Regulatory Alerts2003-12-05
FMA Circular on Balance Sheet Issues for the Insurance Pool Covering Terrorist Risks
The Austrian Financial Market Authority issued this circular to provide guidance on balance sheet treatment for the insurance pool covering terrorist risks under the Insurance Supervision Act. It mandates that members establish specific provisions under 'Other technical provisions' and accumulate their share annually, ensuring at least 10% is allocated each year until the total amount is reached. The document further clarifies that parallel accumulation of terrorist risk provisions and volatility reserves is prohibited for the same risk category and requires clear identification of co-insurance contracts in financial statements.
D E C E MB E R 20 0 3 Document number: Publication date: 03 / 2003 05.12.2003 FMA CIRCULAR CONCERNING BALANCE SHEET ISSUES RELATED TO THE INSURANCE POOL FOR THE COVERAGE OF TERRORIST RISKS (VAG 1978)
Disclaimer: This circular does not constitute a legal regulation. It is intended to serve as guidance and reflects the FMA's legal interpretation. No rights and obligations extending over and above the provisions of the law can be derived from circulars.
- December 2003 GZ 9 000 600/10-FMA-II/4/03 2 The occasion for the balance sheet issues is the Austrian insurance pool for the coverage of terrorist risks. The objective of the pool is to facilitate risk diversification by establishing a co-insurance group while excluding the joint and several liability of pool members for the risks, included in the pool by members and non-members, that arise from damage due to terrorist acts as specified in the guidelines to be adopted by the plenary meeting of the pool. The following should be noted with regard to the provision to be established in connection with this pool:
- The establishment of a provision for terrorist risks is required as specified in Article 81i para. 1 of the Versicherungsaufsichtsgesetz (VAG; Insurance Supervision Act). This provision must be posted in the balance sheet under “Other technical provisions”.
- Each pool member must accumulate the specific share of the provision for terrorist risks that is attributable to that particular undertaking in such a manner that at least 10% of the share is allocated annually until the total amount is reached.
- A provision for terrorist risks and a volatility reserve cannot be accumulated parallel to one another for the same category of technical risk. In the event of a claim it should be noted that only insurance contracts that are clearly identified to the policyholder as co-insurance are to be handled as co-insurance in the financial statements.