Future discretionary benefits (FDB)

In France, the law requires a life insurer to pass at least 85% of financial results and 90% of technical results on to policyholders. That distribution, which goes beyond the guaranteed rate, is discretionary in amount and in timing: the insurer decides each year. Solvency II calls it future discretionary benefits (FDB) and puts it in the best estimate, because the market and competition make it expected. When a shock hits the assets, the insurer can pay out less, and the loss of own funds shrinks accordingly. The adjustment for the loss-absorbing capacity of technical provisions, Adj_TP, reflects this in the SCR: the gross shock is computed, then the net shock, with the difference capped by the amount of FDB. Articles 205 and 206 of Delegated Regulation (EU) 2015/35 lay down the rules. The supervisor does not accept that the insurer cuts to zero: FDB can fall only to the extent that the future management strategy is documented, consistent with the shock, and compatible with competition and the duty to treat policyholders fairly. For a with-profits euro fund, the adjustment weighs heavily in the market SCR, whereas a unit-linked fund generates almost none.