Regulation 3(1)
Methods of calculating the equalisation reserve for credit insurance business
1. In respect of credit insurance business the company shall maintain an equalisation reserve to which shall be charged any technical deficit arising in that business for a financial year.
2. Such reserve shall in each financial year receive 75% of any technical surplus arising on credit insurance business, subject to a limit of 12% of the net premiums or contributions until the reserve has reached 150% of the highest annual amount of net premiums or contributions received during the previous five financial years.
1. In respect of credit insurance business the company shall set up an equalisation reserve to which shall be charged any technical deficit arising in that business for a financial year.
2. The mimimum amount of the equalisation reserve shall be 134% of the average of the premiums or contributions received annually during the previous five financial years after subtraction of the cessions and addition of the reinsurance acceptances.
3. Such reserve shall in each of the successive financial years receive 75% of any technical surplus arising in that class until the reserve is at least equal to the minimum amount calculated in accordance with paragraph 2.
1. Subject to paragraph 2(g) below, an equalisation reserve shall be maintained for credit insurance business for the purpose of offsetting any above-average claims ratio for a financial year in that business.
2. The equalisation reserve shall be calculated on the basis of the method set out below.
(a)All calculations shall relate to income and expenditure for the insurer’s own account.
(b)An amount in respect of any claims shortfall for each financial year shall be placed to the equalisation reserve until it has reached, or is restored to, the required amount.
(c)There shall be deemed to be a claims shortfall if the claims ratio for a financial year is lower than the average claims ratio for the reference period. The amount in respect of the claims shortfall shall be arrived at by multiplying the difference between the two ratios by the earned premiums for the financial year.
(d)The required amount shall be equal to six times the standard deviation of the claims ratios in the reference period from the average claims ratio, multiplied by the earned premiums for the financial year.
(e)Where claims for any financial year are in excess, an amount in respect thereof shall be taken from the equalisation reserve. Claims shall be deemed to be in excess if the claims ratio for the financial year is higher than the average claims ratio. The amount in respect of the excess claims shall be arrived at by multiplying the difference between the two ratios by the earned premiums for the financial year.
(f)Irrespective of claims experience, 3.5% of the required amount of the equalisation reserve shall be first placed to that reserve each financial year until its required amount has been reached or restored.
(g)The length of the reference period shall be not less than 15 years and not more than 30 years. No equalisation reserve need be maintained if no underwriting loss has been noted during the reference period.
(h)The required amount of the equalisation reserve and the amount to be taken from it may be reduced if the average claims ratio for the reference period in conjunction with the expenses ratio show that the premiums include a safety margin.
1. Subject to paragraph 2(g) below, an equalisation reserve shall be maintained for credit insurance business for the purpose of offsetting any above-average claims ratio for a financial year in that business.
2. The equalisation reserve shall be calculated on the basis of the method set out below.
(a)All calculations shall relate to income and expenditure for the insurer’s own account.
(b)An amount in respect of any claims shortfall for each financial year shall be placed to the equalisation reserve until it has reached the maximum required amount.
(c)There shall be deemed to be a claims shortfall if the claims ratio for a financial year is lower than the average claims ratio for the reference period. The amount in respect of the claims shortfall shall be arrived at by multiplying the difference between the two ratios by the earned premiums for the financial year.
(d)The maximum required amount shall be equal to six times the standard deviation of the claims ratio in the reference period from the average claims ratio, multiplied by the earned premiums for the financial year.
(e)Where claims for any financial year are in excess, an amount in respect thereof shall be taken from the equalisation reserve until it has reached the minimum required amount. Claims shall be deemed to be in excess if the claims ratio for the financial year is higher than the average claims ratio. The amount in respect of the excess claims shall be arrived at by multiplying the difference between the two ratios by the earned premiums for the financial year.
(f)The minimum required amount shall be equal to three times the standard deviation of the claims ratio in the reference period from the average claims ratio multiplied by the earned premiums for the financial year.
(g)The length of the reference period shall be not less than 15 years and not more than 30 years. No equalisation reserve need be maintained if no underwriting loss has been noted during the reference period.
(h)Both required amounts of the equalisation reserve and the amount to be placed to it or the amount to be taken from it may be reduced if the average claims ratio for the reference period in conjunction with the expenses ratio show that the premiums include a safety margin and that safety margin is more than one-and-a-half times the standard deviation of the claims ratio in the reference period. In such a case the amounts in question shall be multiplied by the quotient of one-and-a-half times the standard deviation and the safety margin.