Actuarial reserves

Insurance provision is a term used in accounting. He referred to the amount carried in the balance sheet of an insurance company value of the obligation of a life insurance contract or any other contract with long lasting insurance coverage. The coverage provisions of the contracts form the main liability items on the liabilities side of life and health insurer and one of the technical provisions. In certain for financial reporting purposes, insurance provision also take the rules on solvency ( capital adequacy ), the amount of the security to be held as investments and also to measure the bonuses of reference.

• 6.1 Types of accounting principles
• 6.2 replenish the insurance provision in an unfavorable change

• 7.1 Responsible Actuary
• 7.2 interpolation
• 7.3 ID
• 7.4 Share of reinsurers
• 7.5 International Accounting

• 8.1 Life Insurance
• 8.2 health Insurance
• 8.3 Property and Casualty Insurance

• 9.1 guarantee assets, trustees
• 9.2 Investment rules

Concept of insurance provision

The term " assurance provision " refers to the forming of the individual contract value. However, often, also the total items in the balance sheet, ie the sum of the mathematical reserves of all contracts, referred to briefly but imprecise as actuarial provision. The value of each contract is in contrast to this, then - just as imprecise - called actuarial reserves, which actually refers to any actuarial determination of the contract value according to the traditional actuarial reserve formula ( deterministic method). In particular, the older literature we find the terms " reserves ", " premium reserve " or " balance sheet reserve". However, the insurance provision is a provision and not a reserve within the meaning of accounting. The coverage ratio provides information about what percentage of the commitments are in fact covered by assets.

Function of insurance provision

The insurance provision describes the commercial law to be applied amount of the liability of the insurer under the obligations arising from a contract of insurance in so far as they do not relate to already due or existing because of already occurred insurance claims cases. As these obligations are uncertain, there is a provision. The debt is in the performance backlog of the insurer under the contract for which the policy holder has already paid contributions in fulfilling his obligations, the insurer has not yet fulfilled but his contribution, the pay of insurance coverage or the provision of other services. Such a settlement arrears should be considered to represent a true and fair net assets, financial position and results, even though the obligation may take decades to be paid. Policyholders have with their premium payment, which has been reported as income of the insurer, claims acquired that must identify the insurer in return. In assessing the future obligations of the insurer by the policyholder are reducing those contributions taken into account that in the future this must contribute to the maintenance of the claim.

Legal regulations

In addition to the general rules of commercial law in § 246Vorlage: § / Maintenance / buzer Commercial Code, in particular the completeness of bid, and § 252Vorlage: § / Maintenance / buzer Commercial Code, in particular the single measurement principle, the precautionary principle, the principle of unequal treatment, the realization principle and the consistency requirement and the general applicable technical provisions provisions of § 341eVorlage: § / maintenance / buzer HGB are the rules on recognition and measurement of insurance provision in § 341fVorlage: § / maintenance / buzer the German Commercial Code (HGB) and other requirements in § 25Vorlage: § / maintenance / buzer and 32Vorlage §: § / Maintenance / buzer RechVersV or in 13Vorlage §: § / Maintenance / buzer and 17Vorlage §: § / Maintenance / buzer RechPensV. According to § 341eVorlage: § / Maintenance / buzer Commercial Code, the provisions of the Insurance Supervision regulations on the minimum applicable prudence in the choice of the bases of calculation of the actuarial provisions are taken into account. The regulatory standard found in § 65Vorlage: § / Maintenance / buzer the Insurance Supervision Act (VAG), and in § 116Vorlage: § / Maintenance / buzer VAG for the pension funds, and in implementing it legal regulations, the insurance provision Regulation ( DeckRV ) for the life insurance, the calculation Regulation ( KalV ) for health insurance and pension fund actuarial provision Regulation ( PFDeckRV ) for pension funds.

In life insurance, the actuary Regulation ( AktuarV ) further requirements for the provision for certifying actuary. In the old stock, the valuation depends on the approved business plan. Change in methodology or the assumptions used in order require the approval of the Insurance Supervision.

The German regulations are based on European law (Directive 2002/83/EC ). The corresponding provisions of other European countries, such as Austria or Switzerland, are therefore not significantly different. In Switzerland, the determination of the actuarial provisions in Articles 58-65 of the Supervision Ordinance (AVO ) is regulated. For Austria, the determination of the premium reserve by § § 81i and k VAG Austria is regulated.

As far as insurance companies prepare consolidated financial statements or separate financial statements in accordance with IFRS, the IFRS are to be applied 4 "Insurance Contracts ". It follows that the for most insurers to continue the provisions of the German Commercial Code, or U.S. GAAP. The IASB is currently preparing a revised version of IFRS 4, which may provide an assessment of the actuarial reserve for fair value.

Principles for determining the actuarial provision

The value of the future obligation is not clearly determined because of the randomness of the insurance benefits but also because of the uncertainty of future development, but must be estimated. This is true even if this value as the fair value is based on market prices, since such prices are not observable.

The procedure for the estimation of the provision for future policy is described by the " technical design fundamentals ". These consist of the " calculation method " and the need to " assumptions " or " parameters ".

Calculation methods

Prospective and retrospective method

Under EU rules, the premium reserve shall be calculated using the prospective method. It is determined ( prospective method ) while according to actuarial principles as the difference between the actuarial value of the obligation of the insurer and the actuarially determined present value of the contributions to be paid by the policyholder. " Prospective " means here that only find future cash flows into account. From the choice of words "commitment " and " contributions" implies that all future cash flows, ie the total contractual contributions and the total required for the execution of the contract costs, including all expenses are to be considered for insurance operations, ( gross premium method). From this gross premium method may be departed from only if this is necessary or commercial law gives essentially the same value.

Is the application of the prospective method is not possible ( for example, in unit-linked life insurance policies or contracts in which the height of the value proposition is not absolutely fixed for other reasons), there is the provision for the - if a return is agreed - compounded occupied posts minus the contractual withdrawals for risk and operating expenses (retrospective method). While the prospectively determined mathematical provision aims to set aside the funding aimed at ensuring the promised future benefits of the insurance company, net of future premiums, determined the retrospective method the residual value of the services previously provided by the customer amounts due to which the definition of the future entitlement to benefits under the contract.

If the calculation of the actuarial reserve the same technical bases for calculation, ie the same method, and thereby identical assumptions, as was originally used in the calculation of contributions, both methods give the same value.

Other trade law requirements

The insurance provision has the obligation to completely cover (completeness requirement). Resulting Also throughout the contract additional obligations, such as through the allocation of bonuses that increase the insurance claim (ie, not the interest accumulated, see § 341fVorlage: § / Maintenance / buzer HGB) are taken into account.

The premium reserve is individually for each contract to determine (individual valuation principle ). Approximation methods are allowed, however, is to ensure that no netting between contracts takes place. Actuarial reserves can also be computationally negative due to the difference if the actuarially determined present value of contributions is higher than the actuarial value of the obligation. Such negative mathematical reserves may not be positive offset. Rather, they are assumed to be zero. An exception applies if the insurance provision because the risk profile during the contract period will be negative from time to time, as may occur for example in the disability insurance.

The insurance provision is careful to determine ( prudence ). To this end, there are still insurance-specific special rules in the RechVersV and VAG.

As far as the insurance provision in accordance with commercial criteria is not sufficient, this immediately to raise the required amount ( Imparitätsprinzip ). A distribution of this effort over time is not permitted.

Unrealised gains, for example, future contribution payments or future interest gains are not anticipated ( realization principle ). Therefore, in § 341fVorlage: § / modify maintenance / buzer HGB predetermined gross premium method when the contractual contribution is higher than the value calculated according to the technical bases for calculation of the actuarial provision required contribution (standard contribution). In the case the figure in calculating contribution on the theoretical contribution requirement is lower ( required contribution method). This occurs when the technical bases for calculation of the contributions are more cautious than those of the insurance provision or an explicit profit margin was set in the post.

The evaluation method - ie the entire technical design fundamentals - is maintained for the entire duration of the contract, unless there is a commercial law relevant reason to change it ( consistency requirement ). For regulatory purposes, applies to the accounting basis "Interest " an even stricter rule.

Implicit and explicit method

Basically, the future costs of the insurance business of the insurance company when calculating the present value of the power to set (explicit method). The paper present value of the contractual contributions are then used in the on prudential regulations ( § 11Vorlage: § § / Maintenance / old URL buzer para 1 VAG ) surcharges to cover these expenses are to be included.

Are made ​​to them as surcharges, as determined by the technical bases for calculation of the premium reserve, sufficient to cover the (carefully) expected future actual expenditure, is also the implicit method under EU law permitted. Here are all running expenses for the insurance business, mainly administrative and collection costs, if these are approximately proportional to the current contributions are ignored in the actuarial value of the obligation and also the recognized contributions to the corresponding surcharge reduced ( zillmerised net contribution method). The so recognized contributions are referred to as zillmerised net contributions. German law does not expressly mention the implicit method, but allows the zillmerised net contribution method, and thus indirectly the implicit method. In principle, the applicability of results already from the detected equivalence with the explicit method so that it does not require an explicit permission. The implicit method is also used predominantly.

For contributory periods and contracts always use the explicit method, ie, it is within the coverage provision a part of the provision for future expenses that form " administrative cost provision " (§ 25Vorlage: § § / Maintenance / old URL buzer paragraph 3 RechVersV ). (Note: ". Thus have " In the insurance mathematics, the term " cost " is used instead of the term " expenses " instead of " contract " 'accounting standard actuarial cost " nothing to do with the actual expenses but are imputed in the contribution made ​​to them Supplements for expenses. )

Consideration of acquisition costs

Due at the beginning, acquisition costs are not included in a prospective method in the actuarial value of the obligation. Only later overdue acquisition costs shall be recognized as expenses for the insurance business until maturity.

According to § 11Vorlage: but § § / Maintenance / old URL buzer para 1 VAG must consider the expected closing expenses in determining the contribution of the insurer. The actuarially determined present value of contributions is thus correspondingly higher than the actuarial value of the obligation. In applying the realization principle, but actually incurred initial acquisition costs shall inflict the actuarial value of the obligation to determine the required contribution. For by this approach increased the initial acquisition costs need contributions no unrealized profit is anticipated. The use of a lower contribution requirement would not give a true and fair view of the assets, financial and earnings position, because the debts are overrated unnecessary.

Any resulting mathematically negative actuarial reserves, however, are assumed to be zero.

Alternatively allowed 25Vorlage §: § § / Maintenance / old URL buzer paragraph 1 sentence 2 RechVersV to use instead of as prescribed by the Commercial Code required contribution shall also consider the implicit method, if it leads to a substantially same result. This is thereby resulting method is the zillmerised net contribution method with traditional contracts. There is so far no vote to choose that Zillmerungs process, but there is only the choice between different, leading to essentially the same conclusion process.

However, the consideration of initial acquisition costs, if required contribution ( or zillmerized net contribution ) is prudentially limited ( § 4Vorlage: § / Maintenance / buzer para 1 and 4 DeckRV in conjunction with § 65Vorlage: § / Maintenance / buzer Section 1 No. 2 VAG in conjunction with § 341eVorlage: § / maintenance / buzer paragraph 1 sentence 2 HGB). Normally, no more than 4 % of the total contractual contributions are recognized. If the contract (as usual) provides higher increments that are not needed for future obligations, they must not be taken into account in the present value of the required contributions in the actuarial provision. So you are to collect revenue in proportion to the contributions at each contribution due date. These are the so-called " payback surcharges " (where the acquisition costs are higher than the maximum allowable 4%, that must be recouped later) or "profit margins". "Profit margins" are the part of the premium components, which are not offset by future obligations, but beyond the initial acquisition costs actually incurred.

Deterministic, stochastic and analytical method

In the deterministic method of careful certain expected value of the cash flows that policy year is determined for each future policy year. This sum this, discounted to the valuation date amounts is then the cover provision. This is the policy reserve formula of traditional actuarial mathematics.

In the stochastic method, a large number of scenarios for the development of capital markets, the termination behavior, mortality and cost development is created. For each of these scenarios, the contract curve is simulated and determined the present value of cash flows arising hereafter. The sum of the weighted with the (carefully chosen ) probability of each scenario is then the present value of the actuarial provision.

In the analytical method, the present value of the cash flows is understood as a stochastic process. The analytically determined risk-weighted expected value of this process is then the cover provision.

The stochastic method is not used in practice in Germany, in some States but prevalent. In some modern foreign contracts can ever be used only the stochastic method. The analytical method is usually too complex to use. But represents the most accurate method of calculation

Consideration of the surrender value

Where a contract provides for a contractual or statutory certain surrender value which is higher than the given in accordance with commercial requirements insurance provision, the insurance provision is to raise that amount ( § 25Vorlage: § § / Maintenance / old URL buzer Section 2 RechVersV in compliance with a binding EU legal requirement).

This provision is in conjunction with § 66Vorlage: § / Maintenance / buzer VAG means that an insurer must maintain at all times as many investments that he can so that at the very unrealistic scenario, the termination of all policyholders satisfy all claims. Therefore, insurers are reluctant to agree to surrender values ​​that are above the otherwise to be applied in the actuarial provision. Although the relatively few early terminating party overall have only a minor advantage of this increased surrender value, means the obligation to make the additional provision for the entire inventory by providing access to investments, substantial financing costs that are disproportionate to the benefit of early terminating party. These financing costs are at the expense of total benefits of all policyholders, as they are naturally passed on to the prices. Specifically for this reason, the Federal Court provided in its judgment on surrender values ​​in 2005 despite the lack of a contractual agreement to repurchase value a judicial contract amendment, only to the extent of hälftigen division of the difference between a refund and was initially provided for the surrender value. So insurers do not hesitate, therefore, to pay increased redemption values ​​because they do not treat the terminating party the amounts, but because they have a these increased redemption values ​​punitive legislation forcing them to safeguard the interests of all policyholders.

Assumptions or parameters

Actuaries denote the parameters by which the contributions and actuarial reserves with the deterministic method in the traditional actuarial mathematics are calculated as a calculation basis. In stochastic methods, there is no accounting principles, but as assumptions go, only the probabilities of the scenarios chosen (often several thousand ) a. It is not definable, whether the choice of scenarios to the assumptions or the method of calculation counts. In the analytical method, this applies to the choice of the stochastic process, which is also an assumption, however, is the essential basis for the calculation method. Actual parameters are required by the stochastic process for the description parameter here. In this respect, the distinction between the technical design fundamentals in "Calculation Method" and " assumptions " at stochastic or analytical methods is not useful because the method depends on the circumstances of the particular case.

One differentiates the accounting principles in biometric basis, for example, mortality tables, the discount rate and cost rates in the traditional insurance mathematics.

Types of accounting principles

Biometric actuarial bases are the parameters by which the insured risks, such as mortality, disability or medical expenses are modeled. In general, these parameters by gender and by age reached are dependent. In the health and lapse rates are applied.

Since life and health insurance usually run for decades, future benefits and contributions will with discounted. The interest rate used in this case, traditional same for all durations of the cash flows is called the discount rate. The maximum discount rate for the calculation of the actuarial provisions for new business in life insurance is defined in § 2 DeckRV. He is - apart from exceptions ( special rates, foreign currency insurance) - since 1 January 2012, 1.75%. The maximum interest rate in health insurance is 3.5%.

For complete and careful mapping of future obligations under the insurance contracts also includes consideration of future costs for insurance operations, in particular expenses for contract management and the collection of premiums, but also for the regulation of insurance claims. Therefore, including the assumptions about future such expenses to the calculation bases. Post parts that may not be recognized early after the realization principle or because of Höchstzillmersatzes belong as " amortization charges " or " difference between standard and gross contribution" ( profit margin ) to the calculation bases.

Replenish the insurance provision in an unfavorable change

According to § 2Vorlage: § / Maintenance / buzer Section 2 DeckRV selected during final interest rate for the life insurance provision throughout the contract term is retained as far as it must not be changed by legislation. The other calculation bases must be changed fundamentally. But the normally precludes the consistency requirement and the realization principle.

But where it appears that the originally assessed as safe bases of calculation by subsequent developments not yet have sufficient, the accounting principles used to date are to be replaced by those that are sufficiently secure on current estimates, according to the principle of unequal treatment in the calculation of the actuarial provisions. This leads to a corresponding increase of the premium reserve ( " reserve strengthening ").

A recent example is the revaluation of pension schemes. It was found that the made ​​to them in the table DAV 1994R trends for mortality improvement does not take into account the actual increase of longevity sufficient. Thus, the life insurance companies had to assess the insurance provision at 31 December 2004 according to the table DAV 2004R inventory. The there be eligible collateral will be expanded in subsequent years to the extent that in a given year, the trend adopted in the table DAV 2004R used for new business should confirm.

Indicates that the current or expected capital gains are not sufficient to meet the obligations entered into interest rate, the discount rate should be adjusted. The DeckRV specifies how the expected capital gains are to be determined, as far as is commercially not legally required in even greater caution. Under no circumstances may the interest rate commercial law less than the estimate for the same time investment income of the insurer.

Are made ​​to them as cost increases may not be sufficient to cover the actual expected future expenses, the calculation of the premium reserve shall be carried out with correspondingly higher cost rates.

In the ( private ) health insurance, the actuarial basis of the contributions are always adapted to current developments in the way of premium adjustments and the calculation basis for the provision for follow them.

Others

Responsible Actuary

The appointed actuary certified under the balance sheet, the correct calculation of the provision for future policy by the insurer (actuarial certificate pursuant to § 11a para 3 and § 12 para 3 Insurance Supervision Act ). Besides the choice of an appropriate method of calculation in particular, the appropriateness of the assumptions and parameters must be confirmed.

The new portfolio of life insurance, the insurer is free within the legal guidelines in the choice of accounting principles. Therefore, the responsible actuary has a special obligation to check with the confirmation. In the old stock, the calculation is based on the approved business plan. This is in particular the compliance of the business plan to examine and certify. The same is true for health insurance.

The appointed actuary is required to explain in a report to the Board ( " actuarial report " ) which cost estimates and assumptions are based on his confirmation. This does not apply for health insurance and burial funds and regulated pension funds. The actuary's report is thus explained how the technical bases of calculation used by the insurer are reasonable.

Interpolation

In practice, the insurance provision is determined mostly for the beginning of the insurance year (anniversary of insurance ) before and after the balance sheet date, and then interpolated to the date. A calculation with sub-annual present values ​​is also possible. As far as calculated with annual premiums for such coverage provisions actually interpolated annual fees are charged and collected by the policyholder, must of the months down fractional value of the life insurance provision to be supplemented by the unearned premiums due. These are not considered in the actuarial reserve parts of the annual fee is accrued.

ID

Obligations under the unit-linked and index-linked life insurance and of tontine are reported where the investment risk is borne by the policyholders in balance-sheet presentation Form 1 RechVersV in sub-item actuarial reserve for the deferred amount F. Technical provisions in the area of ​​life insurance.

In addition, they are accounted for Technical provisions in the sub-item actuarial reserve for the deferred amount E.. For guaranteed performance from unit-linked or index-linked contracts ( or so-called hybrid products) is included in this item in addition to the " unit-linked " in addition to form a "conventional" insurance provision.

For property and casualty insurers to cover provisions for liability and accident benefits in the provision for outstanding claims ( " loss reserve " ) are reported.

Reinsurers' share of

The shares of reinsurers in the actuarial provision will share for the given reinsurance business in a first column from the gross amount deducted under the name. Reinsurers deposit these and other amounts again the primary insurer. This amount is recorded Deposits received from ceded insurance liabilities under cent.

The reinsurers hold shares in the actuarial provision, unless the reinsurance is done on the original basis. In reinsurance on a risk basis or stop-loss contracts, reinsurers have no share in the actuarial provision.

International accounting

The measurement of the provision under German commercial and regulatory law is derived with particular care as an essential task of the commercial law of the creditor protection and the regulatory regime is to ensure the constant ability to fulfill the insurance contracts. Against the information function occurs largely alleviated. The International Accounting Standards and U.S. GAAP often used by insurers are focused exclusively on the information function. Therefore here often yields a former earnings shown to the German accounting. Other methods of calculation are used as the deterministic strengthened. It is to be expected that in the medium term, the International Accounting will replace the German accounting, even for insurers. The security of the insurer on the basis of sufficient capacity must be ensured solely for regulatory purposes.

Special features in the various lines of insurance

For health insurers, the insurance provision usually forms by far the largest liabilities in the balance sheet.

Life insurance

The actuarial provisions in life insurance has partly the character of an aging provision ( provision of earned premiums for with increased age higher mortality) and partly to a provision for future survival benefits (especially in the mixed insurance on the death and survival, and in the pension fund).

In addition to the premium reserve and unearned another balance sheet item still is calculated actuarially, namely the unmatured claims for repayment of amounts, for accounting purposes covered, but not yet unamortized acquisition expenses. As far as premium components contracted not only generally the insurer is entitled to cover all expenses from the insurance contracts, but is explicitly a part of the premiums for the coverage of the initial acquisition costs agreed earmarked, according to generally accepted accounting principles in the case of partially filled pending transactions is a claim on future, to cover this already incurred acquisition expenses contractually certain parts of articles to be set. The valuation of this claim corresponds to the constructed negative results in the calculation of the actuarial provisions, insofar as this was not maximized on the surrender value. Otherwise, this increase amount is included in the claims, to the extent provided by contract or by law. This balance sheet item is required by § 15Vorlage: expel Maintenance / buzer RechVersV in sub-items not yet due and claims receivable from direct insurance business from policyholders § /. The existence of such a claim depends on the agreements in the insurance contract. A connection with the method of calculation of the provision for future policy does not exist. Often it is assumed that the approach of the claim depends on the Zillmer adjustment of the actuarial provisions. This is not the case, because the approach depends only on the existence of the contract and is then carried out as zillmerisation even when using the gross premium method or other methods. The calculation method for the mathematical provision itself is not part of the contractual agreements. Here, the insurer must comply with the commercial law in the choice of calculation method.

Health insurance

In the private health insurance provision is used, there referred to as aging provision, mainly to compensate for the increase with age, disease costs: Policyholders pay constant contributions, the expected benefits but increase over time. To finance this effect in "young" years aging provision is established, which is then " consumed " in old age.

In the aging provision are especially to be accounted for:

• The amounts from the provision already applied in the actuarial provision for premium refunds
• Attributions for a reduction in premium aged

In health insurance, the negative and positive coverage provisions of individual contracts are netted. If the result is an overall negative return, so they should be accounted for as zero. For the above assumption for cancellation of contracts with a negative actuarial reserves a cancellation provision is to be formed in other technical provisions.

Property and casualty insurance

Annuity provisions for liability and accident benefits are recognized in the provision for outstanding claims. Entry actuarial reserves, about from the accident insurance with premium return are reported in the mathematical reserve.

Apply for benefit reserves of property and casualty insurers iW the same basis as in life insurance. In particular, the DeckRV applies here as well.

Capital investment

Guarantee assets, trustees

At the level of amounts provided in the actuarial provision amounts asset pool shall be submitted by insurers .. Together with the other restricted assets, which covered all not to be covered by the guarantee assets technical provisions, the guarantee assets forming the restricted assets.

For the monitoring of the investments of the assets securing an independent trustee shall be appointed by the Supervisory Board. May only be exercised with the consent of the Trustee (double closure by the representative of the insurer and the trustee) over the guarantee assets. The Trustee under the confirmed balance the proper establishment and conservation of the reserve fund.

Investment rules

According to § 54bVorlage: § / Maintenance / VAG buzer the investments of unit- and index-linked life insurance are in a separate section of the reserve fund, the plant floor, to put in the values ​​in question.

In addition, the provisions of § 54Vorlage apply for the restricted assets investment: § § / Maintenance / old URL buzer VAG and investment regulation adopted under it ( AnlV ). Objectives of the investment are security and profitability for liquidity. The permissible forms of investment are finally described. It must be considered ( to various debtors ) the principles of mixture (quantitative limitation of individual investment types ) and scattering.