Underwriting provision

from Wikipedia, the free encyclopedia

Underwriting provisions have on the balance sheet of insurers whose obligations from insurance contracts according to the Commercial Code of valuation. They must also be formed in the annual financial statements to the extent that this is necessary to ensure that the obligations from the insurance contracts can be continuously met. On the basis of these provisions, the supervisory law determines the extent to which capital investments must be held to secure the claims of policyholders in the event of insolvency ( security assets ) and theOwn funds that the insurer must have. In the consolidated financial statements, the provisions can be determined according to other principles, particularly when applying IFRS according to these principles.

From a balance sheet theoretical point of view, the technical provisions include not only provisions in the narrower sense, but also prepaid expenses and liabilities to policyholders . Underwriting provisions form the majority of the liabilities side of the balance sheet for insurers .

General

Legal regulations

The Commercial Code (HGB) regulates the approach, valuation and reporting of technical provisions in addition to the generally applicable provisions in § 341e to § 341h HGB. Additional regulations can be found in the Insurance Company Accounting Ordinance (RechVersV) in Sections 24 to 32 .

In addition, according to Section 341e of the German Commercial Code (HGB), the supervisory regulations issued in the interests of the policyholders regarding the choice of calculation bases for the valuation must be observed. In the provision for premium refunds imaged obligations under the profit sharing are governed by the relevant contractual obligations.

In the consolidated financial statements, the provisions of IFRS may have to be taken into account.

Approach and evaluation

The general accounting and valuation regulations apply to the technical provisions ( § 246 to § 256 HGB). To be observed valuation rules relate specifically to individual valuation bid that prudence principle , the principle of prudence , the realization principle and the consistency requirement. According to the general norm in Section 341e (1) of the German Commercial Code (HGB), technical provisions “must also be set up to the extent that this is necessary, based on a reasonable commercial assessment , in order to ensure the long-term fulfillment of the obligations arising from insurance contracts”. Furthermore, the supervisory regulations on the calculation bases to be used and the policyholder's profit sharing must be observed.

The principle of individual assessment applies. If this is not possible or represents a disproportionate effort, the technical provisions can be estimated using an approximation method. So is z. For example, in the case of (partial) provisions for unknown long-term claims, naturally only an estimate is possible on a collective basis.

identification card

The technical provisions are shown in two liability items according to the balance sheet structure in Form 1 of the Insurance Company Accounting Ordinance (RechVersV) :

Provisions for the obligations from unit-linked and index-linked life insurances as well as from tontines are to be shown under liability item F. Technical provisions in the area of ​​life insurance insofar as the investment risk is borne by the policyholders . On the assets side, it is offset by item D. Investments for the account and risk of life insurance policyholders, which at the same time determines the value of the provisions, so that both items have the same value.

Otherwise, the accounting is carried out under liability item E. Technical provisions .

Net statement

Contrary to the general offsetting prohibition , the accounting of the technical provisions is based on the net principle: The portion for the reinsurance contracted, which actually represents a claim on the reinsurer, is openly deducted from the amount of the obligation ("gross amount") in a preliminary column .

Under IFRS, on the other hand, the gross provision, which may be valued differently than under HGB, is recognized as a liability. The reinsurers' share is capitalized as a receivable.

Balance sheet items

According to the balance sheet structure in Form 1 of the Insurance Company Accounting Ordinance (RechVersV) , liability item E. Insurance technical provisions is structured as follows:

  1. Unearned premiums
  2. Actuarial reserve
  3. Provision for claims that have not yet been settled
  4. Provision for performance-related and performance-independent premium refunds
  5. Claims equalization reserve and similar provisions
  6. Other technical provisions

The liability item F. Technical provisions in the area of ​​life insurance, insofar as the investment risk is borne by the policyholders, is structured as follows:

  1. Actuarial reserve
  2. Other technical provisions

Insurance technical provisions must also be set up by the insurers in order to ensure that the obligations from the insurance contracts can be met over the long term. They assess the obligation to provide future insurance benefits, including profit sharing. In addition, they contain amounts to cover expenses for insurance operations, e.g. B. for the administration of insurance contracts. Future income covering these obligations from contributions but also from other sources, in particular investment income, may be deducted. The latter is guaranteed by discounting .

Liabilities E.

Unearned premiums

Unearned premiums are created for that part of the premiums that was posted in the balance sheet year but represents income for expenses (insurance benefits, administrative expenses) in subsequent years or has not yet been taken into account in the actuarial reserve due to interpolation .

From a theoretical perspective balance unearned passive are prepaid expenses .

Actuarial reserve

Premium reserves are to be formed for future insurance benefits, particularly in life and health insurance. The actuarial reserve is the most important liability item in these lines of business.

In life insurance , it primarily represents the value of the expiry benefits and pension payments . In private health insurance , the actuarial reserve, referred to there as the aging reserve, essentially serves to compensate for the cost of illness, which increases with age. Pension actuarial reserves for liability and accident pensions are shown in the claims reserve.

The mathematical reserve is calculated according to actuarial principles as the difference between the (actuarial) present value of future obligations and the present value of future contributions. There are special regulations for their evaluation, in particular the choice of the calculation bases.

Claims provision

The provision for insured events not yet settled is created for known and unknown insured events that have already occurred and that have not yet been (fully) settled. In life insurance, surrenders that have not yet been processed are also shown here. In property and casualty insurance, the claims provision is the most important liability item. In principle, the claims provisions are to be formed according to the reason and amount for the individual insured event; the principle of individual assessment applies. This means that for each insured event an independent, careful assessment of the provision has to be carried out and thus a compensatory effect between the individual insured events is excluded. The valuation is generally the presumed settlement amount . Discounting is only permitted for pension actuarial reserves, but is generally required in the tax balance sheet . Claims from recourse, provenances and partition agreements are to be deducted from the provision amount. This is because there are recourse to third parties (recourse) or claims to an insured property (provenances) or several insurers are liable (sharing agreement).

Provision for unknown long-term damage

Provisions are also made for unknown long-term losses (IBNR = incurred but not reported). This is damage that has already occurred but has not yet been reported to the insurer. The IBNER damage corresponds to the IBNR damage. This abbreviation stands for incurred but not enough reserved and means damage that has already occurred and is known, but for which insufficient reserves have been set up. Experience to date with regard to the number and amount of late damage is taken into account. A partial provision for settlement costs must also be created.

Provision for premium refunds

The provision for premium refunds (RfB) represents the current obligation for policyholders to participate in surplus . It is particularly important in life and health insurance. By "parking" generated surpluses in the RfB, the distribution of surpluses to the policyholder is temporally decoupled from the expenses of the insurer for the purpose of profit sharing. There are also surpluses that are credited to the insured directly at the expense of the financial year (direct credit). The (minimum) allocation to the RfB is made in accordance with supervisory regulations ( Insurance Supervision Act VAG, life insurance: minimum allocation regulation , health insurance: surplus regulation ). In special cases, especially in the consolidated financial statements , the RfB to be applied can also be higher than the RfB to be set up in the contract ("latent RfB").

Claims equalization reserve and similar provisions

The equalization reserve serves to balance out risks over time. It is particularly important in lines of business with very different claims incidence in the individual years. The method for calculating the equalization reserve is specified in the annex to the RechVersV.

Since this item is determined purely on a net basis, it is only shown with a number in the balance sheet. There is no subdivision into the gross amount and the share to be deducted by reinsurers.

For risks that already cover high losses in individual insured events, “similar provisions” must be set up under the equalization reserve. In the event of a claim, the risk can not be covered by the insurance premium for a single year; compensation can only take place in an indefinite period of time.

According to Section 30 RechVersV, provisions similar to the equalization provision must be formed:

  • Pharmaceutical provision,
  • Nuclear reserve,
  • Terrorism Risk Provision.

This list is not to be regarded as conclusive. A provision must also be made here for other major risks (e.g. earthquakes ).

Other technical provisions

The other underwriting provisions include in particular the cancellation provisions for receivables from the insurance business and the provision for impending losses from the insurance business.

Property and casualty insurers as well as reinsurance companies also report the provisions here in accordance with Section 31 (2) RechVersV

  • for the obligations from the memberships for Solidarhilfe e. V. and to Verkehrsopferhilfe e. V.,
  • for unused contributions from dormant motor vehicle and legal protection insurance as well as
  • for non-performance-related premium refunds, "insofar as they are formed as a precautionary measure for a multi-year observation period before the end of this period"

out.

Liabilities F.

This item shows provisions for the obligations from unit-linked and index-linked life insurance as well as from tontines .

Actuarial reserve

The actuarial reserve in unit-linked life insurance is the same as the fair value of the capital investments it covers ( fund shares ).

Other technical provisions

This includes, in particular, a profit sharing that is invested in fund units. A loss provision that is owed in fund shares must also be recorded here.