CENTRAL BANK OF JORDAN

البنك المركزي الأردني

Ref No: 3/17/ 21279
Date: 30 Jumada al-Akhirah 1446 AH
Corresponding Date: December 31, 2024 AD

To: Respected Insurance Companies
Subject: Instructions for the Calculation of Underwriting Liabilities for the Year 2024

Greetings,

Based on the provisions of Paragraph (b) of Article (24) and Paragraph (b) of Article (109) of Law No. (12) of 2021 Regulating Insurance Activities, we attach herewith the Instructions for the Calculation of Underwriting Liabilities No. (29) of 2024, issued pursuant to Resolution No. (256/2024) of the Board of Directors of the Central Bank dated 2024/12/26.

Please accept our highest regards,

Governor
Dr. Adel Al-Sharkas

Copy to:
The Jordanian Union of Insurance Companies.

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Central Bank of Jordan
P.O. Box (37) Amman, 11118 Jordan
Tel: 0096264630301
Fax: 0096264635615
Email: info@cbj.gov.jo
Website: cbj.gov.jo
Classification Level: Public
Classification use: public

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[Logo of the Central Bank of Jordan]

Instructions for the Calculation of Underwriting Liabilities No. (29) For the Year 2024

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Article (1)

These Instructions shall be known as the "Instructions for the Calculation of Underwriting Liabilities for Insurance Companies" No. (29) of 2024 and are issued pursuant to the provisions of Article (24) and Paragraph (b) of Article (109) of Law No. (12) of 2021 Regulating Insurance Activities. They shall be effective from December 26, 2024.

Article (2)

A. The words and expressions used in these Instructions shall have the meanings specified below unless the context or circumstances indicate otherwise:
Law: Law No. (12) of 2021 Regulating Insurance Activities.

B. Definitions of terms and expressions appearing in the Law shall be adopted wherever they appear in these Instructions, unless the context or circumstances indicate otherwise.

C. For the purposes of the Law, the technical provisions mentioned in Article (24) thereof shall constitute the underwriting liabilities, representing the assets and liabilities of insurance contracts and reinsurance contracts.

D. The following words and expressions used in these Instructions shall have the meanings specified in International Accounting Standards:

1. Measurement approaches (General Model, Premium Allocation Approach, Variable Fee Approach).
2. Assets/liabilities for remaining coverage.
3. Assets/liabilities for incurred claims.
4. Risk adjustment.
5. Discount rate.

Article (3)

A. An insurance company shall provide the Central Bank with a certificate from an actuary according to the model prepared and approved by resolution of the Governor for this purpose.

B. The Central Bank may request the actuary to provide written clarification directly to it within the period specified for any data or information contained in the certificate issued by him.

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Article (4)

An insurance company shall recognize and evaluate the assets and liabilities of insurance contracts in accordance with the requirements of International Financial Reporting Standard (IFRS) 17, provided that the assumptions and approaches adopted by the company are subject to the approval of the actuary and in accordance with the following:

Contract Boundaries

A. The boundaries of insurance and reinsurance contracts shall be as follows:

1. For insurance contracts, according to the coverage period specified in the contract.
2. For reinsurance treaties based on loss, according to the coverage period of the treaty.
3. For reinsurance treaties based on risk, according to the coverage period of the treaty and until the expiry of the last insurance covered by that treaty.
4. Other reinsurance arrangements according to their nature.

Aggregation Level

B. An insurance company shall aggregate insurance and reinsurance contracts into portfolios in line with the requirements of IFRS 17, while observing the minimum number of insurance and reinsurance contract portfolios as follows:

1 - Life Insurance

• Term Life Insurance
• Whole Life Insurance
• Endowment Insurance
• Unit-Linked Insurance
• Life Installment Benefits
• Borrowers' Life Insurance - Long-term Contracts
• Borrowers' Life Insurance - Short-term Contracts
• Permanent Health Insurance

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• Retirement Insurance - Group

2 - General Insurance

• Motor Insurance - Compulsory
• Motor Insurance - Comprehensive
• Motor Insurance - Conferences (Border Centers and Buses)
• Marine Insurance - Cargo
• Marine Insurance - Hull
• Accident and Public Liability Insurance
• Medical Insurance - Group
• Medical Insurance - Individual
• Aviation Insurance
• Engineering Insurance - Long-term
• Engineering Insurance - Short-term
• Fire and Other Property Damage Insurance.
• Credit Insurance
• Other branches of General Insurance.

3 - Reinsurance (at the level of each license as a minimum)

• Quota Share Treaties
• Surplus Share Treaties
• Quota Share and Surplus Share Treaties together
• Excess of Loss Treaties
• Catastrophe Excess of Loss Treaties
• Facultative Reinsurance (at a minimum at the total level of each insurance portfolio)
• Other reinsurance treaties

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Measurement Approach

C. An insurance company may adopt the following measurement approaches instead of the General Model:

1. The Variable Fee Approach for insurance contracts with discretionary participation features.
2. The Premium Allocation Approach for insurance contracts where the coverage period is one year or less.
3. The Premium Allocation Approach for all other insurance contracts, after performing the eligibility test for contracts and confirming the applicability of the Premium Allocation Approach to them.
4. The Premium Allocation Approach for reinsurance contracts, subject to the following:
   a. The insurance company does not expect material deviations compared to applying the General Model. b. The coverage period of the reinsured insurance contracts is one year or less.
   c. Confirming the applicability of the Premium Allocation Approach after performing the eligibility test for all other reinsurance contracts.
   d. Except as provided in paragraph (4) of this clause, an insurance company shall apply the General Measurement approach for reinsurance arrangements if the related insurance contracts are measured using the General Model or the Variable Fee Approach, and the company shall apply the Premium Allocation Approach for reinsurance arrangements if the related insurance contracts are measured using the Premium Allocation Approach, after performing the eligibility test for both the insurance contracts and the reinsurance contracts.

Eligibility Test for Applying the Premium Allocation Approach

D. To determine the possibility of applying the Premium Allocation Approach to insurance contracts with a coverage period exceeding one year, an insurance company shall perform an eligibility test at the end of each year at a minimum for these contracts, in line with International Accounting Standards, observing the following:

1. For the purposes of performing the eligibility test, the company shall define acceptable deviation levels as an absolute value and a percentage at the beginning of the financial year, and it is prohibited to modify those levels during the year. The company must also calculate the following:
   a. Liabilities for remaining coverage according to the General Model, represented by (X)

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--- b. Liabilities for remaining coverage according to the Premium Allocation Approach, represented by (Y)

2. The Premium Allocation Approach is applicable in either of the following cases:
   a. If the result of (X - Y) is less than the acceptable deviation levels "in absolute value". b. If the result of ((X - Y) / X) is less than the acceptable deviation levels "as a percentage".

E. An insurance company shall perform the eligibility test for any new insurance product it intends to launch with a coverage period exceeding one year, and it shall provide the Central Bank with the results of the eligibility test within the actuary's report related to the new product.

F. It is prohibited for an insurance company to apply the Premium Allocation Approach to life insurance contracts that include a deposit component.

Expected Cash Flows for Calculating Liabilities for Remaining Coverage

G. For the purposes of estimating expected cash flows for calculating liabilities for remaining coverage, an insurance company must consider the following:

1. Insurance premiums, including the policy issuance service fee.
2. Compensation expected to be paid to insured parties or beneficiaries of insurance contracts.
3. Expenses (directly and indirectly related to insurance contracts).
4. Acquisition costs.
5. Risk adjustment.
6. The effect of taxes on cash flows, if any.
7. Any other cash flows that must be measured in accordance with the requirements of IFRS 17.
8. The effect of applying the discount rate to insurance contracts not measured using the Premium Allocation Approach and the effect of the discount rate due to the passage of time.
9. In addition to what was stated above, and regarding life insurance contracts (individual and group), an insurance company must consider the following:
   a. Mortality rate

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--- b. Morbidity and epidemic rates
c. Probability of contract termination or liquidation.
d. Loans to life insurance policyholders, and any partial withdrawals therefrom. e. Other benefits granted to the insured or beneficiary of the insurance contract, including freezing or suspending the insurance contract due to non-payment of premiums.

Expected Cash Flows for Calculating Liabilities for Incurred Claims

H. An insurance company shall estimate the expected cash flows for calculating liabilities for incurred claims at a more detailed level than the insurance portfolio level, and cash flows shall be distributed at the level of each group of insurance contract groups using an appropriate distribution method, provided that this is justified by the actuary.

I. For the purposes of estimating expected cash flows for calculating liabilities for incurred claims, an insurance company shall take into account any negative cash flows for the level adopted by the company for estimating unpaid claims, observing the following:

1. Reported but unpaid claims.
2. Incurred but not adequately reported claims.
3. Unreported claims.
4. Risk adjustment.
5. Recoveries.
6. Claim settlement costs.
7. The effect of applying the discount rate.

Loss Component

J. An insurance company shall calculate and record a loss component for any onerous group of contracts it holds, in line with the requirements of IFRS 17, observing the following:

1. The loss component shall be calculated for each group of insurance contracts separately as soon as information becomes available to the company considering the insurance group to be onerous.

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2. Except as provided in paragraph (1), the loss component for individual life insurance contracts shall be calculated at the inception of the contract.
3. It is prohibited for an insurance company to offset the recorded loss component between its different portfolios or groups of insurance contracts for the purpose of eliminating its effect.
4. The loss component shall be calculated separately for reinsurance contracts held by the company, and any effect of the loss recovery component shall be calculated separately where applicable.
5. All expenses related directly or indirectly to insurance contracts, including acquisition costs related to future renewals of contracts.

Risk Adjustment

K. An insurance company may use any methods consistent with International Accounting Standards to determine the risk adjustment percentage, observing the following:

1. The confidence level adopted for calculating non-financial risk adjustments must be compatible with the acceptable risk levels of the insurance company, and it is prohibited for the insurance company to modify the adopted confidence level during a single financial year, in line with international standards requirements.
2. If the company wishes to hedge further when calculating assets or liabilities of insurance contracts, it must reverse the resulting effect within its risk adjustments, and its adopted risk policy must reflect this.
3. When calculating risk adjustments, what applies to reinsurance contracts shall apply to insurance contracts, so that there are no material differences in risk adjustments for the same portfolio at the aggregate level and the reinsurance level.

Discount Rate

L. An insurance company must observe the following when determining and adopting the discount rate:

1. All obligations of insurance and reinsurance contracts shall be discounted, except for liabilities for remaining coverage of insurance contracts measured using the Premium Allocation Approach.

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2. The build-up approach shall be used to determine the yield curve for the discount rate, and the company may adopt the return on treasury bonds as the risk-free rate. For this purpose, it is preferable to use Jordanian Government bonds - in Jordanian Dinar - (or their equivalent) as a benchmark.
3. Reflecting the liquidity characteristics of insurance and reinsurance contracts, such that the maximum liquidity adjustment and country risk premium is 2%.
4. If a different basis is used to calculate the yield curve according to the build-up approach, the annual curve shall be within the limits mentioned above.

Distribution and Classification of Expenses

M. An insurance company shall classify its incurred expenses in line with International Accounting Standards and its adopted policy, as follows:

1. Expenses related to insurance activities, including acquisition costs, administrative, and general expenses, and they shall also be classified into expenses directly related and expenses indirectly related to insurance activities. The company shall prepare a policy for distributing expenses indirectly related to insurance activities.
2. Expenses not related to insurance activities.

N. An insurance company shall amortize acquisition costs related to insurance contracts with a coverage period exceeding one year over the life of the contract. Regarding insurance contracts with a coverage period of less than one year, the company has the right to recognize acquisition costs as an expense directly or amortize them later, provided that this is disclosed within the financial statement notes.

O. The provisions of paragraph (N) of this Article shall apply to reinsurance commission revenues.

Takaful Insurance Contracts

P. An insurance company licensed to conduct Takaful activities shall separate the accounts of policyholders from the accounts of equity holders, including the separation of assets, liabilities, surplus/deficit, expenses, revenues, investments, and any other cash flows.

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Q. Subject to the provisions of paragraph (M) above, an insurance company licensed to conduct Takaful activities shall prepare a policy for distributing its expenses - including indirect expenses - between the accounts of policyholders and the accounts of equity holders.

R. An insurance company licensed to conduct Takaful activities shall determine the agency fee ratio from the beginning of the financial year in accordance with the provisions of Islamic Shariah, and it is prohibited for the insurance company to increase the agency fee ratio during the same financial year.

Expected Credit Losses

S. An insurance company must calculate expected credit losses at a rate of 100% of total receivables in the following cases:

1. Receivables whose due date has exceeded 360 days.
2. Receivables from insurance companies under liquidation and insurance companies whose solvency margin ratio is less than 100% according to the latest published final statements.

T. An insurance company shall review the adequacy of the recorded credit losses against its financial assets and reverse the effect thereof on its financial data on a quarterly basis.

Reinsurance Contracts Held

U. Subject to the provisions of paragraph (B) of this Article, the company shall manage its portfolios of reinsurance contracts separately from its portfolios of insurance contracts.

V. An insurance company must observe the following for the purposes of calculating and evaluating reinsurance contracts:

1. Cash flows related to current and future reinsurance premiums, reinsurance expenses, and any other relevant cash flows when calculating and evaluating assets for reinsurance contracts against remaining coverage.
2. Cash flows related to recoveries when calculating and evaluating assets for reinsurance contracts against incurred liabilities.
3. For the purposes of determining risk adjustments, an insurance company shall take into consideration risks related to the probability of reinsurer default.

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Additional Provisions

W. An insurance company shall record additional provisions in line with International Accounting Standards, which include the following:

1. Deficiency Cover Reserve (Emergency Provision): This refers to the provision recorded by an insurance company licensed to conduct Takaful activities, comprising cumulative amounts transferred from the insurance surplus to the policyholders' fund.
2. Any other provisions.

Article (5)

A. Recoveries from motor insurance contracts shall be processed within the cash flow account related to calculating liabilities for incurred claims, as follows:

1. Recoveries related to subrogation and recourse against individuals:
   a. An insurance company shall recognize recoveries related to subrogation and recourse against individuals only upon their actual collection. The insurance company shall record a provision of 100% against these recoveries by no later than December 31, 2025. b. Despite what was stated in paragraph (a) above, the insurance company may recognize a specified exemption amount according to the instructions valid for this purpose, and the insurance company shall record a provision of 100% if it is not collected within (12) months.

2. Recoveries related to subrogation against insurance companies:
   a. To estimate liabilities for incurred claims, the company shall estimate the expected cash flows from recoveries related to subrogation against insurance companies, provided that the other insurance company acknowledges its liability for compensation. b. Recognition of recoveries continues after payment of compensation, provided that written consent is obtained from the other insurance company, observing the following:

   1. Record a provision of 100% against those recoveries not approved by the other insurance company.

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2. Record a provision of 100% against recoveries related to subrogation against companies if not collected within one year.
   c. In all cases, the insurance company shall record a provision of 100% against recoveries related to subrogation against insurance companies under liquidation and insurance companies whose solvency margin is less than 100% according to the latest published final statements.

3. Recoveries related to salvage:

   1. The insurance company shall prepare a policy for managing, evaluating, and disposing of salvage, which must be approved by the Board of Directors and reviewed annually.
   2. The insurance company shall form a specialized committee for the purposes of evaluating salvage and scrapping vehicles, and another committee for the purposes of selling salvage, with the necessity of defining the tasks and responsibilities of each committee in the policy mentioned in paragraph (1).
   3. The company may adopt specialized companies for public auctions and entrust all operations related to the sale of salvage to them without the need to form an internal committee for this purpose.
   4. To estimate liabilities for incurred claims, the company shall recognize expected cash flows from recoveries related to salvage, provided that ownership of the salvage is transferred to the insurance company within (30) days from the date of claim settlement.
   5. The insurance company shall record a provision of 100% against recoveries related to salvage that has been registered in the company's books for one year or more without being sold.

B. Expected recoveries from all insurance contracts held by the company, except for motor insurance contracts, shall be recognized in the cash flow account upon the issuance of a judicial decision, and the insurance company shall record a provision of 100% if not collected within (3) years.

C. The company must comply with recognizing recoveries within a separate account from the account of reported and unpaid liabilities.

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Article (6)

The Governor shall issue the necessary decisions to implement the provisions of these Instructions.

Article (7)

Insurance companies shall regularize their status in accordance with the provisions of these Instructions for the purpose of preparing the final financial statements for the year 2024.

Article (8)

The Instructions for the Calculation and Evaluation of Assets and Liabilities of Insurance Contracts No. (1) of 2024 and the decisions issued pursuant thereto are repealed.

[Signature]
Chairman of the Board of Directors of the Central Bank

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