Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Timing and quantifying rules - Terminating provisions - Actuarial reserves

EZ 60: Actuarial reserves: calculation

You could also call this:

“How life insurance companies calculate money set aside for future payouts”

When a life insurance company needs to figure out how much money they need to set aside for future payouts, they use something called actuarial reserves. Here’s how they do it:

An expert called an actuary calculates these reserves. They can do this for all the insurance policies the company has or just for some of them.

The actuary uses special calculations that look at things like interest rates and how long people might live. These calculations are based on the same ideas the company uses to decide how much extra money they have to share with people who own their policies or with shareholders.

The calculations also need to make sense based on how the insurance company has done in the past and what other insurance companies do.

There are some important rules about these reserves:

The amount set aside for each policy can never be less than zero.

The total reserves must always be at least as much as what the company would have to pay if everyone cancelled their policies at once.

At the start of each year, the reserves are the same as they were at the end of the last year.

If the insurance company has shared some of its risk with another company, the actuary might reduce the reserves a bit to account for this.

This way of calculating reserves helps make sure the insurance company always has enough money to pay what they owe to people with insurance policies.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM3112429.

Topics:
Money and consumer rights > Banking and loans
Money and consumer rights > Savings and retirement
Previous

EZ 59: Meaning of actuarial reserves, or

“Explanation of funds set aside by life insurance companies”

Next

EZ 61: Allowance for cancelled amount: spreading, or

“Spreading out tax deductions for cancelled policyholder amounts”

Part E Timing and quantifying rules
Terminating provisions: Actuarial reserves

EZ 60Actuarial reserves: calculation

  1. The life insurer’s actuarial reserves must be actuarially determined.

  2. The actuary may calculate—

  3. the actuarial reserves for all the life insurance policies for which the life insurer is the insurer; or
    1. the amount in the life insurer’s actuarial reserves for 1 or more life insurance policies for which the life insurer is the insurer.

      1. The actuary must do the calculation using interest, mortality, and other assumptions and bases of calculation that—

      2. are based on the same principles as those used in the actuarial advice on which the following are calculated:
        1. the level of surplus funds available to the life insurer for allotment or payment to shareholders or policyholders; or
          1. the level of surplus funds available to the life insurer, if a superannuation scheme, for allotment to objects of the scheme other than the object of providing for members’ benefits; and
          2. are likely to produce a reasonable estimation of the future experience of the life insurer in relation to life insurance policies of which the life insurer is the insurer, having regard to the past experience of the life insurer in relation to life insurance policies of which the life insurer was the insurer; and
            1. conform with commercially acceptable practice.

              1. The amount in the actuarial reserves for a life insurance policy must never be negative.

              2. The actuarial reserves at any time must not be less than the total of the surrender values of all the life insurance policies they cover at that time.

              3. The amount in the actuarial reserves for life insurance policies at the start of an income year is the same as the amount in the actuarial reserves for the life insurance policies at the end of the previous income year.

              4. The actuarial reserves of a life insurer who has partial life reinsurance must be reduced by an amount that the actuary responsible for actuarial control of the life insurer considers appropriate having regard to the nature of the life reinsurance policies.

              Notes
              • Section EZ 60: inserted, on , by section 199(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
              • Section EZ 60 list of defined terms pay: inserted, on , by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
              • Section EZ 60 list of defined terms payment: repealed, on , by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).