Prudential Regulation Authority Rulebook

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.