Contract boundary (Solvency II)
The rule saying how far a contract's future cash flows enter the best estimate: the boundary falls where the insurer can terminate, reject premiums or reprice to reflect the risk.
A health policy renewable every January 1, with a premium the insurer can revise at each renewal: how many future cash flows must it provision, beyond the current year? Answer from Article 18 of Delegated Regulation (EU) 2015/35: those that come before the moment it can free itself. The contract boundary is reached when the undertaking has a unilateral right to terminate the contract, to reject future premiums, or to amend premiums or benefits so that premiums fully reflect the risks. Beyond that point, cash flows are no longer in the best estimate: neither the renewal premiums nor the claims that go with them. For an annual property contract, the boundary is therefore the expiry date; for a level-premium twenty-year term life policy that cannot be repriced, it is the end of the contract. The subject is technical and it matters. A boundary that is too long inflates future profits whose renewal is not secured; one that is too short forgets commitments. It is close to the IFRS 17 contract boundary without being identical: the accounting standard speaks of substantive rights and obligations, with a portfolio-level risk reassessment criterion that the prudential text does not borrow.
Renewable group protection contract on January 1, with a clause allowing annual premium revision based on the group's claims. Boundary: the current December 31; the best estimate counts only cover up to that date and the claims attached to it. The same contract with a premium guaranteed for three years and a right for the insurer to terminate only at the three-year mark has a three-year boundary: the best estimate includes two more years of premiums and claims.
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