Prudential Regulation Authority Rulebook

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.