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COBS 21.3 Rules for firms engaged in linked long-term insurance business

COBS 21.3.1RRP

An insurer must not contract to provide benefits under linked long-term contracts of insurance that are determined:

  1. (1)

    wholly or partly, or directly or indirectly, by reference to fluctuations in any index other than an approved index;

  2. (2)

    wholly or partly by reference to the value of, or the income from, or fluctuations in the value of, property other than any of the following:

    1. (a)

      approved securities;

    2. (b)

      listed securities;

    3. (c)

      permitted unlisted securities;

    4. (d)

      permitted land and property;

    5. (e)

      permitted loans;

    6. (f)

      permitted deposits;

    7. (g)

      permitted scheme interests;

    8. (h)


    9. (i)


    10. (j)

      permitted units;

    11. (k)

      permitted stock lending; and

    12. (l)

      permitted derivatives contracts.

COBS 21.3.2GRP
  1. (1)

    Nothing in these rules prevents a firm making allowance in the value of any permitted link for any notional tax loss associated with the relevant linked assets for the purposes of fair pricing.3

  2. (2)

    In the FSA's view the Consumer Prices Index, as well as the Retail Prices Index, is a national index of retail prices and so may be used as an approved index for the purposes of COBS 21.3.1R (1).3

COBS 21.3.3R

A firm that has entered into a reinsurance contract in respect of its linked long-term insurance business must nevertheless discharge its responsibilities under its linked long-term insurance contracts as if no reinsurance contract had been effected.

COBS 21.3.4G

In order to comply with the requirements of COBS 21.3.3 R a firm should:

  1. (1)

    disclose to policyholders the implications of any credit risk exposure they may face in relation to the solvency of the reinsurer; and

  2. (2)

    suitably monitor the way the reinsurer manages the business in order to discharge its continuing responsibilities to policyholders.

COBS 21.3.5R
  1. (1)

    2Except in the case specified in (2), a firm which proposes to undertake linked long-term insurance business, which is linked to the average earnings index and used for the purposes of orders made by the Department for Work and Pensions under section 148 of the Social Security Administration Act 1992, must notify the FSA in writing of its intention to do so in good time before effecting any such business for the first time, or if there is a material change in the volume of such business, and explain how the risks associated with this business will be safely managed.

  2. (2)

    These requirements do not apply in respect of liabilities for which a limited revaluation premium has been paid to the Department for Work and Pensions so that the liability for revaluation, while still linked to orders made under section 148 of the Social Security Administration Act 1992, is limited to 5%.