Q&A

Question

A Portuguese undertaking has a product that is a Unit Linked which has a guarantee in case of death (i.e. it pays to beneficiaries an additional amount above the value of units, usually a small percentage or value).

The company says it cannot unbundle the guarantees and therefore they consider the whole product as an Insurance Contract (not as an investment contract, from an accounting perspective).

The contract is reported in S.12.01 as a Unit Linked product with Options and Guarantees.

Regarding the calculation of capital requirement for operational risk based on technical provisions, should the technical provisions of these products be included in TP life-ul  or not, once these products have biometric risks?

EIOPA answer

From an accounting perspective this product is usually considered to be insurance contract in Spain because it includes biometric risk. However, this does not mean that the product cannot be unbundled in SII and, indeed, it should be unbundled. The UL part should be reported as a UL product while the mortality cover should be reported as “other life". Regarding operational risk module, the technical provisions of the UL part do not have a charge in the module (only the expenses) while the mortality cover is to be charged as any “other life" product.