Region

Jurisdiction

Regulator

2017-03-17

2016 Volatility Reserve Regulation (SWRV 2016)

The Austrian Financial Market Authority issued the 2016 Volatility Reserve Regulation to mandate non-life and reinsurance undertakings to establish volatility reserves for specific insurance classes and business lines. The regulation defines precise calculation methods for claims and expense ratios, sets statistical prerequisites for reserve establishment, and dictates the procedures for allocating funds during surplus years and releasing them during deficits. It further standardizes the treatment of indirect business, new insurance lines, and transitional arrangements to ensure consistent financial reporting and risk management across the sector.

Austria

Finanzmarktaufsicht

Accident insurance
Liability insurance a) General liability insurance b) Nuclear liability insurance
Motor vehicle liability insurance
Motor vehicle insurance
Motor vehicle passenger insurance
Aviation insurance a) aviation liability insurance b) aircraft hull insurance c) aviation passenger insurance
Legal expenses insurance
Fire insurance a) Industrial fire insurance b) Fire business interruption insurance c) Other fire damage insurance
Burglary insurance
Water pipe damage insurance
Glass breakage insurance
Storm damage insurance

Occupational invalidity insurance
Occupational accident insurance
Motor vehicle liability insurance
Other motor vehicle insurance;
Sea, air and transport insurance;
Fire and other kinds of property insurance: a) Fire insurance b) Hail insurance c) Other property insurance
General liability insurance
Credit and suretyship insurance: a) Credit insurance b) Suretyship insurance
Legal expenses insurance
Assistance
Miscellaneous financial losses
Other insurance types (3) A level one insurance class is an insurance class denoted by a number in para. 1. A level one business line is an business line denoted by a number in para. 2. A level two insurance class is an insurance class denoted by a lower case letter in para. 1. A level two business line is an business line denoted by a lower case letter in para. 2. (4) A volatility reserve shall be established for the level one insurance classes listed in para. 1 or for the level one business lines listed in para. 2 in accordance with the provisions of the third Section. (5) Instead of for the level one insurance classes listed in para. 1, the volatility reserve may alternatively also be established for the level two insurance classes listed in para. 1. When establishing a volatility reserve for the business lines listed in para. 2, this obliged to be established specially for business line 6 (“fire and other property insurances”) and for business line 8 (“loan and surety insurance”) in level two. The establishing of the volatility reserve on the level of the business line in level one is not permitted for both of these business lines. (6) The transition from level one to level two is only possible in that financial year, in which the prerequisites pursuant to Article 9 are met for the first time for at least one of the level two insurance classes. If the prerequisites are fulfilled for the first time simultaneously for more than one of the level two insurance classes, any volatility reserve shall be divided up on the basis of the required amounts.

All English translation of the authentic German text is unofficial and serves merely information purposes. The official wording in German can be found in the Austrian Federal Law Gazette (Bundesgesetzblatt; BGBl.). All translations have been prepared with great care, but linguistic compromises had to be made. The reader should also bear in mind that some provisions of these laws will remain unclear without certain background knowledge of the Austrian legal and political system. Please note that these laws may be amended in the future and check occasionally for updates. (7) If the prerequisites in Article 9 no. 1 within level two are no longer fulfilled for any of the insurance classes pursuant to para. 1, then a transition may be made to the corresponding level one insurance class. (8) The principle of continuity shall be applied for the exercising of the discretion pursuant to Article 1 para. 4. Changing from the insurance classes listed in para. 1 to the business lines listed in para. 2, or changing from the business lines listed in para. 2 to the insurance classes listed in para. 1 shall only be permitted in the event of particular circumstances prevailing and taking into account the objective described in Article 222 para. 2 first sentence UGB. The undertakings shall explain the changes in the financial statements extended to include the notes and shall present their influence on the net assets, financial position and the results of operations of the undertaking. An existing volatility reserve shall be divided up proportionally on the basis of the newly selected insurance classes and business lines. The date from the observation period pursuant to Article 2 shall be adapted to the newly selected insurance classes and business lines. Scope of application Article 1a. The provisions in the regulation shall apply to insurance undertakings pursuant to Article 5 no. 1 VAG 2016 and reinsurance undertakings pursuant to Article 5 no. 2 VAG 2016. Observation period Article 2. (1) The observation period shall be the 15 financial years directly preceding the current financial year for hail insurance pursuant to Article 1 para. 1 no. 14 and para. 2 no. 6 point b, and the 30 financial years directly preceding the current financial year for credit insurance pursuant to Article 1 para. 1 no. 19, para. 2 no. 8 point a respectively. (2) If an insurance undertaking or reinsurance undertaking has not yet operated an insurance class or a business line throughout the entire observation period pursuant to para. 1, but has done so for at least ten financial years prior to the financial year, all financial years shall be regarded as the observation period. Claims ratio, average claims ratio, deviation Article 3. (1) The claims ratio for a given financial year is the ratio of retained insurance benefits, including expenses for retained rebates, to retained premiums earned, expressed as a percentage. (2) The average claims ratio is the arithmetic mean of the claims ratios during the observation period pursuant to Article 2. (3) The deviation is the difference between the average claims ratio (Article 3 para. 2) for the observation period pursuant to Article 2 and the claims ratio for the respective financial year pursuant to para. 1. (4) The retained insurance benefits correspond to the expenses for insurance claims excluding expenses associated with settling and preventing claims. Expense ratio, average expense ratio Article 4. (1) The expense ratio for a given financial year is the ratio of operating expenses for insurance operations, including underwriting expenses and expenses associated with settling and preventing claims less underwriting income, to premiums earned, expressed as a percentage. Expenses and income from reinsurance cessions included in the expenses and income used to calculate the expense ratio shall not be taken into account (gross amount). (2) For insurance classes pursuant to Article 1 para. 1 and business lines pursuant to Article 1 para. 2 respectively, a uniform expense ratio shall be calculated. (3) If an expense ratio is calculated for an individual insurance class pursuant to Article 1 para. 1 or for an individual business line pursuant to Article 1 para. 2 on the basis of internal count accounting, then this may be applied for this individual insurance class or for this individual business line. Expenses shall be allocated according to their cause, and changes may only be made to the allocation process used in special circumstances. (4) The average expense ratio is the arithmetic mean of the expense ratios during the last three financial years in the observation period pursuant to Article 2.

the average retained premiums earned during the past three financial years including the current financial year exceed EUR 150 000;
the standard deviation of the claims ratios for the observation period pursuant to Article 2 from the average claims ratio pursuant to Article 3 para. 2 is at least 5 percentage points; and
the sum of the claims ratio and expense ratio pursuant to Article 2 exceeded 100% at least once during the observation period. Required amount Article 10. (1) The required amount of the volatility reserve shall be six times in the case of hail insurance pursuant to Article 1 para. 1 no. 14 and Article 1 para. 2 no. 6 point b and credit insurance pursuant to Article 1 para. 1 no. 19 and Article 1 para. 2 no. 8 point a, and in all other insurance classes pursuant to Article 1 para 1 and business lines pursuant to Article 1 para. 2 four-and-a-half times the

All English translation of the authentic German text is unofficial and serves merely information purposes. The official wording in German can be found in the Austrian Federal Law Gazette (Bundesgesetzblatt; BGBl.). All translations have been prepared with great care, but linguistic compromises had to be made. The reader should also bear in mind that some provisions of these laws will remain unclear without certain background knowledge of the Austrian legal and political system. Please note that these laws may be amended in the future and check occasionally for updates. standard deviation of the claims ratios for the observation period from the average claims ratio, multiplied by the retained premiums earned in the balance sheet year. (2) If the average claims ratio (Article 3 para. 2) is lower than the marginal claims ratio (Article 5), all insurance classes pursuant to Article 1 para. 1 and all business lines pursuant to Article 1 para. 2 except hail insurance shall carry out the following calculation: three times the difference between the marginal claims ratio and the average claims ratio multiplied by the retained premiums earned in the financial year shall be deducted from the amount calculated pursuant to para. 1. The insurance class hail insurance pursuant to Article 1 para. 1 no. 14 and the business line hail insurance pursuant to Article 1 para. 2 no. 6 point b shall be excluded. (3) The volatility reserve may not exceed the required amount. If allocations pursuant to Article 11 or Article 12 result in the required amount being exceeded, the allocation shall be reduced accordingly. If the required amount at the end of the financial year is lower than the volatility reserve at the end of the previous financial year, the difference must always be released during the financial year. The terms of Article 14 para. 1 shall apply to the release. Non-claim-based allocation Article 11. Regardless of claim levels, 1.5% of the respective required amount shall initially be allocated to the volatility reserve in every financial year. Claim-based allocation Article 12. If the claims ratio for the financial year pursuant to Article 3 para. 1 is lower than the average claims ratio pursuant to Article 3 para. 2, the volatility reserve shall be increased by the claims shortfall pursuant to Article 7 para. 1. Claim-based withdrawal Article 13. If the claims ratio for the financial year pursuant to Article 3 para. 1 is higher than the average claims ratio pursuant to Article 3 para. 2, the volatility reserve shall be decreased by the claims surplus pursuant to Article 7 para. 2. Releasing of the volatility reserve Article 14. (1) If not all of the prerequisites defined in Article 9 for the establishment of a volatility reserve are met, the volatility reserve shall be released. This release may be distributed in an even manner across the current financial year and the following four financial years. (2) The volatility reserve shall not be released if the prerequisites defined in Article 9 are not fulfilled during the current financial year but it is clear that they will be fulfilled again in the following financial year. In such a case, the volatility reserve from the end of the financial year preceding the current financial year shall be transferred unchanged to the balance sheet at the end of the financial year. Section 4 Inclusion of new insurance classes and business lines Article 15. (1) If the operation of a new insurance class pursuant to Article 1 para. 1 or a business line pursuant to Article 1 para. 2 is included, the third Section of this regulation shall apply for the first time as soon as a separate observation period of at least three years is available. The separate observation period shall begin no earlier than with the financial year in which the retained premiums earned for the insurance class or business line concerned exceed EUR 150 000 for the first time. The separate observation period shall be supplemented by the claims ratios for a ten-year observation period created from data for all insurance undertakings authorised in Austria to operate in the insurance class or business line concerned pursuant to Article 5 no. 1 VAG 2016 or reinsurance undertakings pursuant to Article 5 no. 2 VAG 2016; this data shall be provided to the insurance undertaking or reinsurance undertaking by the FMA. (2) If, in the cases pursuant to para. 1, an expense ratio for the company cannot be calculated for earlier financial years in the observation period, the average expense ratio of the separate observation period shall be considered as the expense ratio for the earlier financial years.