Order on the Calculation of the Economic Value of an Insurance Policyholder's Product Upon Switching

Order on the Calculation of the Economic Value of an Insurance Policyholder's Product Upon Switching

Pursuant to Section 77(2) and Section 316(1) of Act No. 718 of 13 June 2023 on Insurance Business, the following is enacted:

Scope

§ 1. This Order applies to insurance companies offering switching options covered by Section 77 of the Insurance Business Act.

§ 2. This Order regulates the insurance company's calculation of the economic value of a policyholder's product.

Subsection 2. The calculation shall be based on the policyholder's product, including the group to which the insurance belongs at the time of calculation.

Definitions

§ 3. In this Order, the following definitions apply:

1. Economic value: The value of the policyholder's current product to be transferred to a new product in connection with switching covered by Section 77 of the Insurance Business Act.

2. Strengthening for an insurance: The difference between the life insurance provision plus the profit margin contained in the retrospective provision for an insurance and the retrospective provision for an insurance, but at least 0.

3. Group: The contribution-based group to which an insurance belongs.

4. Transfer supplement: In connection with calculation according to the individual calculation method, it is the strengthening for the insurance adjusted with any switching rate protection, cf. Section 6, minus any security deduction, cf. Section 7, plus a contribution-based share of the sum of the collective bonus potential in the insurance's group and the profit margin not contained in retrospective provisions in the insurance's group. In connection with calculation according to the average calculation method, it is the value exceeding the retrospective provision, possibly adjusted with a switching rate protection, cf. Section 6, that is allocated to an insurance upon switching.

5. Undistributed funds in a group: The sum of the collective bonus potential belonging to the group, as well as the strengthening and profit margin of the insurances belonging to the group not contained in retrospective provisions belonging to the group.

6. Deferred bonus: Negative bonus not allocated to an insurance's retrospective provision, but instead registered on a special deferred bonus account belonging to the insurance.

7. Average interest insurance: An insurance product where the policyholder and other entitled parties under the insurance contract are entitled to bonus.

8. Market interest insurance: A unit-linked insurance and investment contract.

Subsection 2. Life insurance provision, individual bonus potential, and retrospective provision are defined in accordance with the Order on Financial Reports for Insurance Companies and Cross-Sector Pension Funds, whereby the insurance company must perform a decomposition and individualization of the liability item life insurance provisions down to the insurance level, whereby the life insurance provision for an insurance, individual bonus potential for an insurance, and retrospective provision for an insurance are calculated. The part of the value of the policyholders' bonus right that is not distributed to the individual insurances is exempted from this and constitutes the collective bonus potential.

Individual Calculation Method for Average Interest Insurance

§ 4. The insurance company shall calculate the economic value for an average interest insurance as the retrospective provision plus any accounting-calculated strengthening for the insurance, both parts adjusted with any switching rate protection, cf. Section 6, minus any security deduction, cf. Section 7, plus a contribution-based share of the collective bonus potential and profit margin not contained in retrospective provisions belonging to the group, cf. Section 8.

Subsection 2. The insurance company may deduct any fee from the retrospective provision to cover the actual costs in connection with a switching.

§ 5. The insurance company shall calculate an accounting-calculated strengthening for the insurance based on the provision basis reported to the Danish Financial Supervisory Authority at the time of calculation.

Lovtidende A 2024 Published on 7 December 2024 5 December 2024. No. 1401. Ministry of Industry, Business and Financial Affairs, Danish Financial Supervisory Authority, ref. no. 24-019438 CQ003079

Subsection 2. If the insurance was originally underwritten on a joint-gender basis, and the reported provision basis is gender-split, the strengthening for the insurance shall reflect a joint-gender distribution.

Subsection 3. If the insurance company has contractually guaranteed the policyholder a repurchase value, the policyholder shall always have the right to at least have the guaranteed repurchase value transferred to the new product minus any fee to cover the actual costs in connection with a switching.

§ 6. The insurance company shall calculate a switching rate protection in a group for use in calculating an insurance's economic value when the sum of the group's collective bonus potential and profit margin not contained in retrospective provisions has been exhausted due to losses or other reasons. The switching rate protection shall be calculated as one minus the fraction determined by the ratio between the sum of the life insurance provisions after write-down of individual bonus potential and profit margin contained in retrospective provisions on the insurances in the group, possibly minus a share of losses covered by equity and special type B bonus provisions, and the sum of life insurance provisions before write-down of individual bonus potential and profit margin contained in retrospective provisions on the insurances in the group.

Subsection 2. The share of losses, cf. subsection 1, that may be included in the calculation of the switching rate protection shall in that case consist of a reasonable share of losses belonging to the group that have been covered by write-downs from equity and special type B bonus provisions, if the insurance company in a realistic budget projection for the group can demonstrate that the group can be expected to generate earnings beyond the necessary provisions and the payment according to Section 6(4)(1) of the Order on the Contribution Principle, which will be able to be used to reduce the relevant losses within a short number of years. The part of a switching rate protection that thus corresponds to write-downs related to the aforementioned losses for equity may be transferred to equity and special type B bonus provisions in connection with the switching. The insurance company must have made the necessary notifications to the Danish Financial Supervisory Authority in connection with the amounts expected to be transferred to equity and special type B bonus provisions.

Subsection 3. The insurance company shall calculate the switching rate protection at least once a month in connection with a switching.

§ 7. The insurance company shall deduct a security deduction for an insurance upon switching when calculating the economic value, if the insurance company assesses that the remaining insurances in the group would otherwise be exposed to a risk of loss.

Subsection 2. The security deduction shall be calculated taking into account

1. expected fluctuations in the financial markets from the time of calculating the economic value until the transfer takes place, and
2. expected selection risk among insurances leaving the group and the remaining insurances in connection with the switching.

§ 8. The insurance company shall calculate a contribution-based share of the collective bonus potential and profit margin not contained in retrospective provisions for an insurance.

Subsection 2. The insurance company shall take into account whether any accounting-calculated strengthening belonging to the insurance has been allocated from funds from the collective bonus potential and profit margin not contained in retrospective provisions.

Subsection 3. If any accounting-calculated strengthening for the insurance, cf. Section 3(3) and Section 5, has been allocated from funds from the collective bonus potential and profit margin not contained in retrospective provisions, and this allocation exceeds the insurance's contribution-based share of the undistributed funds, the insurance company shall not grant the insurance any further share of the collective bonus potential and profit margin not contained in retrospective provisions.

§ 9. When adjusting the whole or part of a transfer supplement to an insurance's retrospective provision in connection with a switching, the amount allocated to the retrospective provision shall be increased by the individual pension return tax corresponding thereto.

§ 10. The insurance company may not deduct deferred bonus when calculating the economic value of the insurance, cf. however subsection 2.

Subsection 2. Deferred bonus may be offset against any contribution-based share of the collective bonus potential and profit margin not contained in retrospective provisions, to the extent that deferred bonus can be contained therein.

§ 11. The insurance company may not, in connection with calculating the economic value of the insurance, convert a premium-paying insurance into a paid-up policy if it results in a reduction of the accounting-calculated strengthening belonging to the insurance as calculated according to Section 5.

Average Calculation Method for Average Interest Insurance

§ 12. When calculating the economic value, the insurance company may, as an alternative to calculation according to Sections 4-11, base itself on an average calculation.

Subsection 2. An insurance company basing itself on an average calculation shall select a homogeneous group offered switching to a new product with lower guarantees.

Subsection 3. The use of the average calculation method instead of the individual calculation method according to Sections 4-11 may at most result in negligible differences in the transfer supplements for the individual insurances in the selected homogeneous group.

Subsection 4. The insurance company shall submit documentation to the Danish Financial Supervisory Authority prior to the switching offer. The documentation shall contain the following:

1. A description of the selected group, including the group's homogeneity, and the chosen average calculation method.
2. An analysis of the difference between the individually calculated transfer supplement according to Sections 4-11 and the average calculated transfer supplement.
3. Documentation demonstrating that the use of the average calculation method instead of the individual calculation method according to Sections 4-11 at most results in negligible differences in the transfer supplements calculated according to the two methods for the individual insurances in the selected homogeneous group.

Individual Calculation Method for Market Interest Insurance

§ 13. The insurance company shall calculate the economic value for a market interest insurance as the retrospective provision plus any accounting-calculated strengthening for the insurance minus any security deduction.

Subsection 2. For a market interest insurance, the insurance company may deduct any fee from the retrospective provision to cover the actual costs in connection with a switching.

Subsection 3. For a market interest insurance, the accounting-calculated strengthening shall be calculated in accordance with the principles in Section 5.

Subsection 4. For a market interest insurance, a security deduction shall be calculated in accordance with the principles in Section 7.

Subsection 5. When calculating the economic value for a premium-paying market interest insurance, the principles in Section 11 apply.

§ 14. When adjusting any accounting-calculated strengthening to an insurance's retrospective provision in connection with a switching, the amount allocated to the retrospective provision shall be increased by the individual pension return tax corresponding thereto.

Notification

§ 15. The insurance company shall, pursuant to Section 29(1)(6) of the Insurance Business Act, notify the Danish Financial Supervisory Authority of the decomposition and individualization of the liability item life insurance provisions down to the insurance level mentioned in Section 3(1)(2), and pursuant to Section 29(1)(3) of the Insurance Business Act, notify the calculation according to Sections 7 and 8 to the Danish Financial Supervisory Authority at the latest simultaneously with the insurance company submitting a switching offer. The same applies to any subsequent changes to the aforementioned matters.

Subsection 2. Insurance companies offering switching to an average interest insurance shall, pursuant to Section 29(1)(3) of the Insurance Business Act, notify the Danish Financial Supervisory Authority of how the economic value upon transfer to the new product is distributed between the retrospective provision and the undistributed funds. The notification shall be submitted at the latest simultaneously with the insurance company submitting a switching offer. The same applies to any subsequent changes to the aforementioned matter.

Penalty Provision and Entry into Force

§ 16. Violation of Section 4(1), Section 5(1) and (2), Sections 6-9, Section 10(1), Section 11, Section 12(2)-(4), Section 13(1) and (3)-(5), as well as Sections 14 and 15 shall be punishable by a fine.

Subsection 2. Companies and similar entities (legal persons) may be subject to criminal liability according to the rules in Chapter 5 of the Danish Criminal Code.

§ 17. This Order shall enter into force on 1 January 2025.

Subsection 2. Order No. 1291 of 27 November 2017 on the calculation of the economic value of an insurance policyholder's product upon switching is repealed.

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