Prudential Regulation Authority Rulebook

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%.