The Insurance Companies (Accounts and Statements) Regulations 1996

Regulation 25

SCHEDULE 4 ABSTRACT OF VALUATION REPORT PREPARED BY THE APPOINTED ACTUARY

(Forms 46 to 61)

All the Forms included in the part of the return to which this Schedule relates (Forms 46 to 49, 51 to 58, 60 and 61) are to be laid out as shown in the Schedule, except that the instructions to Forms need not be reproduced.

For the purposes of this Schedule—

(a) the “report period” means the period from the date to which the latest previous investigation under section 18 of the Act related to the valuation date (as defined in paragraph 1 below);

(b) the provisions of paragraph 1(2) and paragraphs 3 to 7 of Schedule 1 and paragraph 3 of Schedule 3 above shall, unless otherwise provided, apply; and

(c) boxes marked “UK/OS” shall be completed by the insertion of “UK” for UK contracts and “OS” for overseas contracts.

All amounts in the Forms shall be shown in sterling to the nearer £1,000 except valuation unit prices which shall be shown to the accuracy used in the valuation. Yields shall be shown as percentages to two decimal places.

The following information shall be given, the answers being numbered to accord with the numbers of corresponding paragraphs of this Schedule.

1.  The date to which the investigation relates (the “valuation date”).

2.  The date to which the latest previous investigation under section 18 of the Act related.

3.  A statement that the valuation has been made in conformity with regulation 64 of the Insurance Companies Regulations or, where this was not the case, such qualification, amplification or explanation as necessary.

4.—(1) Subject to sub-paragraph (2) below, for each category of non-linked contract which—

(a) comprises accumulating with-profits policies, a full description of the benefits, including—

(i) the circumstances in which, and the method by which, an adjustment to the identifiable current benefit attributable to a policy might be made on the payment of any claim, including by full or partial surrender, or in determining the amount of any charges deducted from the policy;

(ii) where the discounted value of the liability in respect of current benefits including vested bonuses shown in column 12 of Form 52 is less than the full amount of the current benefit shown in column 11 and the discounted value assumes the exercise of any discretionary adjustments of the type referred to in sub-paragraph (a)(i) above, a general description of such adjustments made during the report period;

(iii) any guaranteed investment returns or bonus rates;

(iv) any guaranteed surrender values; and

(v) any material options;

(b) comprises policies (other than those included in sub-paragraph (a) above) which provide for benefits to be determined on the basis of interest accrued (at a rate to be determined from time to time) in respect of premiums paid, a full description of the benefits, including—

(i) the method used to calculate surrender values;

(ii) any guaranteed investment returns;

(iii) rates of interest applied during the report period;

(iv) any guaranteed surrender values; and

(v) any material options;

(c) does not fall within sub-paragraph (a) or (b) above, and which is not sufficiently described by the entry in column 1 of Form 51, a full description of the benefits, including any premium rate guarantees and material options.

(2) Information required under sub-paragraph (1) above need not be provided for any category of contract—

(a) where no contracts were effected by the company during the report period; and

(b) which has been included in Form 51 or Form 52 under the miscellaneous headings specified in instruction 8 (vi) or 8 (x) to Forms 51, 52, 53 and 54.

5.—(1) Subject to sub-paragraph (3) below, for each category of linked contract—

(a) the name given to that category;

(b) the type of contract, classified according to the categories set out in instructions 3 to 8 of the instructions for completion of Forms 51, 52, 53 and 54;

(c) a statement of the frequency of premiums;

(d) a brief description of the benefits under the contract, including any eligibility to participate in profits, any guarantees and any material options;

(e) details of any guaranteed investment returns;

(f) a description of the way in which the company recovers out of policies its costs (including acquisition expenses and commission, renewal expenses and commission and the costs attributable to the provision of policy benefits). Where the policy provides for the allocation of units, the annual rate of any management charges shall be given. Where the amount of premiums deemed to be invested after allowing for the effect of any charges is greater than the amount of the premiums, an explanation shall be given;

(g) details of any restrictions on increases in charges;

(h) the method used to calculate surrender or transfer values;

(i) whether benefits are (or may be) determined (whether wholly or in part) by reference to the value of an internal linked fund, or to the value of assets or an index. Where the link is to the value of assets or an index, those assets or that index shall be specified and details of the relationship between their value and benefits payable to policyholders shall be given;

(j) a brief description of any other features of the contract not disclosed above which are material to the method and basis of valuation;

(k) whether the contract was open to new business in the year to the valuation date; and

(l) any increases in the rates of charges applied generally to contracts during the report period, including charges for the provision of policy benefits met by the cancellation of units notionally allocated to contracts.

(N.B. Where the terms and conditions and the method and basis for determining the amount of the long term liabilities are not materially different for a number of categories of contract, only one description need be given pursuant to this sub-paragraph, provided that the name of each such category is given in the company’s response to sub-paragraph (a) above).

(2) For each category of linked contract which contains a with-profits option, the information required by paragraph 4(1)(a) above shall also be given.

(3) Information required under sub-paragraphs (1)(a) to (k) and (2) above need not be provided for any category of contract—

(a) where no contracts were effected by the company during the report period; and

(b) which has been included under the miscellaneous heading in Form 53 or 54.

(4) A description of the method, or if there is more than one method of the methods and the types of unit to which each applies, used for the creation and cancellation of units in internal linked funds and determining unit prices for the allocation of units to, and the cancellation of units from, policies.

(5) A description of the method, or if there is more than one method of the methods and the types of unit to which each applies, used to determine the provision for tax on realised and unrealised capital gains and the percentage or percentages of these gains deducted or provided for during the report period.

(6) Wherever units of the type referred to in paragraph 5 of Part I of Schedule 10 to the Insurance Companies Regulations(1) are held by an internal linked fund, or where property linked benefits are linked to such units, the rate of discount, commission or other allowance made to the insurance company on the purchase, sale or holding of units and the extent to which the policy holder benefits from such discount, commission or other allowance.

6.—(1) The general principles and methods adopted in the valuation, including specific reference to the following—

(a) the method by which account has been taken of derivative contracts or contracts or assets having the effect of derivative contracts in the determination of the amount of the long term liabilities;

(b) the method by which due regard has been given to the reasonable expectations of policyholders, as required by regulation 64 of the Insurance Companies Regulations, and by which account has been taken of the custom and practice of the company in the manner and timing of the distribution of profits or the grant of discretionary additions over the duration of each policy, as required by regulation 65(6) of the Insurance Companies Regulations;

(c) where the net premium method has been used, whether and to what extent it has been modified, for what purposes any such modification has been made and whether any modifications on account of zillmerising conform to regulation 68 of the Insurance Companies Regulations;

(d) whether any negative reserves arose and the steps taken to ensure that no contract of insurance was treated as an asset, as required by regulation 73 of the Insurance Companies Regulations;

(e) whether any specific reserve has been made for future bonuses and, if so, at what rate or rates;

(f) the basis of the provision made for any prospective liability to taxation on unrealised capital gains;

(g) in the case of linked contracts and contracts falling within sub-paragraphs (a) and (b) of paragraph 4(1) above, the basis of the reserve made for any investment performance guarantees; and

(h) the basis of the reserve made for any guarantees and options (other than investment performance guarantees included in sub-paragraph (g) above).

(2) For the purposes of this paragraph where, in determining the provisions referred to in sub-paragraph (f) above or the reserves referred to in sub-paragraph (7) or (8) of paragraph 7 below, account has been taken of the fact that the fund has been brought into Form 58 at book value in accordance with regulation 45(6) of the Insurance Companies Regulations, that fact should be stated.

7.—(1) Unless shown in Form 51, 52, 53 or 54, the rates of interest and tables of mortality and morbidity assumed in the valuation of each category of contract.

(2) If the tables used have not been published, full details of the rates of mortality or morbidity used.

(3) A general description of how the tables of mortality and morbidity assumed in the valuation of the various categories of contract have regard to the State of the commitment.

(4) Details of any allowance made for future reductions in the rates of mortality in the tables of mortality assumed in the valuation of annuity contracts.

(5) Details of any allowance made, and the amount of any reserve held, for any possible detrimental impact of significant changes in the incidence of disease or developments in medical science on the mortality and morbidity experience of the company in the tables of mortality and morbidity assumed in the valuation of contracts.

(6) A description of all the scenarios of future changes in the value of assets which have been tested in order to take account of the nature (including currency) and terms of the assets held in determining the amount of the long term liabilities in accordance with regulation 75 of the Insurance Companies Regulations.

(7) The amount of any reserve made pursuant to regulation 75(a) of the Insurance Companies Regulations, together with a brief description of the method used and assumptions made to calculate any such reserve.

(8) In respect of that scenario described under sub-paragraph (6) above which produces the most onerous requirement (whether or not a reserve is thereby required), the amount of any reserve made pursuant to regulation 75(b) of the Insurance Companies Regulations, together with—

(a) a description of the changed assumptions made (other than the changed interest rate stated in Form 57) in calculating such requirement;

(b) a brief description of the method used to calculate such requirement; and

(c) resulting from the application of such changed assumptions—

(i) the change in the aggregate amount of the long term liabilities; and

(ii) the aggregate amount by which the assets allocated to match such liabilities in the scenario have changed in value from the amount of those assets shown in Form 13.

(9) A general description of how the rates of interest assumed in the valuation of the various categories of contract with liabilities denominated in currencies other than sterling have taken into account the currency of the liabilities.

8.  In respect of non-linked contracts—

(a) where appropriate, the proportion of the office premiums explicitly or implicitly reserved for expenses and profits for each type of insurance (as shown in column 8 of Form 51 or column 10 of Form 52);

(b) the method by which a reserve has been made for expenses after premiums have ceased or where no future premiums are payable or where the method of valuation does not take credit for future premiums as an asset;

(c) where a prospective method of valuation has not been used, details of the tests made of the adequacy of the method used;

(d) where, in valuing contracts falling within the circumstances described in regulation 67(1) of the Insurance Companies Regulations, future premiums brought into account are not in accordance with that regulation, such additional information as is necessary to demonstrate whether the mathematical reserves determined in the aggregate for each of the main categories of contract are greater than an amount for each such category calculated in accordance with regulations 66 to 75 of those Regulations.

Provided that where the mathematical reserves (after deduction of reinsurance cessions) determined in the aggregate for all categories of contracts referred to in sub-paragraph (d) above represent less than 5 per cent. of the total mathematical reserves (after deduction of reinsurance cessions) for all non-linked contracts, it shall be sufficient for the actuary to state that the mathematical reserves for each such category of contracts are not less than the mathematical reserves that would be determined on a net premium reserving basis which, in that case, shall be specified by the actuary in the abstract.

9.  For each category of linked contract—

(a) all assumptions made in calculating the valuation net liability in columns 12 and 13 of Forms 53 and 54; and

(b) where an explicit reserve has not been made for meeting the expenses likely to be incurred in future in fulfilling the existing contracts on the basis of specific assumptions in regard to the relevant factors, details of the basis used in testing the adequacy of the reserves to satisfy regulation 71(1) of the Insurance Companies Regulations.

10.—(1) The assumed levels of inflation of expenses and the bases used in the valuation to allow for such future inflation.

(2) The aggregate amount, grossed up for taxation where appropriate, arising during the twelve months after the valuation date from implicit and explicit reserves made in the valuation to meet expenses in fulfilling contracts in force at the valuation date, and a general description of the sources of such amounts.

(3) The method and basis of calculation of the requirement (whether or not a reserve is thereby required) in respect of the expenses of continuing to transact new business during the twelve months following the valuation date and the amount of the reserve so calculated.

(4) The method and basis of calculation of the requirement (whether or not a reserve is thereby required) to provide for the costs of closure to new business, if the company were to cease to transact new business twelve months after the valuation date and the amount of the reserve so calculated.

11.—(1) A schedule of the sum of the mathematical reserves (other than liabilities for property linked benefits) and the liabilities in respect of the deposits received from reinsurers as shown in Form 14, analysed by reference to the currencies in which the liabilities are expressed to be payable, together with the value of the assets, analysed by reference to currency, which match such liabilities.

(2) In the schedule required by sub-paragraph (1) above, liabilities totalling up to 2 per cent. of the total required to be analysed may be grouped together as “other currencies”, and the assets matching those liabilities need not be analysed provided that the proportion of such liabilities which are matched by assets in the same currency is stated.

12.—(1) For long term business ceded on a facultative basis to a reinsurer who is not authorised to carry on insurance business in the United Kingdom at any time during the report period—

(a) the aggregate of premiums payable by the company to all such reinsurers (sub-divided according to financial years, if appropriate) and the aggregate amount deposited at the valuation date under any deposit back arrangement; and

(b) the amount of any such premiums payable by the company to reinsurer with whom the company is connected and the aggregate amount deposited at the valuation date under any deposit back arrangement.

(2) For each treaty of reinsurance where the company is the cedant and under which business is in force at the valuation date—

(a) the name of the reinsurer;

(b) whether the reinsurer is authorised to carry on insurance business in the United Kingdom;

(c) whether the company and the reinsurer are connected;

(d) an indication of the nature and extent of the cover give under the treaty;

(e) the premiums payable by the company under the treaty during the report period;

(f) the amount deposited at the valuation date in respect of the treaty under any deposit back arrangements;

(g) the extent to which provision has been made for any liability of the company to refund any amounts of reinsurance commission in the event of lapses or surrender of the contract; and

(h) whether the treaty is closed to new business.

(3) For each financing arrangement—

(a) the amount of any undischarged obligation of the company and a brief description of the conditions for the discharge of such obligation; and

(b) a description of how, if at all, all such undischarged obligations have been taken into account in the valuation.

(4) In this paragraph—

(a) “deposit back arrangement”, in relation to any contract of reinsurance, means an arrangement whereby an amount is deposited by the reinsurer with the cedant;

(b) “financing arrangement” means any contract entered into by the company, in respect of contracts of insurance effected by the company, which has the effect of increasing the amount of assets included at line 34 of Form 9 above, representing assets of the company which are available to meet its required minimum margin for long term business, and which includes terms for—

(i) the transfer of assets to the company or the creation of a debt to the company (or both); and

(ii) either an obligation for the company to return (with or without interest) some or all of such assets or a provision for the diminution of such debt, in each case, in specified circumstances; and

(c) paragraphs (1), (2) and (3)(a) of regulation 22 above (which relate to connected persons) shall have effect for the purposes of this paragraph as they have effect for the purposes of the regulations therein mentioned.

13.  Where any rights of any policy holders to participate in profits relate to profits from particular parts of a long term business fund—

(a) a revenue account in the format of Form 40 for each such part except where such information is provided elsewhere; and

(b) the principles and methods applied in apportioning the investment income, increase or decrease in the value of assets brought into account, expenses and taxation between each part, where these particulars are not provided elsewhere.

14.—(1) The principles on which the distribution of profits among policy holders and shareholders is based as described in any of the following documents—

(a) the constitution of the company;

(b) board resolutions of the company;

(c) any policy issued by the company;

(d) any advertisement issued by or on behalf of the company;

(e) any document required to be issued by any regulatory body authorised under the Financial Services Act 1986(2); and

(f) any other relevant document.

(2) A broad statement of the company’s aims in relation to the distribution of profits among policy holders, including its aims in relation to—

(a) policies which mature or are surrendered and claims arising by death;

(b) the appropriate and equitable treatment of groups of participating policies; and

(c) smoothing.

(3) A description of the methods used in order to ensure that the aims described in sub-paragraph (2) above are achieved.

(4) Subject to sub-paragraph (5) below, if different principles or bonus policies apply to different categories of with-profits policies issued by the company, the information in sub-paragraphs (1) to (3) above shall be given in respect of each category.

(5) Categories of with-profits policies which, apart from this sub-paragraph, would require separate information in accordance with sub-paragraph (4) above need only be listed under this sub-paragraph, and the information in sub-paragraphs (1) to (3) need not be supplied, provided that—

(a) the aggregate amount of established surplus allocated to policy holders in all such categories is less than 10 per cent. of the aggregate amount of established surplus allocated to all policy holders (as reported at line 46 of Form 58);

(b) the amount of established surplus allocated to policy holders in any one such category is less than 5 per cent. of the aggregate amount of established surplus allocated to all policy holders (as reported at line 46 of Form 58); and

(c) none of the categories was introduced during the report period.

15.  Particulars of the bonus allocated to each category of contract, including the basis of calculation and the circumstances and the form in which the bonus is payable, together with—

(a) where the rates of bonus allocated depend on the original term of the contract or on the period of years a contract has been in force, specimen rates at 5-year intervals of original term or duration, as the case may be;

(b) where the rates of bonus allocated depend on the age of the life assured, specimen rates at 10-year intervals of age;

(c) where the rates of bonus allocated depend on the date of each previous premium payment, specimen rates at 5-year intervals of time since the premium was paid, and for premiums paid in each of the 5 years ending with the report period; and

(d) in all other cases, full details of the rates of bonus allocated.

(N.B. Where the rates of bonus allocated depend on a formula or a series of formulae, then the formula or formulae should be listed instead of the specimen rates. Wherever appropriate, rates of bonus are to be expressed as a fraction of the attribute of the contract to which they are related, e.g. as rates per £1,000 of the sum assured and existing bonuses.)

16.  A statement of the practice regarding any bonus payments (in addition to those for which the company has become contractually liable) to be made on claims arising in the period up to the next investigation, including the basis of calculation and the form in which the bonus is payable, together with—

(a) where the rates of bonus depend on the original term of the contract or on the period of years a contract has been in force, specimen rates at 5-year intervals of original term or duration, as the case may be;

(b) where the rates of bonus depend on the age of the life assured, specimen rates at 10-year intervals of age;

(c) where the rates of bonus depend on the date of each previous premium payment, specimen rates at 5-year intervals of time since the premium was paid, and for premiums paid in each of the 5 years ending with the report period; and

(d) in all other cases, full details of the rates of bonus.

(N.B. Where the rates of bonus depend on a formula or a series of formulae, then the formula or formulae should be listed instead of the specimen rates. Wherever appropriate, rates of bonus are to be expressed as a fraction of the attribute of the contract to which they are related, e.g. as rates per £1,000 of the sum assured and existing bonuses.)

17.  Separate statements in the form set out in Forms 46 and 46A summarising changes in ordinary long-term and industrial assurance business for all non-group contracts. For group contracts only the number of contracts in force at the end of the report period is to be given in a supplementary note to the appropriate statement.

18.  Separate statements in the form set out in Forms 47 and 47A showing an analysis of new ordinary long-term and industrial assurance business.

19.—(1) Separate statements of assets covering long term liabilities (other than assets held to match property linked or index linked liabilities) in the form set out in Forms 48 and 49 in respect of each fund or group of funds for which separate assets are appropriated.

(2) A brief description of the extent to which any of the amounts recorded in Form 48 would be changed if assets which the company had a right or obligation to acquire or dispose of under derivative contracts outstanding at the end of the financial year (being, in the case of options, only those options which it would have been prudent to assume would be exercised) had been so acquired or disposed of.

(3) A brief description of how different the information provided pursuant to sub-paragraph (2) above would have been if such options as were outstanding at the end of the year had been exercised in such a way as to change the amounts referred to in that paragraph to the maximum extent.

(4) A brief description of how different the information provided pursuant to sub-paragraphs (2) and (3) above would have been if, instead of applying to contracts outstanding at the end of the financial year, those sub-paragraphs had applied to derivative contracts outstanding at such other time during the financial year as would have changed the amounts referred to in those sub-paragraphs to the maximum extent.

20.  Separate statements in the form set out in Forms 51, 52, 53 and 54 and separate analyses of unit liabilities in the form set out in Forms 55 and 56 in respect of each separate fund or part of a fund for which a surplus is determined under section 18 of the Act.

21.—(1) Separate statements in the form set out in Form 57 for each fund or group of funds for which separate assets are appropriated in respect of all long term liabilities except—

(a) the unit liabilities in respect of property linked benefits as shown in column 12 of Form 53;

(b) the investment liabilities in respect of index linked benefits as shown in column 12 of Form 54; and

(c) any reserve in respect of provisions made for tax on unrealised capital gains in arriving at the valuation price of internal linked funds.

(2) A general description of the method by which the yield on assets other than equity shares and land was adjusted in accordance with regulation 69(7) of the Insurance Companies Regulations.

(3) For assets which are equity shares or land, a description of the categories into which such assets were divided for the purposes of regulation 69(7) of the Insurance Companies Regulations, together with the method and basis by which the yield on such assets was adjusted in accordance with that regulation.

22.  Separate statements of the results of the valuation in the form set out in Form 58 in respect of each separate fund or part of a fund for which a surplus is determined under section 18 of the Act.

23.  A statement of the required minimum margin for long term business in the form set out in Form 60 and of the required margin of solvency for Supplementary Accident and Sickness Insurance in the form set out in Form 61.

(N.B. If the gross annual office premiums for Supplementary Accident and Sickness Insurance in force on the valuation date do not exceed 1 per cent. of the gross annual office premiums in force on that date for all long term business, Form 61 need not be completed provided it can be stated that the entry in line 10 of Form 60 exceeds the amount that would be obtained if Form 61 were to be completed. In this circumstance, the method of estimating the entry in line 10 of Form 60, together with a statement of the gross annual office premiums in force at the valuation date in respect of Supplementary Accident and Sickness Insurance, shall be given.)

(1)

S.I. 1994/1516.

(2)

1986 c. 60.