PIN A4.12 Guidance
1. The purpose of the
Long-Term Insurance risk component of the Minimum Capital Requirement is to require an Insurer to set aside capital to address the risk that the net present value of future Policy Benefits will vary from the amounts recorded as Long-Term Insurance Liabilities in the Insurer's balance sheet.
2. The calculation model set out in PIN Rule A4.12.1 deals separately with
Direct Long-Term Insurance Business, with proportional and non-proportional reinsurance of Long-Term Insurance Business, and with finite risk reinsurance of Long-Term Insurance Business.
3. To determine the amount for proportional reinsurance business, the calculation model applies ratios to the
Insurer's premium, to its liability and to the capital at risk in respect of such business. To determine the amount for non-proportional reinsurance, a ratio is applied to the Insurer's non-proportional reinsurance premium. To determine the amount for finite risk reinsurance, ratios are applied to the balance outstanding on contracts, depending on the rating of the Insurer and the term to completion. To determine the amount for Direct Long-Term Insurance Business, the calculation model applies ratios to the Insurer's liability and to its capital at risk in respect of such business. Additional or alternative charges are made in respect of particular Classes of Business.