Decree of the Ministry of Finance No. 52 / 1994 Coll.
Ordinance of the Ministry of Finance on the creation, use and method of placing of technical provisions of an insurance undertaking
Valid
Effective from 21.03.1994
Contents
52
DECLARATION
Ministry of Finance
of 23 February 1994
determining the creation, use and method of placing of the insurance undertaking's technical provisions
The Ministry of Finance pursuant to § 14 paragraph 9 of the Act of the Czech National Council No. 185 / 1991 Coll., on Insurance, as amended by Act No. 320 / 1993 Coll., provides:
SUBJECT MATTER OF THE ADJUSTMENT
This decree regulates the creation, use and location of the technical provisions of the insurance undertaking (hereinafter referred to as "reserves') .1
TRAINING AND USE OF RESERVE
Provisions for other periods of insurance
(1) The provision for other periods of insurance is made up of a part of the premiums relating to future financial years and its amount is determined as a sum of the provisions calculated by reference to each insurance contract.
(2
(3) For those types of insurance for which the insured risk changes repeatedly during the year, the mathematical and statistical methods taking into account the course of the insured risk are used to determine the level of the reserve.
Provisions for insurance claims
(1) Insurance provisions for life and non-life insurance are made up of part of the insurance premiums and are intended for:
(a) claims on claims disposed of but not paid in the current accounting year;
(b) claims on claims reported by the end of the current accounting year but not disposed of in the current accounting year;
(c) claims arising during the current accounting year but not reported during that period.
(2) The amount of the provision for claims shall be determined as the sum of the provisions calculated for each event. If the amount of the reserve cannot be determined in this way, the mathematical statistical methods shall be used. The provision for insurance claims shall also be made up of all expected expenses associated with the liquidation of claims.
(3) In the case of claims incurred by the end of the current accounting year but not reported to the insurance undertaking, the amount of the provision for claims is determined by a qualified estimate method.
(4) The provision for claims is reduced by the expected amount of recoverable claims to which the insurance undertaking is entitled in respect of claims.
(5) If insurance benefits are provided in the form of pensions for each type of insurance, then the provision for insurance benefits is made up of insurance technical methods.
(6) Where life insurance obligations are included in the life insurance provision, those obligations shall not be included in the insurance performance provision.
Premium reserve and discounts
The premium and discount reserve shall be made up in accordance with the general insurance conditions and shall be intended to provide premiums and discounts on premiums.
Provision for extraordinary risks
(1) The provision for extraordinary risks is made up of the various types of non-life insurance from part of the insurance premiums and is intended to compensate for annual fluctuations in insurance payments. The provision for the settlement of extraordinary risks shall also cover all expected expenses associated with the liquidation of claims. The amount of the provision shall be determined by the qualified estimation method, depending on the volume and risk of the insurance business and the method of reinsurance.
(2) The provision for extraordinary risks shall be waived if there are no fluctuations in insurance performance payments during long-term monitoring, where the cost of performance during the last five years is at least once above the threshold of the premium received and the occurrence of these fluctuations can be expected in the future, or if less than 4% of the total premium received has been accepted in the last five years and less than CZK 1 million.
Life insurance provision
(1) The life insurance provision is made up of a sum of the provisions calculated according to each life insurance contract. In calculating the provisions, pure premiums shall be based on the same mortality tables and the same interest rate used in calculating the premium rates. The mathematical statistical methods may only be used exceptionally if they result in results comparable to those of the actuarial methods.
(2) The life insurance provision represents the value of the insurance undertaking's liabilities, calculated by technical methods, including already recognised and promised profit shares (interests in premiums surpluses) and cost provisions associated with the management of insurance, after deduction of the value of future premiums.
(3) The negative values of individual life insurance premiums arising from the application of the insurance technical method are replaced by zero.
Provision to cover investment liabilities on behalf of insured persons
The provision for the payment of investment liabilities on behalf of insured persons shall be made where the economic risk of variable income or growth of the insurance funds invested is borne only by the insured. The amount of the provision shall be determined as a sum of the proceeds of the insurance premiums placed on each life insurance contract, according to the principles contained in the general policy conditions. If the life insurance also includes transactions of the agreed amount, the corresponding provision shall be made by analogy with § 6.
The resources of each technical provision are used to cover the insurance undertaking's liabilities towards the insured.
RESERVE LOCATION
Method for placing reserve assets
Provisions not used to pay claims may be placed in:
(a) government bonds, 2)
(b) bonds issued by banks, 3)
(c) publicly marketable (4) bonds issued by trading companies (5) and admitted to stock exchange trading (6)
(d) loans, loans and other claims on undertakings guaranteed by the Bank;
(e) real estate up to a maximum of 25% of each of the reserves without the approval of the supervisory authority;
(f) mortgage loans on domestic real estate up to 50% of their selling price, provided that the sale price has been ascertained by an expert (7), and the property is adequately insured against fire or other natural risks for the entire duration of the loan, up to a maximum of 20% of each reserve without the approval of the supervisory authority;
(g) shares (8) and units (9) marketable on the public market, (10) up to a maximum of 10% of each of the reserves without the approval of the supervisory authority;
(h) to deposits with banks authorised to operate as a bank in the Czech Republic, without the approval of the supervisory authority, the value of deposits with one bank may not exceed 15% of its principal assets and, at the same time, more than 20% of each insurance reserve may not be deposited with one bank.
The supervisory authority may agree to another way of placing the reserve assets provided that the conditions of safety and the expected return are met in that way, as in one of the provisions of Paragraph 9. Shares issued by one issuer may not exceed 3% of each of the reserves. The share of shares acquired from insurance undertakings' reserves in the capital of each issuer may not exceed 10% without the approval of the supervisory authority.
Principles for the allocation of reserves
When placing reserves, the insurance undertaking shall ensure compliance with:
(a) safety principles which mean that reserve funds must be deposited as deposits, in real estate and securities (Section 9), which provide a guarantee of reliable deposit;
(b) the principle of profitability, which means that reserves must be treated with professional care and in order to ensure the yield or growth of such funds;
(c) the principles of the need for liquid (rapid) funds which mean that part of the funds must be deposited in such a way that such funds are readily available for the smooth payment of claims;
(d) the principle of adequate distribution which implies that the risk of placing reserve assets must be distributed in accordance with Section 9;
(e) the principle of dispersion (diversification) of the location, which means that only a limited part of the reserves may be placed on one entity (Section 10).
TRANSITIONAL, REPEAL AND FINAL PROVISIONS
The balance of the basic reserve shall be transferred to non-life insurance provisions and the balance of the reserve of life insurance provisions.
The provisions of the insurance undertaking must reach the amount required to cover its obligations to the insured not later than two years after the date of entry into force of this Order.
The insurance undertaking shall adjust the location of the reserves in accordance with Sections 9 and 10 within two years of the date of entry into force of this Decree.
Decree No. 259 / 1991 Coll., establishing the method of making and using special-purpose insurance funds, is hereby repealed.
This decree shall take effect on the day of its publication.
Minister:
Ing. Coachman CSc. v. r.
1) Article 14 (1) of Act No. 185 / 1991 Coll., on Insurance, as amended by Act No. 320 / 1993 Coll.
2) Article 18 of Act No. 530 / 1990 Coll., on Bonds.
3) § 1 of Act No. 21 / 1992 Coll., on Banks.
4) Article 71 of the ČNR Act No. 591 / 1992 Coll., on securities, as amended.
5) Act No. 513 / 1991 Coll., Commercial Code, as amended.
6) Act No. 214 / 1992 Coll., on the Stock Exchange.
7) Act No. 36 / 1967 Coll., on Experts and Interpreters.
8) § 155 of Act No. 513 / 1991 Coll.
9) Article 11 of Act No. 248 / 1992 Coll., on Investment Companies and Investment Funds, as amended by Act No. 591 / 1992 Coll.
10) § 8 of Act No. 591 / 1992 Coll.
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Regulation Information
| Citation | Decree of the Ministry of Finance No. 52 / 1994 Coll. |
|---|---|
| Regulation Type | - |
| Author | - |
| Collection | Code of Laws |
| Date of Promulgation | 21.03.1994 |
|---|---|
| Effective from | 21.03.1994 |
| Effective until | - |
| Status | Valid |
The regulation text is for informational purposes only.
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