Order on the Calculation of Risk-Weighted Items for Group 1 Insurance Undertakings

Order on the Calculation of Risk-Weighted Items for Group 1 Insurance Undertakings 1)

Pursuant to Section 316, Paragraph 1, and Section 332, Paragraph 6, of Act No. 718 of 13 June 2023 on Insurance Business, the following is enacted:

Chapter 1 General Provisions Scope and Definitions

Section 1. This Order applies to Group 1 insurance undertakings' calculation of risk-weighted items in accordance with Section 332, Paragraph 4, Nos. 1-4, of the Insurance Business Act.

Section 2. For the purposes of this Order, risk-weighted items refer to items that depend on the type of insurance, duration, special circumstances in reinsurance, average premium base, administrative costs, and claims expenses, as well as other items in the risk sum.

Chapter 2 Calculation of Risk-Weighted Items for Life Insurance Provisions

Section 3. The risk-weighted items for life insurance provisions, cf. Section 332, Paragraph 4, Nos. 1 and 2, of the Insurance Business Act, shall be calculated as the highest value of

1. the life insurance provisions for each contract, less reinsurance, calculated in accordance with the rules on provisions for life insurance liabilities in the Order on Financial Reporting for Insurance Undertakings and Cross-Border Pension Funds, and
2. the value guaranteed upon surrender of the contract.

Paragraph 2. The value guaranteed upon surrender, cf. Paragraph 1, No. 2, may be reduced proportionally by the probability of surrender, as calculated according to the technical basis applicable to the insurance undertaking. The value may only be reduced if the probability of surrender before the contract expires is below 1, and this must be justified by the fact that the policyholder's right to surrender is contractually limited to special situations.

Paragraph 3. The reinsurance share of life insurance provisions shall be calculated in accordance with the rules on reinsurance shares of insurance provisions in the Order on Financial Reporting for Insurance Undertakings and Cross-Border Pension Funds.

Section 4. The value of the risk-weighted items for life insurance provisions shall be at least 85 percent of the life insurance provisions without deduction for reinsurance.

Section 5. For the calculation of risk-weighted items for life insurance provisions, the following deviations from Section 3 apply:

1. For insurance class I c, cf. Annex 2 to the Insurance Business Act, the risk-weighted items for life insurance provisions shall be calculated as 25 times the largest of the amounts calculated according to Section 9 and Section 11.
2. For insurance class III, cf. Annex 2 to the Insurance Business Act, the risk-weighted items for life insurance provisions shall be calculated as the provisions for unit-link contracts. The provisions for unit-link contracts shall be calculated in accordance with the rules for provisions for unit-link contracts in the Order on Financial Reporting for Insurance Undertakings and Cross-Border Pension Funds.
3. For insurance class V, cf. Annex 2 to the Insurance Business Act, the risk-weighted items for life insurance provisions shall be calculated as the life insurance provisions without deduction for reinsurance shares.

Chapter 3 Calculation of Risk-Weighted Items for the Risk Sum for Life Insurance Business

Section 6. The risk-weighted items for the risk sum for life insurance business, cf. Section 332, Paragraph 4, Nos. 1-3, of the Insurance Business Act, shall be calculated as the risk sum for own account.

Paragraph 2. The risk sum for own account shall be calculated for each individual insured person as the difference between

1. the amount payable upon the death of the insured person, plus the present value of benefits payable after the death of the insured person, as calculated according to the technical basis applicable to the insurance undertaking, and
2. the value of the life insurance provisions for the insured person.

Paragraph 3. In calculating the insurance undertaking's total risk sum, only insured persons with a positive risk sum are included.

Section 7. The value of the risk-weighted items for the risk sum for life insurance business shall be at least 50 percent of the risk sum without deduction for reinsurance.

Section 8. For insurance in insurance class I, cf. Annex 2 to the Insurance Business Act, the following deviations from Section 6 apply:

1. For insurance policies that are term life insurance with a duration of up to 3 years, the risk-weighted items for the risk sum shall be calculated as 33 1/3 percent of the risk sum for own account, but at least 16 2/3 percent of the risk sum without deduction for reinsurance.
2. For insurance policies that are term life insurance with a duration of more than 3 years and up to 5 years, the risk-weighted items for the risk sum shall be calculated as 50 percent of the risk sum for own account, but at least 25 percent of the risk sum without deduction for reinsurance.

Chapter 4 Calculation of Risk-Weighted Items for Gross Premiums and Gross Premium Income

Section 9. The risk-weighted items for gross premiums and gross premium income, cf. Section 332, Paragraph 4, No. 4, letter a, of the Insurance Business Act, shall be calculated as the premium requirement less reinsurance, plus taxes levied by public authorities collected together with the premiums.

Paragraph 2. The premium requirement shall be calculated as the largest of the amount for gross premiums and gross premium income for the most recent 12-month period. For insurance classes 11-13, cf. Annex 1 to the Insurance Business Act, the gross premiums and gross premium income for the most recent 12-month period shall be increased by 50 percent.

Paragraph 3. Gross premiums and gross premium income shall be calculated in accordance with the rules for gross premiums and gross premium income in the Order on Financial Reporting for Insurance Undertakings and Cross-Border Pension Funds.

Paragraph 4. The reinsurance share of the premium requirement shall be calculated based on the 3 most recent financial years as the ratio between the sum of the insurance undertaking's paid claims for own account and the sum of paid gross claims.

Section 10. The value of the risk-weighted items for gross premiums and gross premium income shall be at least 50 percent of the premium requirement without deduction for reinsurance.

Chapter 5 Calculation of Risk-Weighted Items for Gross Claims Expenses

Section 11. The risk-weighted items for gross claims expenses, cf. Section 332, Paragraph 4, No. 4, letter b, of the Insurance Business Act, shall be calculated as the claims requirement less reinsurance.

Paragraph 2. The claims requirement shall be calculated as the annual average of gross claims expenses for the most recent 3 financial years. For insurance undertakings where the majority of business concerns credit, storm, hail, or frost risks, the claims requirement shall be calculated as the annual average of gross claims expenses for the most recent 7 financial years.

Paragraph 3. Gross claims expenses shall be calculated in accordance with the rules for gross claims expenses in the Order on Financial Reporting for Insurance Undertakings and Cross-Border Pension Funds.

Paragraph 4. The reinsurance share of the claims requirement shall be calculated based on the 3 most recent financial years as the ratio between the sum of the insurance undertaking's paid claims for own account and the sum of paid gross claims.

Section 12. The value of the risk-weighted items for gross claims expenses shall be at least 50 percent of the claims requirement without deduction for reinsurance.

Section 13. For the calculation of gross claims expenses, the following deviations from Section 11, Paragraph 3 apply:

1. For insurance classes 11-13, cf. Annex 1 to the Insurance Business Act, gross claims expenses shall be increased by 50 percent.
2. If the insurance undertaking has taken over an insurance portfolio, gross claims expenses for this portfolio shall be included for a 3-year period.

Chapter 6 Reduction of the Deduction for Reinsurance

Section 14. The Danish Financial Supervisory Authority may order an insurance undertaking to reduce the deduction for reinsurance in accordance with Section 3, Paragraph 1, Section 6, Paragraph 1, Section 9, Paragraph 1, and Section 11, Paragraph 1, when the nature or quality of the undertaking's current reinsurance coverage has changed significantly compared to the reinsurance coverage that existed in the years forming the basis for the calculated deduction.

Paragraph 2. The Danish Financial Supervisory Authority may also order an insurance undertaking to reduce the deduction for reinsurance if it was calculated based on contracts that involve insignificant or no risk transfer.

Chapter 7 Penal Provisions

Section 15. Violation of Section 3, Paragraph 1, Sections 4 and 5, Section 6, Paragraph 1, Section 7, Paragraph 1, Section 8, Section 9, Paragraph 1, Section 10, Section 11, Paragraph 1, and Sections 12 and 13 shall be punishable by fine.

Paragraph 2. Companies and other legal entities may be subject to criminal liability in accordance with the rules in Chapter 5 of the Criminal Code.

Chapter 8 Entry into Force

Section 16. This Order enters into force on 1 January 2025.

Paragraph 2. Order No. 1672 of 16 December 2015 on the Calculation of Risk-Weighted Items for Group 1 Insurance Undertakings is repealed.

Danish Financial Supervisory Authority, 5 December 2024 Louise Mogensen / Line Bergmann

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1. The Order contains provisions implementing parts of Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II), OJ EU 2009, No. L 335, p. 1, and Directive 2014/51/EU of the European Parliament and of the Council of 16 April 2014 amending Directives 2003/71/EC and 2009/138/EC and Regulations (EC) No 1060/2009, (EU) No 1094/2010 and (EU) No 1095/2010 as regards the powers of the European Supervisory Authority (European Insurance and Occupational Pensions Authority) and the European Supervisory Authority (European Securities and Markets Authority), OJ EU 2014, No. L 153, p. 1.

Danish Statute Journal A 2024 Published on 14 December 2024 5 December 2024. No. 1528. Ministry of Industry, Business and Financial Affairs, Danish Financial Supervisory Authority, Ref. No. 24-019100 CQ003060