Hong Kong Regulations

INSURANCE COMPANIES (DETERMINATION OF LONG TERM LIABILITIES) REGULATION - SECT 14

Valuation of future premiums

(1) Where further specified premiums are payable by the policy holder under a
contract (not being a linked long term contract) under which benefits (other
than benefits arising from a distribution of profits) are determined from the
outset in relation to the total premiums payable thereunder, then, subject to
section 15-

   (a)  where the premiums under the contract are at a uniform rate throughout
        the period for which they are payable, the premiums to be valued shall
        be not greater than such level premiums as, if payable for the same
        period as the actual premiums under the contract and calculated
        according to the rates of interest and rates of mortality or
        disability which are to be employed in calculating the liability under
        the contract, would have been sufficient at the outset to provide for
        the benefits under the contract according to the contingencies upon
        which they are payable, exclusive of any additions for profits,
        expenses or other charges;

   (b)  where the premiums under the contract are not at a uniform rate
        throughout the period for which they are payable, the premiums to be
        valued shall be not greater than such premiums as would be determined
        on the principles set out in paragraph (a) modified as appropriate to
        take account of the variations in the premiums payable by the policy
        holder in each year, save that a premium to be valued shall in no year
        be greater than the amount of the premium payable by the policy
        holder.

(2) Where the terms of the contract have changed since the contract was first
made (the terms of the contract being taken to change for the purposes of this
section if the change is indicated in an endorsement on the policy but not if
a new policy is issued), then, for the purposes of subsection (1) it shall be
assumed that those changes from the time they occurred were provided for in
the contract at the time it was made.

(3) Where under a contract (not being a linked long term contract)-

   (a)  each premium paid increases the benefits (other than benefits arising
        from a distribution of profits) provided under the contract; or

   (b)  the amount of a premium payable in future is not determinable until it
        comes to be paid, future premiums and the corresponding liability may
        be left out of account so long as adequate provision is made against
        any risk that the increase in the liabilities of the company resulting
        from the payment of future premiums might exceed the amount of the
        premiums.

(4) An alternative valuation method to that described in subsections (1) to
(3) may be used where it can be demonstrated that the alternative method
results in reserves no less, in aggregate, than would result from the use of
the method described in those subsections. (Enacted 1995)