Regulatory Alerts1994-10-26
Added · Updated
Regulation No. 8 on Calculation Methods for the Equalization Provision in Credit Insurance
The Insurance Control Service establishes four specific methods for calculating the equalization provision in the credit insurance branch, requiring calculations to apply to direct and accepted reinsurance business net of cessions. Method 1 mandates adding 75% of technical surpluses (capped at 12% of premiums) until the provision reaches 150% of the highest premium amount in the previous five years. Method 2 sets a minimum provision at 134% of the average annual premiums of the preceding five years, supplemented by 75% of technical surpluses until the minimum is met. Methods 3 and 4 utilize the standard deviation of loss ratios over a 15-to-30-year observation period, with Method 3 targeting a theoretical amount equal to six times the standard deviation and Method 4 defining a range between three and six times that value, both allowing for reductions if safety loadings exceed 1.5 times the standard deviation.
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