurance policies for which discontinuance would result in an increase of technical provisions without the risk margin; and
2. (2) where reinsurance contracts cover contracts of insurance or reinsurance contracts that will be written in the future, the decrease of 40% of the number of those future contracts of insurance or reinsurance contracts used in the calculation of technical provisions.

2.

A firm must apply the events referred to in 3C7.1 uniformly to relevant all contracts of insurance and reinsurance contracts and, in respect of any such reinsurance contracts, the firm must apply the event referred to in 3C7.1(1) to the underlying contracts of insurance.

3.

For the purposes of determining the loss in its basic own funds under the event referred to in 3C7.1(1), the firm must base the calculation on the type of discontinuance that most negatively affects its basic own funds on a per policy basis.

1.

The SLT health underwriting risk sub-module must consist of all of the following sub-modules:

1. (1) the health mortality risk sub-module;
2. (2) the health longevity risk sub-module;
3. (3) the health disability-morbidity risk sub-module;
4. (4) the health expense risk sub-module;
5. (5) the health revision risk sub-module; and
6. (6) the SLT health lapse risk sub-module.

2.

A firm must calculate the capital requirement for SLT health underwriting risk in accordance with the following formula:

$${SCR}_{SLTh}=\sqrt{\sum {}_{i,j}{CorrSLTH}_{(i,j)}\cdot {SCR}_i\cdot {SCR}_j}$$

where:

1. (1) the sum denotes all possible combinations (i, j) of the sub-modules set out in 3C8.1;
2. (2) CorrSLTH_{(i, j)} denotes the correlation coefficient for SLT health underwriting risk for sub-modules i and j; and
3. (3) SCR_i and SCR_j denote the capital requirements for risk sub-modules i and j respectively.

3.

The correlation coefficient CorrSLTH_{(i, j)} referred to in 3C8.2 must be equal to the value set out in row i and in column j of the following correlation matrix:

	Health mortality	Health longevity	Health disability-morbidity	Health expense	Health revision	SLT health lapse
Health mortality	1	-0.25	0.25	0.25	0	0
Health longevity	-0.25	1	0	0.25	0.25	0.25
Health disability-morbidity	0.25	0	1	0.5	0	0
Health expense	0.25	0.25	0.5	1	0.5	0.5
Health revision	0	0.25	0	0.5	1	0
SLT health lapse	0	0.25	0	0.5	0	1

1.

A firm must calculate the capital requirement for health mortality risk as equal to the loss in its basic own funds that would result from an instantaneous permanent increase of 15% in the mortality rates used for the calculation of technical provisions.

2.

A firm must only apply the increase in mortality rates referred to in 3C9.1 to those insurance policies for which an increase in mortality rates leads to an increase in technical provisions without the risk margin and in identifying such policies, the firm may make the following assumptions:

1. (1) multiple insurance policies in respect of the same insured person may be treated as if they were one insurance policy; and
2. (2) where the calculation of technical provisions is based on groups of policies as referred to in Technical Provisions – Further Requirements 20, the identification of the policies for which technical provisions increase under an increase in mortality rates may also be based on those groups of policies instead of single policies, provided that it yields a result that is not materially different. 

3.

With regard to reinsurance obligations, the identification of the policies for which technical provisions increase under an increase in mortality rates must only apply to the underlying insurance policies and must be carried out in accordance with 3C9.2.

1.

A firm must calculate the capital requirement for health longevity risk as equal to the loss in its basic own funds that would result from an instantaneous permanent decrease of 20% in the mortality rates used for the calculation of technical provisions.

2.

A firm must only apply the decrease in mortality rates referred to in 3C10.1 to those insurance policies for which a decrease in mortality rates leads to an increase in technical provisions without the risk margin and in identifying such policies, the firm may make the following assumptions:

1. (1) multiple insurance policies in respect of the same insured person may be treated as if they were one insurance policy; and
2. (2) where the calculation of technical provisions is based on groups of policies as referred to in Technical Provisions – Further Requirements 20, the identification of the policies for which technical provisions increase under a decrease in mortality rates may also be based on those groups of policies instead of single policies, provided that it yields a result that is not materially different. 

3.

With regard to reinsurance obligations, the identification of the policies for which technical provisions increase under a decrease in mortality rates must only apply to the underlying insurance policies and must be carried out in accordance with 3C10.2. 

1.

A firm must calculate the capital requirement for health disability-morbidity risk as the sum of the following:

1. (1) the capital requirement for medical expense disability-morbidity risk; and
2. (2) the capital requirement for income protection disability-morbidity risk. 

2.

A firm must apply:

1. (1) the scenarios underlying the calculation of the capital requirement for medical expense disability-morbidity risk only to medical expense insurance obligations and medical expense reinsurance obligations where the underlying business is pursued on a similar technical basis to that of life insurance; and
2. (2) the scenarios underlying the calculation of the capital requirement for income protection disability-morbidity risk only to income protection insurance obligations and income protection reinsurance obligations where the underlying business is pursued on a similar technical basis to that of life insurance.

1.

A firm must calculate the capital requirement for medical expense disability-morbidity risk as equal to the higher of the following capital requirements:

1. (1) the capital requirement for the increase of medical payments; and
2. (2) the capital requirement for the decrease of medical payments.

2.

A firm must calculate the capital requirement for the increase of medical payments as equal to the loss in its basic own funds that would result from the following combination of instantaneous permanent changes:

1. (1) an increase of 5% in the amount of medical payments taken into account in the calculation of technical provisions; and
2. (2) an increase of one percentage point in the inflation rate of medical payments (expressed as a percentage) used for the calculation of technical provisions.

3.

A firm must calculate the capital requirement for the decrease of medical payments as equal to the loss in its basic own funds that would result from the following combination of instantaneous permanent changes:

1. (1) a decrease of 5% in the amount of medical payments taken into account in the calculation of technical provisions; and
2. (2) a decrease of one percentage point in the inflation rate of medical payments (expressed as a percentage) used for the calculation of technical provisions.

1.

A firm must calculate the capital requirement for income protection disability-morbidity risk as equal to the loss in its basic own funds that would result from the following combination of instantaneous permanent changes:

1. (1) an increase of 35% in the disability and morbidity rates that are used in the calculation of technical provisions to reflect the disability and morbidity in the following 12 months;
2. (2) an increase of 25% in the disability and morbidity rates that are used in the calculation of technical provisions to reflect the disability and morbidity in the years after the following 12 months;
3. (3) where the disability and morbidity recovery rates used in the calculation of technical provisions are lower than 50%, a decrease of 20% in those rates; and
4. (4) where the disability and morbidity persistency rates used in the calculation of technical provisions are equal to or lower than 50%, an increase of 20% in those rates.

1.

A firm must calculate the capital requirement for health expense risk as equal to the loss in is basic own funds that would result from the following combination of instantaneous permanent changes:

1. (1) an increase of 10% in the amount of expenses taken into account in the calculation of technical provisions; and
2. (2) an increase of one percentage point in the expense inflation rate (expressed as a percentage) used for the calculation of technical provisions.

With regard to reinsurance obligations, a firm must apply those changes to its own expenses and, where relevant, to the expenses of the ceding undertakings.

1.

A firm must calculate the capital requirement for health revision risk as equal to the loss in its basic own funds that would result from an instantaneous permanent increase of 4% in the amount of annuity benefits, only on annuity insurance and reinsurance obligations where the benefits payable under the underlying insurance policies could increase as a result of changes in inflation, the legal environment or the state of health of the person insured.

1.

A firm must calculate the capital requirement for SLT health lapse risk as equal to the higher of the following capital requirements:

1. (1) capital requirement for the risk of a permanent increase in SLT health lapse rates;
2. (2) capital requirement for the risk of a permanent decrease in SLT health lapse rates; and
3. (3) capital requirement for SLT health mass lapse risk.

2.

A firm must calculate the capital requirement for the risk of a permanent increase in SLT health lapse rates as equal to the loss in its basic own funds that would result from an instantaneous permanent increase of 50% in the exercise rates of the relevant options (as set out in 3C16.4 and 3C16.5), provided that the increased option exercise rates must not exceed 100% and the increase in option exercise rates must only apply to relevant options for which the exercise would result in an increase in technical provisions without the risk margin.

3.

A firm must calculate the capital requirement for the risk of a permanent decrease in SLT health lapse rates as equal to the loss in its basic own funds that would result from an instantaneous permanent decrease of 50% in the option exercise rates of the relevant options (as set out in 3C16.4 and 3C16.5), provided that, the decrease in option exercise rates must not exceed 20 percentage points and the decrease in option exercise rates must only apply to relevant options for which the exercise would result in a decrease in technical provisions without the risk margin.

4.

The relevant options for the purposes of 3C16.2 and 3C16.3 must be the following:

1. (1) all legal or contractual policyholder rights to fully or partly terminate, surrender, decrease, restrict or suspend the insurance or reinsurance cover or permit the insurance policy to lapse; and
2. (2) all legal or contractual policyholder rights to fully or partially establish, renew, increase, extend or resume the insurance or reinsurance cover.

For the purposes of 3C16.4(2), the change in the option exercise rate referred to in 3C16.2 and 3C16.3 should be applied to the rate reflecting that the relevant option is not exercised.

5.

In relation to reinsurance contracts, the relevant options for the purposes of 3C16.2 and 3C16.3 must be the following:

1. (1) the rights referred to in 3C16.4 of the policyholders of the reinsurance contracts;
2. (2) the rights set out in 3C16.4 of the policyholders of the contracts of insurance underlying the reinsurance contracts; and
3. (3) where reinsurance contracts cover contracts of insurance or reinsurance contracts that will be written in the future, the right of the potential policyholders not to conclude those contracts of insurance or reinsurance contracts.

6.

A firm must calculate the capital requirement for SLT health mass lapse risk as equal to the loss in its basic own funds that would result from a combination of the following instantaneous events:

1. (1) the discontinuance of 40% of the insurance policies for which discontinuance would result in an increase in technical provisions without the risk margin; and
2. (2) where reinsurance contracts cover contracts of insurance or reinsurance contracts that will be written in the future, the decrease of 40% of the number of those future contracts of insurance or reinsurance contracts used in the calculation of technical provisions.

7.

A firm must apply the events referred to in 3C16.6 uniformly to all relevant contracts of insurance and reinsurance contracts and in respect of any such reinsurance contracts, the firm must apply the event referred to in 3C16.6(1) to the underlying contracts of insurance.

8.

For the purposes of determining the loss in its basic own funds under the event referred to in 3C16.6(1), the firm must base the calculation on the type of discontinuance that most negatively affects its basic own funds on a per policy basis.

9.

Where the highest of the capital requirements referred to in 3C16.1(1), (2) and (3) and the highest of the corresponding capital requirements calculated in accordance with 6.3(2) are not based on the same scenario, the capital requirement for lapse risk must be the capital requirement referred to in 3C16.1(1), (2) and (3) for which the underlying scenario results in the highest corresponding capital requirement calculated in accordance with 6.3(2).

1.

A firm must calculate the capital requirement for the health catastrophe risk sub-module in accordance with the following formula:

$${SCR}_{healthCAT}=\sqrt{{SCR}_{ma}^2+{SCR}_{ac}^2+{SCR}_p^2}$$

where:

1. (1) SCR_ma denotes the capital requirement for the mass accident risk sub-module;
2. (2) SCR_ac denotes the capital requirement for the accident concentration risk sub-module; and
3. (3) SCR_p denotes the capital requirement for the pandemic risk sub-module.

2.

1. (1) the mass accident risk sub-module to health insurance obligations and health reinsurance obligations other than workers’ compensation insurance obligations and workers’ compensation reinsurance obligations;
2. (2) the accident concentration risk sub-module to workers’ compensation insurance obligations and workers’ compensation reinsurance obligations and to group income protection insurance obligations and group income protection reinsurance obligations; and
3. (3) the pandemic risk sub-module to health insurance obligations and health reinsurance obligations other than workers’ compensation insurance obligations and workers’ compensation reinsurance obligations.

1.

A firm must calculate the capital requirement for the mass accident risk sub-module in accordance with the following formula:

$${SCR}_{ma}=\sqrt{\sum _s{SCR}_{(ma,s)}^2}$$

where:

1. (1) the sum includes all countries set out in Annex XVI; and
2. (2) SCR_{(ma, s)} denotes the capital requirement for mass accident risk of country s.

2.

For all countries set out in Annex XVI, a firm must calculate the capital requirement for mass accident risk of a particular country s as equal to the loss in its basic own funds that would result from an instantaneous loss of an amount that, without deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles, is calculated in accordance with the following formula:

$$L_{(ma,s)}=r_s\cdot {\sum }_e{x}_e\cdot E_{(e,s)}$$

where:

1. (1) r_s denotes the ratio of persons affected by the mass accident in country s as set out in Annex XVI;
2. (2) the sum includes the event types e set out in Annex XVI;
3. (3) 𝑥_e denotes the ratio of persons who will receive benefits attributable to event type e as a result of the accident as set out in Annex XVI; and
4. (4) E_{(e, s)} denotes the total value of benefits payable by the firm in respect of event type e in country s.

3.

For all event types set out in Annex XVI and all countries set out in Annex XVI, a firm must calculate its sum insured for a particular event type e in a particular country s in accordance with the following formula:

$$E_{(e,s)}={\sum }_i{SI}_{(e,i)}$$

where:

1. (1) the sum includes all insured persons i of the firm who are insured against event type e and are inhabitants of country s; and
2. (2) SI_{(e, i)} denotes the value of the benefits payable by the firm for the insured person i in case of event type e.

4.

For the purposes of 3C18.3(2), a firm must calculate the value of the benefits as the sum insured or where the contract of insurance provides for recurring benefit payments the best estimate of the benefit payments in case of event type e. Where the benefits of a contract of insurance depend on the nature or extent of any injury resulting from event type e, the calculation of the value of the benefits must be based on the maximum benefits payable under the contract of insurance that are consistent with the event. For medical expense insurance obligations and medical expense reinsurance obligations the value of the benefits must be based on an estimate of the average amounts paid in case of event type e, assuming the insured person is disabled for the duration specified and taking into account the specific guarantees included within the obligations.

5.

Subject to 7.2, a firm may calculate the value of benefits payable for the insured person referred to in 3C18.3(2) based on homogenous risk groups, provided that the grouping of policies complies with Technical Provisions – Further Requirements 20.

1.

A firm must calculate the capital requirement for the accident concentration risk sub-module in accordance with the following formula:

$${SCR}_{ac}=\sqrt{\sum _c{SCR}_{(ac,c)}^2}$$

where:

1. (1) the sum includes all countries c; and
2. (2) SCR_{(ac, c)} denotes the capital requirement for accident concentration risk of country c.

2.

For all countries a firm must calculate the capital requirement for accident concentration risk of country c as equal to the loss in is basic own funds that would result from an instantaneous loss of an amount that, without deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles, is calculated in accordance with the following formula:

$$L_{(ac,c)}=C_c\cdot {\sum }_c{x}_e\cdot {CE}_{(e,c)}$$

where:

1. (1) C_c denotes the largest accident risk concentration of the firm in country c;
2. (2) the sum includes the event types e set out in Annex XVI;
3. (3) 𝑥_e denotes the ratio of persons who will receive benefits attributable to event type e as a result of the accident as set out in Annex XVI; and
4. (4) CE_{(e, c)} denotes the average value of benefits payable by the firm for event type e for the largest accident risk concentration in country c.

3.

For all countries, a firm must calculate the highest accident risk concentration of a firm in country c as equal to the highest number of persons for which all of the following requirements are met:

1. (1) the firm has a workers’ compensation insurance obligation or a workers’ compensation reinsurance obligation or a group income protection insurance obligation or a group income protection reinsurance obligation in relation to each of the persons;
2. (2) the obligations in relation to each of the persons cover at least one of the events set out in Annex XVI; and
3. (3) the persons are working in the same building, which is situated in country c.

4.

For all event types and countries, a firm must calculate its average sum insured for event type e for the largest accident risk concentration in country c in accordance with the following formula:

$${CE}_{(e,c)}=\frac{1}{N_e}{\sum }_{i=1}^{Ne}{SI}_{(e,i)}$$

where:

1. (1) N_e denotes the number of insured persons who are insured by the firm against event type e and who belong to the largest accident risk concentration of the firm in country c;
2. (2) the sum includes all the insured persons referred to in (1); and
3. (3) SI_{(e, i)} denotes the value of the benefits payable by the firm for the insured person i in case of event type e.

5.

For the purposes of 3C19.4(3), a firm must calculate the value of the benefits as the sum insured or where the contract of insurance provides for recurring benefit payments the best estimate of the benefit payments in case of event type e. Where the benefits of an insurance policy depend on the nature or extent of the injury resulting from event type e, the calculation of the value of the benefits must be based on the maximum benefits payable under the policy, that are consistent with the event. For medical expense insurance obligations and medical expense reinsurance obligations the value of the benefits must be based on an estimate of the average amounts paid in case of event type e, assuming the insured person is disabled for the duration specified and taking into account the specific guarantees included within the obligations.

6.

Subject to 7.2, a firm may calculate the value of the benefits referred to in 3C19.4(3) based on homogenous risk groups, provided that the grouping of policies complies with the requirements set out in Technical Provisions – Further Requirements 20.

1.

A firm must calculate the capital requirement for the pandemic risk sub-module as equal to the loss in its basic own funds that would result from an instantaneous loss of an amount that, without deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles, is calculated in accordance with the following formula:

$$L_p=0.000075\cdot E+0.4\cdot {\sum }_c{N}_c\cdot M_c$$

1. (1) E denotes the income protection pandemic exposure of the firm;
2. (2) the sum includes all countries c;
3. (3) N_c denotes the number of insured persons of the firm who meet all of the following requirements:
   1. (a) the insured persons are inhabitants of country c; and
   2. (b) the insured persons are covered by a contract of insurance that includes medical expense insurance obligations or medical expense reinsurance obligations, other than workers’ compensation insurance obligations or workers’ compensation reinsurance obligations, that cover medical expenses resulting from an infectious disease; and
4. (4) M_c denotes the expected average amount payable by the firm per insured person of country c in case of a pandemic.

2.

A firm must calculate its income protection pandemic exposure in accordance with the following formula:

$$E={\sum }_i{E}_i$$

1. (1) the sum includes all insured persons i covered by a contract of insurance that includes income protection insurance obligations or income protection reinsurance obligations other than workers’ compensation insurance obligations or workers’ compensation reinsurance obligations;
2. (2) E_i denotes the value of the benefits payable by the firm for the insured person i in case of a permanent work disability caused by an infectious disease. The value of the benefits must be the sum insured or, where the contract of insurance provides for recurring benefit payments, the best estimate of the benefit payments assuming that the insured person is permanently disabled and will not recover.

3.

For all countries, a firm must calculate the expected average amount payable by the firm per insured person of a particular country c in case of a pandemic in accordance with the following formula:

$$M_c={\sum }_h{H}_h\cdot {CH}_{(h,c)}$$

where:

1. (1) the sum includes the types of healthcare utilisation h set out in Annex XVI;
2. (2) H_h denotes the ratio of insured persons with clinical symptoms utilising healthcare type h as set out in Annex XVI; and
3. (3) CH_{(h, c)} denotes the best estimate of the amounts payable by the firm for an insured person in country c in relation to medical expense insurance obligations or medical expense reinsurance obligations, other than workers’ compensation insurance obligations or workers’ compensation reinsurance obligations, for healthcare utilisation type h in the event of a pandemic.