Regulation on the Content of Planned Reinsurance Programs - Unofficial Consolidated Text (NN, No. 23/16 and 27/16)

Regulation on the Content of Planned Reinsurance Programs "Narodne novine" No. 23/2016, 27/2016 Date of entry into force: 24 March 2016 Version application: from 2 April 2016

Subject of the Regulation
Article 1.
This Regulation:

• provides general guidelines for preparing planned reinsurance or retrocession programs,
• prescribes more detailed rules for reporting on facts and circumstances important for assessing the adequacy of reinsurance or retrocession by insurance companies or reinsurance companies.

Obligation of Reinsurance or Retrocession
Article 2.
(1) In accordance with risk management measures, an insurance company shall adopt a planned reinsurance program, and a reinsurance company shall adopt a planned retrocession program. (2) An insurance company will cover, through reinsurance, that portion of assumed insured risks which, according to the maximum coverage tables, exceeds the retention or own shares in risk compensation. (3) A reinsurance company and an insurance company approved to conduct reinsurance business will cover, through retrocession, that portion of assumed reinsured risks which, according to the maximum coverage tables, exceeds the retention or own shares in risk compensation. (4) Exception to paragraph 2 of this article, for individual reinsurance contracts, the retention of an insurance or reinsurance company may be lower than in the maximum coverage tables. (5) An insurance company will accept, for each financial year, the planned reinsurance program. (6) A reinsurance company and an insurance company approved to conduct reinsurance business will accept, for each financial year, the planned retrocession program. (7) Exception to paragraphs 5 and 6 of this article, the Management Board shall review the planned reinsurance or retrocession program within the financial year if circumstances in which the company operates change, if the risk acceptance strategy changes, or if the status of the reinsurer changes.

Planned Reinsurance or Retrocession Program
Article 3.
The planned reinsurance or retrocession program includes:

1. the name and registered office of the reinsurance company, with stated credit rating if applicable, by risk ceded to reinsurance;
2. the type of reinsurance coverage (proportional: quota share or surplus share, or non-proportional: excess of loss or stop loss);
3. the calculation of retention or own shares by individual types of insurance or reinsurance;
4. maximum coverage tables prepared based on the calculations in point 3 of this paragraph;
5. procedures, bases, and criteria for determining the maximum probable loss for individual assumed insured or reinsured risks;
6. internal procedures for concluding reinsurance or retrocession, including methods for selecting reinsurers, assessing reinsurer security, tracking reinsurance or retrocession contracts, reporting, and the internal control system.

Maximum Coverage Tables
Article 4.
(1) An insurance or reinsurance company shall determine the retention or own shares in the maximum coverage tables of Article 3, point 5, of this Regulation by individual type of insurance or reinsurance. (2) When determining retention or own shares in the maximum coverage tables, an insurance or reinsurance company considers the following bases and criteria:

1. its own risk and solvency assessment, required solvency capital, and acceptable own funds;
2. the overall business scope: size of assumed risk and structural portfolio balance;
3. charged insurance premium by individual type of insurance, or reinsurance premium by individual type of reinsurance;
4. shares of insurance by individual types in the bases from points 2 and 3, or shares of reinsurance by individual types in the bases from points 2 and 3;
5. adjustments for deviations in individual types of insurance: alignment due to larger loss experience deviations by individual types of insurance or reinsurance;
6. return on capital;
7. probability of loss events considering the portfolio structure of the insurance or reinsurance company, observation period, and premium level by individual types of insurance or reinsurance;
8. loss size;
9. the risk acceptance policy of the insurance or reinsurance company.

Maximum Probable Loss
Article 5.
(1) The maximum probable loss is determined by an insurance or reinsurance company, taking into account all risk characteristics. It is expressed as a percentage of the contracted insured amount or coverage limit and stated in absolute terms. (2) An insurance or reinsurance company shall prescribe procedures, bases, and criteria for determining the maximum probable loss for individual assumed insured or reinsured risks. (3) The basis for determining the maximum probable loss is typically 100% of the contracted insured amount - total loss, or reinsurance amount - total loss. A lower percentage may be used only in exceptional cases with sound reasons.

Reporting
Article 6.
(1) Within the framework of risk management supervision for insurance and reinsurance companies, these companies shall submit annually to the Croatian Financial Services Supervisory Agency (CAFSA):

1. the planned reinsurance or retrocession program, approved by the company's Management Board, covering elements of Article 3 of this Regulation with an overview of reinsurance protection for the insurance or reinsurance company;
2. statistical bases of observed areas and periods, including statistical methods used by the insurance or reinsurance company to assess risk exposure, and internal procedures for internal controls used to avoid risk accumulation. Statistical methods are submitted with the first report, and subsequently only upon methodological changes;
3. an actuarial function opinion on the adequacy of the reinsurance program, confirming the adequacy of own shares in maximum coverage tables according to Article 4 criteria, and the appropriateness of procedures, bases, and criteria for determining maximum probable loss for individual assumed insured or reinsured risks.
   (2) The deadline for submitting reports under paragraph 1 is two months after the end of the financial year.

Article 7.
Upon entry into force of this Regulation, the Regulation on Methodology for Calculating Own Shares of Insurance and Reinsurance Companies in Maximum Coverage Tables and Determining Maximum Probable Loss ("Narodne novine" No. 100/09) shall cease to apply.

Final Provisions
Article 8.
This Regulation enters into force on the eighth day following its publication in "Narodne novine".
(1) Regulation on the Content of Planned Reinsurance Programs (Narodne novine, No. NN 23-654/2016), published on 16 March 2016, in force from 24 March 2016 (2) Regulation on Amendments and Supplements to the Regulation on the Content of Planned Reinsurance Programs (Narodne novine, No. NN 27-795/2016), published on 25 March 2016, in force from 2 April 2016