Insurers mull ways around rules on contract boundaries

Insurers are preparing changes to the design of unit-linked products in response to Solvency II rules on contract boundaries. This could mean fixing expense charges, or adding death cover to policies free of charge. By doing so, firms hope to take credit for future profits embedded in the policies they sell. Hugo Coelho reports

As the drafting of the Solvency II delegated acts comes down to the details, insurers are contemplating the consequences of defeat in their efforts to shape legislation in a number of areas. The definition of contract boundaries tops the list of battles lost. The way legislation is drafted means future profits embedded in pure unit-linked and some other products will not be recognised in insurers’ balance sheets.

Firms are working their way around the problem. Preliminary actuarial analysis