Regulator’s suggestions on how to calculate insurance reserves
The Bank of Russia has drafted a framework of new requirements for calculating insurance reserves formed by insurers to secure future payments.
The framework suggested is based on the Solvency II risk-based approach and enables a more accurate calculation of the amount of insurance obligations, which will make it possible to more correctly assess insurers’ financial sustainability. Such an approach also sets higher requirements for an insurer’s actuarial competence.
The changes provide for the following: insurance agreements are to be included into calculations depending on the effective date of insurance coverage, date of agreement or date of the first payment, whichever is earlier. Insurance reserves will be calculated as the difference between current values of expected cash outflows and inflows under agreements.
In addition, there will be new mandatory criteria for a reinsurance agreement to be deemed eligible for capital adequacy calculation purposes.
This framework, including the procedure for bringing the suggested regulation into force, is planned to be discussed with experts in the near future.