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Technical provisions

J

Jaco Conradie

Member
Hi, I have a question related to Solvency II technical provisions calculation. Given that liabilities are valued on a best estimate basis and assuming products are priced on a profitable basis, why aren't technical provisions always negative?
 
Hi Jaco

The best estimate liability could absolutely be negative initially, particularly for protection type products. Over time the best estimate assumptions may start to vary from those used in the pricing basis, and so it may move to being positive in the future if the premiums are not changed to reflect the changes to expected experience (eg they are fixed or guaranteed).

However, the risk margin and capital requirements would all be expected to be positive. And there is always the minimum capital requirement that may bite for smaller insurers.

Thanks
Sarah
 
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