3.3 Margin over Current Estimate (MOCE)

L1-42. The MOCE is a margin added to the current estimate of insurance obligations in order to achieve a market adjusted value of insurance liabilities. The MOCE covers the inherent uncertainty in the cash flows related to insurance obligations. As such, MOCE considers all uncertainties attached to these obligations.

L1-43. The MOCE is calculated as a given percentile of the normal distribution characterised by:
- • A mean equal to the current estimate of life (and non-life) obligations; and
- • A 99.5% percentile equal to the life (and non-life) risk charge.
L1-44. The percentiles for life and non-life insurance normal distributions are specified in the Level 2 text.
L2-107. The 85th percentile is used to compute the life component of the MOCE and the 65th percentile is used for the non-life component.

L1-45. All stress-based calculations include only current estimates for determining the pre- and post-stress Net Asset Value (NAV), ie the MOCE remains constant during the stress. Factors applied to insurance liabilities are only applied to current estimates. MOCE is neither deducted from the ICS capital requirement, nor added to qualifying capital resources.

3.4 Obligations replicable by a portfolio of assets

L1-46. Where future cash flows associated with insurance obligations can be replicated reliably, using financial instruments for which a market value is observable, the value of insurance liabilities associated with those future cash flows is determined on the basis of the market value of those financial instruments.
L1-47. Additional conditions under which such an approach is applicable are specified in the Level 2 text.
L2-108. Insurance liabilities are considered to be replicated reliably when their cash flows are in every circumstance precisely matched by cash flows of corresponding assets.
L2-109. The cash flows associated with insurance liabilities are not considered to be reliably replicated when:
- a. Policyholders can exercise contractual options, including lapses and surrenders.
- b. Obligations depend on mortality, disability, sickness and morbidity rates.
- c. Expenses associated with insurance obligations cannot be reliably replicated.
L2-110. Financial instruments used to replicate insurance liabilities must be traded in deep, liquid and transparent markets.