Solvency of Insurance Undertakings (Mueller-Report) - Eiopa

- 101 -AN N EX 123(50$1(17+($/7+,1685$1&(In the UK, Class IV business is taken to include contracts of the following kinds:a) Contracts providing income benefits when the policyholder is incapable of workthrough sickness, infirmity or accident, and where the contracts have an expected durationof at least five years (or to retirement if earlier) and cannot be cancelled by the insurer.In practice:- benefits are usually payable until the policyholder has either recovered from therelevant affliction, or has reached retirement age, or dies. Because the purpose ofthe policy is to replace lost income, benefits are usually not payable after normalretirement age.- premiums may be set in advance at a level which is constant throughout the termof the contract. However, many contracts are now written (particularly where theterm of the contract is fairly long) with provision for review of the premium at fiveor ten year intervals.b) Contracts providing lump sum benefits on diagnosis of a serious or critical illness(defined in the policy conditions), which are either whole-life contracts or have an expectedduration of at least five years, and which cannot be cancelled by the insurer.- In practice premiums may be set in advance at a level which is constantthroughout the term of the contract. However, many contracts are now written(particularly where the term of the contract is fairly long) with provision for reviewof the premium at five or ten year intervals.- In some insurance contracts a lump sum benefit is payable on diagnosis in place ofa benefit which would otherwise be payable on death – in other words, there is anacceleration of death benefit on diagnosis of a critical illness. Such contracts areregarded as falling within Class I rather than Class IV.c) Contracts providing income benefits on infirmity in old age to offset the costs ofassistance with specified living activities, and which are written as whole-life contracts.- In practice premiums may be set in advance at a level which is constantthroughout the term of the contract. However, many contracts are now written(particularly where the term of the contract is fairly long) with provision for reviewof the premium at five or ten year intervals.