Regulation No. 8 on Calculation Methods for the Equalization Provision in Credit Insurance

BELGIAN OFFICIAL GAZETTE — 28.10.1994 — MONITEUR BELGE 26921

OTHER DECISIONS — AUTRES ARRETES

(C — WIN — I — 11337)

MINISTRY OF ECONOMIC AFFAIRS

Insurance Control Service
Regulation No. 8. — Approval. — Addendum

Addendum to the ministerial decree of 1 August 1994, published in the Belgian Official Gazette of 12 October 1994, p. 25914, approving Regulation No. 8 of the Insurance Control Service.

Regulation No. 8 of the Insurance Control Service concerning the methods for calculating the equalization provision for the credit insurance branch.

The Insurance Control Service,

Having regard to the law of 9 July 1975 concerning the control of insurance undertakings, in particular Article 16, § 1;

Having regard to the Royal Decree of 22 February 1991 laying down the general regulation concerning the control of insurance undertakings, in particular Article 11, § 5;

Having regard to the opinion of the Insurance Commission;

Having regard to the internal regulations of the Council of the Insurance Control Service, approved by Royal Decree of 13 November 1975, in particular Article 11;

Decrees:

Article 1. The equalization provision must be calculated in accordance with one of the following four methods.

All calculations relate to direct business and to business accepted in reinsurance, net of transfers under reinsurance or retrocession.

Method No. 1.

1. To the equalization provision, for each financial year in which a technical surplus was recorded in credit insurance, 75% of this technical surplus is added, but not more than 12% of the premiums, until the equalization provision amounts to 150% of the highest amount of premiums reached during the last five years.

2. This equalization provision serves to cover any technical losses incurred during a financial year.

Method No. 2.

1. The minimum amount of the equalization provision is 134% of the average of the premiums received annually during the five preceding financial years.

MINISTRY OF ECONOMIC AFFAIRS

(C — 11337)

Insurance Control Office
Regulation No. 8. — Approval. — Addendum

Addendum to the ministerial decree of 1 August 1994, published in the Belgian Official Gazette of 12 October 1994, p. 25914, approving Regulation No. 8 of the Insurance Control Office.

Regulation No. 8 of the Insurance Control Office concerning the calculation methods for the equalization provision in the credit insurance branch.

The Insurance Control Office,

Having regard to the law of 9 July 1975 on the control of insurance companies, in particular Article 16, § 1;

Having regard to the Royal Decree of 22 February 1991 establishing the general regulation on the control of insurance companies, in particular Article 11, § 5;

Having regard to the opinion of the Insurance Commission;

Having regard to the internal regulations of the Council of the Insurance Control Office, approved by Royal Decree of 13 November 1975, in particular Article 11,

Decrees:

Article 1. The equalization provision must be calculated in accordance with one of the following four methods.

All calculations relate to direct business and to business accepted in reinsurance, net of cessions or retrocessions in reinsurance.

Method No. 1.

1. As long as it does not reach 150% of the highest annual premium amount over the previous five financial years, the equalization provision is funded for each financial year by a deduction of 75% from any technical surplus appearing in credit insurance, this deduction not exceeding 12% of the premiums.

2. This equalization provision will serve to compensate for any technical loss appearing at the end of the financial year.

Method No. 2.

1. The minimum amount of the equalization provision shall be 134% of the average of the premiums collected annually over the previous five financial years.

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26922 BELGIAN OFFICIAL GAZETTE — 26.10.1994 — MONITEUR BELGE

2. To this provision, in each of the successive financial years in which a technical surplus was recorded in the branch, 75% of this technical surplus is added, until the provision is equal to or higher than the minimum calculated according to paragraph 1.

3. This equalization provision serves to cover any technical losses incurred during a financial year.

Method No. 3.

The standard amount of the equalization provision is equal to six times the standard deviation of the distribution of loss ratios in the observation period multiplied by the premiums earned in the financial year.

The observation period has a duration of at least fifteen and at most thirty years.

The establishment of an equalization provision may be waived if no actuarial loss was recorded during the observation period.

There is a surplus on the loss amount when the loss ratio of the financial year is lower than the average loss ratio of the observation period. The amount of the surplus is equal to the difference between the two ratios, multiplied by the premiums earned in the financial year.

Each financial year, the surplus on the loss amount must be added to the equalization provision, until the equalization provision reaches or regains the standard amount.

If a deficit on the loss amount has occurred in a financial year, the amount thereof must be withdrawn from the equalization provision.

Regardless of the loss experience, 3.5% of the standard amount must be added to the equalization provision in each financial year, until this amount is reached again.

The standard amount of the equalization provision and the withdrawals from this provision may be reduced if the comparison of the average loss ratio in the observation period with the expense ratio shows that a safety loading is contained in the premiums. In this case, the amounts mentioned are multiplied by the inverse of the result obtained by increasing the safety loading by one unit.

Method No. 4.

The maximum standard amount of the equalization provision is equal to six times the product of the standard deviation of the distribution of loss ratios in the observation period multiplied by the premiums earned in the financial year.

The minimum standard amount of the equalization provision is equal to three times the product of the standard deviation of the distribution of loss ratios in the observation period multiplied by the premiums earned in the financial year.

The observation period has a duration of at least fifteen and at most thirty years.

The establishment of an equalization provision may be waived if no actuarial loss was recorded during the observation period.

There is a surplus on the loss amount when the loss ratio of the financial year is lower than the average loss ratio of the observation period. The amount of the surplus is equal to the difference between the two ratios, multiplied by the premiums earned in the financial year.

There is a deficit on the loss amount when the loss ratio of the financial year is higher than the average loss ratio of the observation period. The amount of the deficit is equal to the difference between the two ratios, multiplied by the premiums earned in the financial year.

Each financial year, the surplus on the loss amount must be added to the equalization provision, until that provision reaches or regains the maximum standard amount.

If a deficit on the loss amount has occurred in a financial year, the amount thereof must be withdrawn from the equalization provision, until that provision reaches the minimum standard amount.

2. This provision shall be funded for each of the successive financial years by a deduction of 75% on the technical surplus appearing in the branch until the provision is equal to or greater than the minimum calculated in accordance with paragraph 1.

3. This equalization provision shall serve to compensate for any technical loss appearing at the end of the financial year.

Method No. 3.

The theoretical amount of the equalization provision is equal to six times the product of the standard deviation of the distribution of loss rates during the observation period by the amount of premiums earned in the financial year.

The duration of the observation period must be at least fifteen years and at most thirty years.

One may waive the establishment of an equalization provision when no actuarial loss has been recorded during the observation period.

There is a surplus on losses when the loss rate of the financial year is lower than the average loss rate of the observation period. The amount of the surplus is equal to the difference between these two rates, multiplied by the premiums earned in the financial year.

For each financial year, the amount of surplus on losses must be paid to the equalization provision, until the provision reaches or regains the theoretical amount.

If a deficit on losses has occurred during a financial year, the amount of this deficit must be withdrawn from the equalization provision.

Regardless of the evolution of losses, it is necessary, at each financial year, to pay to the equalization provision first of all 3.5% of the theoretical amount, until the provision reaches this amount again.

The theoretical amount of the equalization provision and the withdrawals from this provision may be reduced when the comparison of the average loss rate during the observation period with the expense rate shows that the premiums include a safety loading. In this case, the amounts cited are multiplied by the inverse of the result obtained by increasing the safety loading by one unit.

Method No. 4.

The maximum theoretical amount of the equalization provision is equal to six times the product of the standard deviation of the distribution of loss rates during the observation period by the amount of premiums earned in the financial year.

The minimum theoretical amount of the equalization provision is equal to three times the product of the standard deviation of the distribution of loss rates during the observation period by the amount of premiums earned in the financial year.

The duration of the observation period must be at least fifteen years and at most thirty years.

One may waive the establishment of an equalization provision when no actuarial loss has been recorded during the observation period.

There is a surplus on losses when the loss rate of the financial year is lower than the average loss rate of the observation period. The amount of the surplus is equal to the difference between these two rates multiplied by the premiums earned in the financial year.

There is a deficit on losses when the loss rate of the financial year is higher than the average loss rate of the observation period. The amount of the deficit is equal to the difference between these two rates multiplied by the premiums earned in the financial year.

For each financial year, the amount of surplus on losses must be paid to the equalization provision until the provision reaches or regains the maximum theoretical amount.

If a deficit on losses has occurred during a financial year, the amount of this deficit must be withdrawn from the equalization provision, until the provision reaches the minimum theoretical amount.

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BELGIAN OFFICIAL GAZETTE — 28.10.1994 — MONITEUR BELGE 26923

Both standard amounts of the equalization provision and the addition or withdrawal may be reduced if the comparison of the average loss ratio in the observation period with the expense ratio shows that a safety loading is contained in the premiums and this safety loading is greater than 1.5 times the standard deviation of the distribution of loss ratios in the observation period. In this case, the amounts mentioned are multiplied by a fraction, the numerator of which is equal to 1.5 times the standard deviation and the denominator is equal to the safety loading.

Art. 2. This regulation will be published in the Belgian Official Gazette together with the extract of the ministerial decree approving it. It enters into force on the day of its publication.

Brussels, 9 December 1993.

The Chairman,
J.-M. Delporte.

The two theoretical amounts of the equalization provision and the payments or withdrawals may be reduced when the comparison of the average loss rate during the observation period with the expense rate shows that the premiums include a safety loading and that this loading is greater than 1.5 times the standard deviation of the distribution of loss rates during the observation period. In this case, the amounts cited are multiplied by a fraction whose numerator is equal to 1.5 times the standard deviation and whose denominator is equal to the safety loading.

Art. 2. This regulation shall be published in the Belgian Official Gazette at the same time as the extract of the ministerial decree approving it. It enters into force on the day of its publication.

Brussels, 9 December 1993.

The President,
J.-M. Delporte.