The Insurers (Winding Up) (Scotland) Rules 2001

Rule 7

SCHEDULE 2 RULES FOR VALUING NON-LINKED LIFE POLICIES, NON-LINKED DEFERRED ANNUITY POLICIES, NON-LINKED ANNUITIES IN PAYMENT, UNITISED NON-LINKED POLICIES AND CAPITAL REDEMPTION POLICIES

General

1.  In valuing a policy—

(a) where it is necessary to calculate the present value of future payments by or to the company, interest shall be assumed at such fair and reasonable rate or rates as the court may direct;

(b) where relevant, the rates of mortality and the rates of disability to be employed shall be such rates as the court considers appropriate after taking into account:

(i) relevant published tables of rates of mortality and rates of disability, and

(ii) the rates of mortality and the rates of disability experienced in connection with similar policies issued by the company;

(c) there shall be determined:

(i) the present value of the ordinary benefits,

(ii) the present value of additional benefits;

(iii) the present value of options, and

(iv) if further premiums fall due to be paid under the policy on or after the liquidation date, the present value of the premiums;

and for the purposes of this Schedule if the ordinary benefits only take into account premiums paid to date, the present value of future premiums shall be taken as nil.

Present value of the ordinary benefits

2.—(1) Ordinary benefits are the benefits which will become payable to the policy holder on or after the liquidation date without his having to exercise any option under the policy (including any bonus or addition to the sum assured or the amount of annuity declared before the liquidation date) and for this purpose “option” includes a right to surrender the policy.

(2) Subject to sub-paragraph (3), the present value of the ordinary benefits shall be the value at the liquidation date of the reversion in the ordinary benefits according to the contingency upon which those benefits are payable calculated on the basis of the rates of interest, mortality and disability referred to in paragraph 1.

(3) For accumulating with profits policies—

(a) where the benefits are not expressed in the form of units in a with-profits fund, the value of the ordinary benefits is the amount that would have been payable, excluding any discretionary additions, if the policyholder had been able to exercise a right to terminate the policy at the liquidation date; and

(b) where the benefits are expressed in the form of units in a with-profits fund, the value of the ordinary benefits is the number of units held by the policy holder at the liquidation date valued at the unit price in force at that time or, if that price is not calculated on a daily basis, such price as the court may determine having regard to the last published unit price and any change in the value of assets attributable to the fund since the date of the last published unit price.

(4) Where—

(a) sub-paragraph (3) applies, and

(b) paragraph 3(1) of Schedule 3 applies to the calculation of the unit price (or as the case may be) the fund value,

the value shall be adjusted on the basis set out in paragraph 3(3) to (5) of Schedule 3.

(5) Where sub-paragraph (3) applies, the value may be further adjusted by reference to the value of the assets underlying the unit price (or as the case may be) the value of the fund, if the liquidator considers such an adjustment to be necessary.

Present value of additional benefits

3.—(1) Where under the terms of the policy or on the basis of the company’s established practice the policy holder has a right to receive or an expectation of receiving benefits additional to the minimum benefits guaranteed under those terms, the court shall determine rates of interest, bonus (whether reversionary, terminal or any other type of bonus used by the company), mortality and disability to provide for the present value (if any) of that right or expectation.

(2) In determining what (if any) value to attribute to any such expectations the court shall have regard to the premium payable in relation to the minimum guaranteed benefits and the amount (if any) an insurer is required to provide in respect of those expectations in any rules made by the Authority under Part X of the 2000 Act.

Present value of options

4.  The amount of the present value of options shall be the amount which, in the opinion of the liquidator, is necessary to be provided at the liquidation date (in addition to the amount of the present value of the ordinary benefits) to cover the additional liabilities likely to arise upon the exercise on or after that date by the policy holder of any option conferred upon him by the terms of the policy or, in the case of an industrial assurance policy, by the Industrial Assurance Acts other than an option whereby the policy holder can secure a guaranteed cash payment within the period of 12 months beginning with that date.

Present value of premiums

5.  The present value of the premiums shall be the value at the liquidation date of the premiums which fall due to be paid by the policy holder after the liquidation date calculated on the basis of the rates of interest, mortality and disability referred to in paragraph 1.

Value of the policy

6.—(1) Subject to sub-paragraph (2)—

(a) if no further premiums fall due to be paid under the policy on or after the liquidation date, the value of the policy shall be the aggregate of:

(i) the present value of the ordinary benefits;

(ii) the present value of options; and

(iii) the present value of additional benefits;

(b) if further premiums fall due to be so paid and the aggregate value referred to in sub-paragraph (a) exceeds the present value of the premiums, the value of the policy shall be the amount of that excess; and

(c) if further premiums fall due to be so paid and that aggregate does not exceed the present value of the premiums, the policy shall have no value.

(2) Where the policy holder has a right conferred upon him by the terms of the policy or by the Industrial Assurance Acts whereby the policy holder can secure a guaranteed cash payment within the period of 12 months beginning with the liquidation date, the liquidator shall determine the amount which in his opinion it is necessary to provide at that date to cover the liabilities which will accrue when that option is exercised (on the assumption that it will be exercised) and the value of the policy shall be that amount if it exceeds the value of the policy (if any) determined in accordance with sub-paragraph (1).