Best estimate liability (BEL)

Moving from French statutory accounts to Solvency II means, first of all, losing the prudence in reserves. Article 77 of Directive 2009/138/EC sets technical provisions at the best estimate plus the risk margin. The best estimate is the probability-weighted average of future cash flows, discounted with the risk-free rate curve EIOPA publishes. Nothing else enters the formula: no hidden safety loading, no rounding up, the prudence an accountant used to put into each claim file giving way to a number meant to be as often too high as too low. The flows are future premiums, claims, benefits and administration expenses, within the contract boundary. It is computed gross of reinsurance, and amounts recoverable from reinsurers are valued separately, with an adjustment for their possible default. In non-life, the claims best estimate, for events that have already occurred, is separated from the premium best estimate, for future cover on contracts in force. In life, it includes financial options and guarantees, often valued by stochastic simulation, and the profit share the insurer expects to distribute. The actuarial function has to give an opinion on its reliability every year. The gap with the statutory reserves, often negative in non-life because of discounting, forms part of economic own funds.