Prudential Regulation Authority Rulebook

1.1

Unless otherwise stated, this Part applies to: 

1. (1) a UK Solvency II firm;
2. (2) in accordance with Insurance General Application 3, the Society, and 
3. (3) in accordance with Insurance General Application 3, managing agents.

2.1

For the calculation of the best estimate and the risk margin of technical provisions, a firm must recognise an insurance or reinsurance obligation at the date that it becomes a party to the contract that gives rise to the obligation or the date the insurance or reinsurance cover begins, whichever date occurs earlier. A firm must only recognise the obligations within the boundary of the contract.
A firm must derecognise an insurance or reinsurance obligation only when it is extinguished, discharged, cancelled or expires.

3.1

The boundaries of a contract of insurance are defined in accordance with 3.2 to 3.7.

3.2

All obligations relating to the contract, including obligations relating to unilateral rights of the firm to renew or extend the scope of the contract and obligations that relate to paid premiums, must belong to the contract unless otherwise stated in 3.3 to 3.6.

3.3

Obligations which relate to insurance or reinsurance cover provided by the firm after any of the following dates do not belong to the contract, unless the firm can compel the policyholder to pay the premium for those obligations:

1. (1) the future date where the firm has a unilateral right to terminate the contract;
2. (2) the future date where the firm has a unilateral right to reject premiums payable under the contract;
3. (3) the future date where the firm has a unilateral right to amend the premiums or the benefits payable under the contract in such a way that the premiums fully reflect the risks.

3.3(3) applies where a firm has a unilateral right to amend at a future date the premiums or benefits of a portfolio of insurance or reinsurance obligations in such a way that the premiums of the portfolio fully reflect the risks covered by the portfolio.

However, in the case of long-term insurance business obligations where an individual risk assessment of the obligations relating to the insured person of the contract is carried out at the inception of the contract and that assessment cannot be repeated before amending the premiums or benefits, a firm must assess at the level of the contract whether the premiums fully reflect the risk for the purposes of (3).

A firm must not take into account restrictions on the unilateral right as referred to in (1), (2) and (3) of this paragraph and limitations on the extent to which premiums or benefits can be amended that have no discernible effect on the economics of the contract.

3.4

Where the firm has a unilateral right as referred to in 3.3 that only relates to a part of the contract, the same principles as defined in 3.3 must apply to that part of the contract.

3.5

Obligations that do not relate to premiums which have already been paid do not belong to a contract of insurance if all of the following requirements are met:

1. (1) the contract does not provide compensation for a specified uncertain event that adversely affects the insured person;
2. (2) the contract does not include a financial guarantee of benefits; and
3. (3) the firm cannot compel the policyholder to pay the future premium for those obligations.

For the purpose of (1) and (2), a firm must not take into account coverage of events and guarantees that have no discernible effect on the economics of the contract.

3.6

Where a contract of insurance can be unbundled into two parts and where one of those parts meets the requirements set out in 3.5(1), (2) and (3), any obligations that do not relate to the premiums of that part and which have already been paid do not belong to the contract.

3.7

A firm must, for the purposes of 3.3, only consider that premiums fully reflect the risks covered by a portfolio of insurance or reinsurance obligations, where there is no circumstance under which the amount of the benefits and expenses payable under the portfolio exceeds the amount of the premiums payable under the portfolio.

4.1

Data used in the calculation of the technical provisions is only complete for the purpose of 12.1 in the Technical Provisions Part where both of the following conditions are met:

1. (1) the data include sufficient historical information to assess the characteristics of the underlying risks and to identify trends in the risks; and
2. (2) the data are available for each of the relevant homogeneous risk groups used in the calculation of the technical provisions and no relevant data is excluded from being used in the calculation of the technical provisions without justification.

4.2

Data used in the calculation of the technical provisions is only accurate for the purpose of 12.1 in the Technical Provisions Part where all of the following conditions are met:

1. (1) the data are free from material errors;
2. (2) data from different time periods used for the same estimation are consistent;
3. (3) the data are recorded in a timely manner and consistently over time.

4.3

Data used in the calculation of the technical provisions is only to be considered appropriate for the purpose of 12.1 in the Technical Provisions Part where all of the following conditions are met:

1. (1) the data are consistent with the purposes for which they will be used;
2. (2) the amount and nature of the data ensure that the estimations made in the calculation of the technical provisions on the basis of the data do not include a material estimation error;
3. (3) the data are consistent with the assumptions underlying the actuarial and statistical techniques that are applied to them in the calculation of the technical provisions;
4. (4) the data appropriately reflect the risks to which the firm is exposed with regard to its insurance and reinsurance obligations;
5. (5) the data were collected, processed and applied in a transparent and structured manner, based on a documented process that comprises all of the following:
   1. (a) the definition of criteria for the quality of data and an assessment of the quality of data, including specific qualitative and quantitative standards for different data sets;
   2. (b) the use of and setting of assumptions made in the collection, processing and application of data;
   3. (c) the process for carrying out data updates, including the frequency of updates and the circumstances that trigger additional updates; and
6. (6) a firm ensures that its data are used consistently over time in the calculation of the technical provisions. 

For the purposes of (2), an estimation error in the calculation of the technical provisions must be considered material where it could influence the decision-making or the judgement of the users of the calculation result, including a supervisory authority.

4.4

A firm may use data from an external source provided that, in addition to fulfilling the requirements set out in 4.1 to 4.3, all of the following requirements are met:

1. (1) the firm is able to demonstrate that the use of that data is more suitable than the use of data which are exclusively available from an internal source;
2. (2) the firm knows the origin of that data and the assumptions or methodologies used to process that data;
3. (3) the firm identifies any trends in that data and the variation, over time or across data, of the assumptions or methodologies in the use of that data; and
4. (4) the firm is able to demonstrate that the assumptions and methodologies referred to in (2) and (3) reflect the characteristics of the firm’s portfolio of insurance and reinsurance obligations.

5.1

Where data does not comply with 4, a firm must document appropriately the limitations of the data, including a description of whether and how such limitations will be remedied and of the functions within the system of governance of the firm responsible for that process. The data, before adjustments to remedy limitations are made to it, must be recorded and stored appropriately by the firm.

6.1

Where a firm has insufficient data of appropriate quality to apply a reliable actuarial method, the firm may use appropriate approximations to calculate the best estimate provided that all of the following requirements are met:

1. (1) the insufficiency of data is not due to inadequate internal processes and procedures of collecting, storing or validating data used for the valuation of technical provisions;
2. (2) the insufficiency of data cannot be remedied by the use of external data; and
3. (3) it would not be practicable for the firm to adjust the data to remedy the insufficiency.

7.1

Assumptions shall only be considered realistic for the purposes of 3.1(2)(a) in the Technical Provisions Part where they meet all of the following conditions:

1. (1) the firm is able to explain and justify each of the assumptions used, taking into account the significance of the assumption, the uncertainty involved in the assumption as well as relevant alternative assumptions;
2. (2) the circumstances under which the assumptions would be considered false can be clearly identified;
3. (3) unless otherwise provided in this Part, the assumptions are based on the characteristics of the portfolio of insurance and reinsurance obligations, where possible regardless of the firm holding the portfolio;
4. (4) the firm uses the assumptions consistently over time and within homogeneous risk groups and lines of business, without arbitrary changes; and
5. (5) the assumptions adequately reflect any uncertainty underlying the cash-flows.

For the purpose of (3), a firm must only use information specific to that firm, including information on claims management and expenses, where that information better reflects the characteristics of the portfolio of insurance or reinsurance obligations than information that is not limited to the specific firm or where the calculation of technical provisions in a prudent, reliable and objective manner without using that information is not possible.

7.2

Assumptions must only be used for the purpose of 4.2 in the Technical Provisions Part where they comply with 7.1.

7.3

A firm must set assumptions on future financial market parameters or scenarios that are appropriate and consistent with 2 to 12 of the Valuation Part. Where a firm uses a model to produce projections of future financial market parameters, the firm must ensure it complies with all of the following requirements: 

1. (1) it generates asset prices that are consistent with asset prices observed in financial markets;
2. (2) it assumes no arbitrage opportunity; and
3. (3) the calibration of the parameters and scenarios is consistent with the relevant risk-free interest rate term structure used to calculate the best estimate as referred to in 3 of the Technical Provisions Part.
   

8.1

Assumptions on future management actions shall only be considered realistic for the purposes of 3.1(2)(a) in the Technical Provisions Part where they meet all of the following conditions:

1. (1) the assumptions on future management actions are determined in an objective manner;
2. (2) assumed future management actions are consistent with the firm’s current business practice and business strategy, including the use of risk-mitigation techniques; where there is sufficient evidence that the firm will change its practices or strategy, the assumed future management actions are consistent with the changed practices or strategy;
3. (3) assumed future management actions are consistent with each other;
4. (4) assumed future management actions are not contrary to any obligations towards policyholders or to legal requirements applicable to the firm; and
5. (5) assumed future management actions take account of any public indications by the firm as to the actions that it would expect to take or not take.

8.2

Assumptions about future management actions shall be realistic and include all of the following:

1. (1) a comparison of assumed future management actions with management actions taken previously by the firm;
2. (2) a comparison of future management actions taken into account in the current and in the past calculations of the best estimate; and
3. (3) an assessment of the impact of changes in the assumptions on future management actions on the value of the technical provisions.

A firm must be able to explain any relevant deviations in relation to (1) and (2) to the PRA and, where changes in an assumption on future management actions have a significant impact on the technical provisions, the reasons for that sensitivity and how the sensitivity is taken into account in the decision-making process of the firm.

8.3

For the purpose of 8.1, a firm must establish a comprehensive future management actions plan, approved by the governing body of the firm, which provides for all of the following:

1. (1) the identification of future management actions that are relevant to the valuation of the technical provisions;
2. (2) the identification of the specific circumstances in which the firm would reasonably expect to carry out each respective future management action referred to in 8.3(1);
3. (3) the identification of the specific circumstances in which the firm may not be able to carry out each respective future management action referred to in 8.3(1), and a description of how those circumstances are considered in the calculation of technical provisions;
4. (4) the order in which future management actions referred to in 8.3(1) would be carried out and the governance requirements applicable to those future management actions;
5. (5) a description of any on-going work required to ensure that the firm is in a position to carry out each respective future management action referred to in 8.3(1);
6. (6) a description of how the future management actions referred to in 8.3(1) have been reflected in the calculation of the best estimate; and
7. (7) a description of the applicable internal reporting procedures that cover the future management actions referred to in 8.3(1) included in the calculation of the best estimate.

8.4

Assumptions about future management actions must take account of the time needed to implement the management actions and any expenses caused by them.

8.5

The system for ensuring the transmission of information shall only be considered to be effective for the purpose of 2.2 of the Conditions Governing Business Part where the reporting procedures referred to in 8.3(7) include at least an annual communication to the governing body.

9.1

Where future discretionary benefits depend on the assets held by the firm, the firm must base the calculation of the best estimate on the assets it currently holds and must assume future changes of their asset allocation in accordance with 8. The assumptions on the future returns of the assets must be consistent with the relevant risk-free interest rate term structure, including where applicable a matching adjustment, a volatility adjustment, or a risk-free interest rate transitional measure, and the valuation of the assets in accordance with 2 to 12 of the Valuation Part.

10.1

When calculating technical provisions, a firm must determine separately the value of future discretionary benefits.

11.1

When determining the likelihood that policyholders will exercise contractual options, including lapses and surrenders, a firm must conduct an analysis of past policyholder behaviour and a prospective assessment of expected policyholder behaviour. That analysis must take into account all of the following:

1. (1) how beneficial the exercise of the options was and will be to the policyholders under circumstances at the time of exercising the option;
2. (2) the influence of past and future economic conditions;
3. (3) the impact of past and future management actions; and
4. (4) any other circumstances that are likely to influence decisions by policyholders on whether to exercise the option.

The likelihood shall only be considered to be independent of the elements referred to in (1) to (4) where there is empirical evidence to support such an assumption.

12.1

Information shall only be considered credible for the purposes of 3.1 of the Technical Provisions Part where a firm can provide evidence of the credibility of the information taking into account the consistency and objectivity of that information, the reliability of the source of the information and the transparency of the way in which the information is generated and processed.

13.1

The cash-flow projection used in the calculation of the best estimate must include all of the following cash-flows, to the extent that these cash-flows relate to existing contracts of insurance:

1. (1) benefit payments to policyholders;
2. (2) payments that the firm will incur in providing contractual benefits that are paid in kind;
3. (3) payments of expenses as referred to in 9.1(1) of the Technical Provisions Part;
4. (4) premium payments and any additional cash-flows that result from those premiums;
5. (5) payments between the firm and intermediaries related to insurance or reinsurance obligations;
6. (6) payments between the firm and investment firms in relation to contracts with index-linked benefits and unit linked benefits;
7. (7) payments for salvage and subrogation to the extent that they do not qualify as separate assets or liabilities in accordance with UK-adopted international accounting standards; and
8. (8) taxation payments which are, or are expected to be, charged to policyholders or are required to settle the insurance or reinsurance obligations.
9.  

14.1

The calculation of the best estimate must take into account expected future developments that will have a material impact on the cash in- and out-flows required to settle the insurance and reinsurance obligations over their lifetime. For that purpose future developments must include demographic, legal, medical, technological, social, environmental and economic developments including inflation as referred to in 9.1(2) of the Technical Provisions Part.

15.1

The cash-flow projection used in the calculation of the best estimate must, explicitly or implicitly, take account of all uncertainties in the cash-flows, including all of the following characteristics:

1. (1) uncertainty in the timing, frequency and severity of insured events;
2. (2) uncertainty in claim amounts, including uncertainty in claims inflation, and in the period needed to settle and pay claims;
3. (3) uncertainty in the amount of expenses referred to 9.1(1) of the Technical Provisions Part;
4. (4) uncertainty in expected future developments referred to in 14 to the extent that it is practicable;
5. (5) uncertainty in policyholder behaviour;
6. (6) dependency between two or more causes of uncertainty; and
7. (7) dependency of cash-flows on circumstances prior to the date of the cash-flow.

16.1

A cash-flow projection used to calculate best estimates must take into account all of the following expenses, which relate to recognised insurance and reinsurance obligations of the firm and which are referred to in 9.1(1) of the Technical Provisions Part:

1. (1) administrative expenses;
2. (2) investment management expenses;
3. (3) claims management expenses; and
4. (4) acquisition expenses.

The expenses referred to in (1) to (4) must take into account overhead expenses incurred in servicing insurance and reinsurance obligations.

 

16.2

Overhead expenses must be allocated in a realistic and objective manner and on a consistent basis over time to the parts of the best estimate to which they relate.

16.3

Expenses in respect of reinsurance contracts and special purpose vehicles must be taken into account in the gross calculation of the best estimate.

16.4

Expenses must be projected on the assumption that the firm will write new business in the future.

17.1

When calculating the best estimate, a firm must take into account both of the following:

1. (1) all financial guarantees and contractual options included in their contracts of insurance; and
2. (2) all factors which may affect the likelihood that policyholders will exercise contractual options or realise the value of financial guarantees.

18.1

The best estimate must be calculated separately for cash-flows in different currencies.

19.1

The best estimate is to be calculated in a transparent manner and in such a way as to ensure that the calculation method and the results that derive from it are capable of review by a qualified expert.

19.2

The choice of actuarial and statistical methods for the calculation of the best estimate must be based on their appropriateness to reflect the risks which affect the underlying cash-flows and the nature of the insurance and reinsurance obligations. The actuarial and statistical methods are to be consistent with and make use of all relevant data available for the calculation of the best estimate.

19.3

Where a calculation method is based on grouped policy data, a firm must ensure that the grouping of policies creates homogeneous risk groups that appropriately reflect the risks of the individual policies included in those groups.

19.4

A firm must analyse the extent to which the present value of cash-flows depends both on the expected outcome of future events and developments and on how the actual outcome in certain scenarios could deviate from the expected outcome.

19.5

Where the present value of cash-flows depends on future events and developments as referred to in 19.4, a firm must use a method to calculate the best estimate for cash-flows which reflects such dependencies.

20.1

Subject to 27, a firm must make cash-flow projections used in the calculation of best estimates for long-term insurance business obligations: 

1. (1) separately for each policy, or 
2. (2) a firm may carry out the projection for groups of policies, provided that the grouping complies with all of the following requirements:
   1. (a) there are no significant differences in the nature and complexity of the risks underlying the policies that belong to the same group;
   2. (b) the grouping of policies does not misrepresent the risk underlying the policies and does not misstate their expenses; and
   3. (c) the grouping of policies is likely to give approximately the same results for the best estimate calculation as a calculation on a per policy basis, in particular in relation to financial guarantees and contractual options included in the policies.
      

21.1

The best estimate for general insurance business obligations must be calculated separately for the premium provision and for the provision for claims outstanding.

21.2

The premium provision must relate to future claim events covered by insurance and reinsurance obligations falling within the contract boundary referred to in 3. Cash-flow projections for the calculation of the premium provision must include benefits, expenses and premiums relating to these events.

21.3

The provision for claims outstanding must relate to claim events that have already occurred, regardless of whether the claims arising from those events have been reported or not.

21.4

Cash-flow projections for the calculation of the provision for claims outstanding must include benefits, expenses and premiums relating to the events referred to in 21.3.

22.1

For the purposes of Technical Provisions 2.5(2)(a), reliability must be assessed pursuant to 22.2 and 22.3 and technical provisions must be valued pursuant to 22.4.

22.2

A firm shall consider the replication of cash-flows to be reliable where those cash-flows are replicated in amount and timing in relation to the underlying risks of those cash-flows and in all possible scenarios. The following cash-flows associated with insurance or reinsurance obligations cannot be reliably replicated:

1. (1) cash-flows associated with insurance or reinsurance obligations that depend on the likelihood that policyholders will exercise contractual options, including lapses and surrenders;
2. (2) cash-flows associated with insurance or reinsurance obligations that depend on the level, trend, or volatility of mortality, disability, sickness and morbidity rates;
3. (3) all expenses that will be incurred in servicing insurance and reinsurance obligations.

22.3

Financial instruments shall be considered to be financial instruments for which a reliable market value is observable where those financial instruments are traded on an active, deep, liquid and transparent market. Active markets must also comply with 6.4 of the Valuation Part.

22.4

A firm must determine the value of technical provisions on the basis of the market price of the financial instruments used in the replication.

23.1

The amounts recoverable from reinsurance contracts and special purpose vehicles must be calculated consistently with the boundaries of the contracts of insurance to which those amounts relate.

23.2

The amounts recoverable from special purpose vehicles, the amounts recoverable from finite reinsurance contracts as referred to in 8.1 of the Conditions Governing Business Part and the amounts recoverable from other reinsurance contracts must each be calculated separately. The amounts recoverable from a special purpose vehicles must not exceed the aggregate maximum risk exposure of that special purpose vehicles to the firm.

23.3

For the purpose of calculating the amounts recoverable from reinsurance contracts and special purpose vehicles, cash-flows shall only include payments in relation to compensation of insurance events and unsettled insurance claims. Payments in relation to other events or settled insurance claims are to be accounted for outside the amounts recoverable from reinsurance contracts and special purpose vehicles and other elements of the technical provisions. Where a deposit has been made for the cash-flows, the amounts recoverable are to be adjusted accordingly to avoid a double counting of the assets and liabilities relating to the deposit.

23.4

The amounts recoverable from reinsurance contracts and special purpose vehicles for general insurance business obligations must be calculated separately for premium provisions and provisions for claims outstanding in the following manner:

1. (1) the cash-flows relating to provisions for claims outstanding must include the compensation payments relating to the claims accounted for in the gross provisions for claims outstanding of the firm ceding risks;
2. (2) the cash-flows relating to premium provisions must include all other payments.

23.5

Where cash-flows from the special purpose vehicles to the firm do not directly depend on the claims against the firm ceding risks, the amounts recoverable from those special purpose vehicles for future claims shall only be taken into account to the extent that it can be verified in a prudent, reliable and objective manner that the structural mismatch between claims and amounts recoverable is not material.

24.1

Adjustments to take account of expected losses due to default of a counterparty referred to in 11.1(3) of the Technical Provisions Part must be calculated separately from the rest of the amounts recoverable.

24.2

The adjustment to take account of expected losses due to default of a counterparty must be calculated as the expected present value of the change in cash-flows underlying the amounts recoverable from that counterparty, that would arise if the counterparty defaults, including as a result of insolvency or dispute, at a certain point in time. For that purpose, the change in cash-flows must not take into account the effect of any risk-mitigation techniques that mitigates the credit risk of the counterparty, other than risk-mitigation techniques based on collateral holdings. The risk-mitigation techniques that are not taken into account are to be separately recognised without increasing the amount recoverable from reinsurance contracts and special purpose vehicles.

24.3

The calculation referred to in 24.2 must take into account possible default events over the lifetime of the reinsurance contract or arrangement with the special purpose vehicle and whether and how the probability of default varies over time. It must be carried out separately by each counterparty and for each line of business. In general insurance business, it is also to be carried out separately for premium provisions and provisions for claims outstanding.

24.4

The average loss resulting from a default of a counterparty, referred to in 11.1(3) of the Technical Provisions Part, must not be assessed at lower than 50% of the amounts recoverable excluding the adjustment referred to in 24.1, unless there is a reliable basis for another assessment.

24.5

The probability of default of a special purpose vehicle is to be calculated on the basis of the credit risk inherent in the assets held by the special purpose vehicle.

25.1

A firm may use the basic relevant risk-free interest rate term structure for the EUR, adjusted for currency risk, to calculate the best estimate with respect to insurance or reinsurance obligations denoted in a currency pegged to the EUR, provided that all of the following conditions are met:

1. (1) the pegging ensures that the exchange rate between that currency and the EUR stays within a range not wider than 20% of the upper limit of the range;
2. (2) the economic situation of the EUR area and the area of that currency are sufficiently similar to ensure that interest rates for the EUR and that currency develop in a similar way;
3. (3) the pegging arrangement ensures that the relative changes in the exchange rate over a one-year-period do not exceed the range referred to in (1) in the event of extreme market events, that correspond to the confidence level set out in Solvency Capital Requirement – General Provisions 3.3 and 3.4; and
4. (4) one of the following criteria is complied with:
   1. (a) participation of that currency in the European Exchange Rate Mechanism (ERM II);
   2. (b) existence of a decision from the Council of the European Union which recognises pegging arrangements between that currency and the EUR;
   3. (c) establishment of the pegging arrangement by the law of the country establishing that country's currency.

For the purpose of (3), the financial resources of the parties that guarantee the pegging must be taken into account.

25.2

The adjustment for currency risk referred to in 25.1 must be negative and must correspond to the cost of hedging against the risk that the value in the pegged currency of an investment denominated in EUR decreases as a result of changes in the level of the exchange rate between the EUR and the pegged currency. 

26.1

The lines of business referred to in 10.1 of the Technical Provisions Part are those set out in Annex 1.

26.2

The assignment of an insurance or reinsurance obligation to a line of business must reflect the nature of the risks relating to the obligation. The legal form of the obligation is not necessarily determinative of the nature of the risk.

26.3

Provided that the technical basis is consistent with the nature of the risks relating to the obligation, health insurance obligations pursued on a similar technical basis to that of long-term insurance business must be assigned to the lines of business for long-term insurance business and health insurance obligations pursued on a similar technical basis to that of general insurance business must be assigned to the lines of business for general insurance business.

26.4

Where the insurance obligations arising from the operations referred to in paragraph V, VI, VII or VIII of Part II to Schedule 1 of the Regulated Activities Order cannot clearly be assigned to the lines of business set out in Annex 1 on the basis of their nature, they must be included in line of business 32 as set out in Annex 1.

26.5

Where a contract of insurance covers risks across long-term insurance business and general insurance business, the insurance or reinsurance obligations must be unbundled into their long-term insurance business and general insurance business parts.

26.6

Where a contract of insurance covers risks across the lines of business as set out in Annex 1, the insurance or reinsurance obligations must, where possible, be unbundled into the appropriate lines of business.

26.7

Where a contract of insurance includes:

1. (1) health insurance obligations or health reinsurance obligations; and 
2. (2) other insurance or reinsurance obligations;

27.1

A firm must use methods to calculate technical provisions which are proportionate to the nature, scale and complexity of the risks underlying their insurance and reinsurance obligations.

27.2

In determining whether a method of calculating technical provisions is proportionate, a firm must carry out an assessment which includes:

1. (1) an assessment of the nature, scale and complexity of the risks underlying its insurance and reinsurance obligations;
2. (2) an evaluation in qualitative or quantitative terms of the error introduced in the results of the method due to any deviation between the following:
   1. (a) the assumptions underlying the method in relation to the risks;
   2. (b) the results of the assessment referred to in (1).

27.3

The assessment referred to in 27.2(2)(a) must include all risks which affect the amount, timing or value of the cash in- and out-flows required to settle the insurance and reinsurance obligations over their lifetime. For the purpose of the calculation of the risk margin, the assessment must include all risks referred to in 27.2(2)(a) over the lifetime of the underlying insurance and reinsurance obligations. The assessment shall be restricted to the risks that are relevant to that part of the calculation of technical provisions to which the method is applied.

27.4

A method shall be considered disproportionate to the nature, scale and complexity of the risks if the error referred to in 27.2(2)(b) leads to a misstatement of technical provisions or their components that could influence the decision-making or judgment of the intended user of the information relating to the value of technical provisions, unless one of the following conditions are met:

1. (1) no other method with a smaller error is available and the method is not likely to result in an underestimation of the amount of technical provisions;
2. (2) the method leads to an amount of technical provisions of the firm that is higher than the amount that would result from using a proportionate method and the method does not lead to an underestimation of the risk inherent in the insurance and reinsurance obligations that it is applied to.

1. 1.  Medical expense insurance
   1. Medical expense insurance obligations where the underlying business is not pursued on a similar technical basis to that of long-term insurance business, other than obligations included in the lines of business 3.
2. 2.  Income protection insurance
   Income protection insurance obligations where the underlying business is not pursued on a similar technical basis to that of long-term insurance business, other than obligations included in the line of business 3.
3. 3.  Workers' compensation insurance
   Health insurance obligations which relate to accidents at work, industrial injury and occupational diseases and where the underlying business is not pursued on a similar technical basis to that of long-term insurance business.
4. 4.  Motor vehicle liability insurance
   1. Insurance obligations which cover all liabilities arising out of the use of motor vehicles operating on land (including carrier's liability).
6. 5.  Other motor insurance
   1. Insurance obligations which cover all damage to or loss of land vehicles (including railway rolling stock).
7. 6.  Marine, aviation and transport insurance
   Insurance obligations which cover all damage or loss to sea, lake, river and canal vessels, aircraft, and damage to or loss of goods in transit or baggage irrespective of the form of transport. Insurance obligations which cover liabilities arising out of the use of aircraft, ships, vessels or boats on the sea, lakes, rivers or canals (including carrier's liability).
8. 7.  Fire and other damage to property insurance
   1. Insurance obligations which cover all damage to or loss of property other than those included in the lines of business 5 and 6 due to fire, explosion, natural forces including storm, hail or frost, nuclear energy, land subsidence and any event such as theft.
9. 8.  General liability insurance
   1. Insurance obligations which cover all liabilities other than those in the lines of business 4 and 6. 
10. 9.  Credit and suretyship insurance
    1. Insurance obligations which cover insolvency, export credit, instalment credit, mortgages, agricultural credit and direct and indirect suretyship.
11. 10. Legal expenses insurance
    1. Insurance obligations which cover legal expenses and cost of litigation.
12. 11. Assistance
    1. Insurance obligations which cover assistance for persons who get into difficulties while travelling, while away from home or while away from their habitual residence.
13. 12. Miscellaneous financial loss
    1. Insurance obligations which cover employment risk, insufficiency of income, bad weather, loss of benefit, continuing general expenses, unforeseen trading expenses, loss of market value, loss of rent or revenue, indirect trading losses other than those mentioned above, other financial loss (non-trading) as well as any other risk of general insurance business not covered by the lines of business 1 to 11.

13-24.

The lines of business 13 to 24 must include proportional reinsurance obligations which relate to the obligations included in lines of business 1 to 12 respectively

1. 25. Non-proportional health reinsurance 
   1.  Non-proportional reinsurance obligations relating to insurance obligations included in lines of business 1 to 3.
2. 26. Non-proportional casualty reinsurance
    Non-proportional reinsurance obligations relating to insurance obligations included in lines of business 4 and 8.
3. 27. Non-proportional marine, aviation and transport reinsurance
    Non-proportional reinsurance obligations relating to insurance obligations included in line of business 6.
4. 28. Non-proportional property reinsurance
    Non-proportional reinsurance obligations relating to insurance obligations included in lines of business 5, 7 and 9 to 12.

1. 29. Health insurance
   1. Health insurance obligations where the underlying business is pursued on a similar technical basis to that of long-term insurance business, other than those included in line of business 33.
2. 30. Insurance with profit participation
   Insurance obligations with profit participation other than obligations included in lines of business 33 and 34.
3. 31. Index-linked and unit-linked insurance
   Insurance obligations with index-linked benefits and unit linked benefits other than those included in lines of business 33 and 34.
4. 32. Other long-term insurance business 
   1. Long-term insurance business obligations other than those included in lines of business 29 to 31, 33 and 34.
5. 33. Annuities stemming from general insurance business contracts and relating to health insurance obligations.
6. 34. Annuities stemming from general insurance business contracts and relating to insurance obligations other than health insurance obligations.

1. 35. Health reinsurance 
   1. Reinsurance obligations which relate to the obligations included in lines of business 29 and 33.
2. 36. Long-term reinsurance 
   1. Reinsurance obligations which relate to the obligations included in lines of business 30 to 32 and 34.