Technical provisions Technical provisions

Article 113

(1) An insurance undertaking shall be obliged, with regard to all insurance business performed, to form appropriate technical provisions intended to meet future obligations arising from insurance contracts and cover possible losses on account of risks relating to insurance business performed.

(2) An insurance undertaking shall be obliged to form the following types of technical provision:

1. provisions for unearned premium;

2. provisions for bonuses, discounts, and cancellations; 3. reserves for outstanding claims;

4. the equalisation provisions; 5. other technical provisions.

(3) An insurance undertaking underwriting life assurance policies or other policies to which probability tables and calculations apply which are similar to life assurance shall be obliged, with regard to those insurance contracts, to form mathematical provisions as well.

(4) An insurance undertaking underwriting policies in which the investment risk is borne by the insured person shall be obliged, with regard to those insurance policies, to set aside special provisions as well.

Provisions for unearned premium

Article 114

Provisions for unearned premium with regard to individual types of insurance shall be form in the amount of that part of the premium billed which refers to insurance coverage for an insurance period following the conclusion of the accounting period for which provisions are calculated.

Provisions for bonuses, discounts and cancellations Article 115

Provisions for bonuses and discounts shall be formed up to an amount equalling the payments which policy holders, insured persons or other beneficiaries are entitled to receive and which arise from:

1. the right to participate in profits arising from their insurance or other rights on the basis of the insurance contract (bonuses);

2. the right to a partial reduction in premiums (discounts),

3. the right to reimbursement of one part of the premium relating to the unused insurance period due to an early termination of insurance (cancellation).

Reserves for outstanding claims

Article 116

(1) Reserves for outstanding claims shall be formed in the amount of the assessed obligations which the insurance undertaking is obliged to settle on the basis of those insurance contracts where the event insured against occurred by the end of the accounting period, irrespective of whether such an event was reported, including all the fees and charges arising from those contracts and charged to the insurance undertaking.

(2) Reserves for outstanding claims must, in addition to assessed obligations involving reported damages which occurred but have not been settled, also include assessed obligations involving damages which occurred but have not been reported.

Mathematical provisions

Article 117

(1) Mathematical provisions shall be set aside in the amount of the present value of the assessed future obligations of the insurance undertaking arising from insurance contracts reduced by the present assessed value of future premiums to be paid on the basis of those contracts.

(2) Mathematical provisions shall be calculated by means of appropriate actuarial valuation, taking into account all future obligations of the insurance undertaking arising from individual insurance contracts, including the following:

1. payments guaranteed to which the policy holder, insured person or any other beneficiary are entitled;

2. bonuses to which a policy holder, insured person or any other beneficiary is entitled either alone or together with other policy holders, insured persons or other beneficiaries, irrespective of the form they take;

3. all rights from which the policy holder, insured person or any other beneficiaryis allowed to choose on the basis of the insurance contract;

4. charges, including commissions.

(3) In selecting the methods of actuarial valuation, account must also be taken of the methods of valuating the assets covering technical provisions which the insurance undertaking applies. (4) Mathematical provisions must be calculated for each insurance contract individually. Appropriate approximations or generalisations may only be applied when it is likely that the result arrived at by means of them will be approximately the same as that of an individual calculation.

(5) When, on the basis of the insurance contract, a policy holder, insured person or any other beneficiary has the right to the payment of the surrender value, the mathematical provisions formed with regard to that insurance contract must not be below the surrender value.

(6) Reserves for old age are mathematical provisions of health insurance formed in an amount sufficient to cover liabilities of annuity insurance. They are intended to cover the deficit due to the non-adjustment of premiums in the lifetime of insurance, when the health risk increases due to increasing age. Notwithstanding the provisions of the first sentence of this Paragraph, reserves for old age may be formed in an amount sufficient to cover liabilities for a period at least until the policy holder reaches such an age from which the insured person has the same insurance risk as that under the insurance contract already fully covered under the Act itself. Probability tables and calculations similar to those for life assurance shall be used in the calculation of reserves for old age. The provisions of this Paragraph shall not apply to the insurance business referred to in Article 14(11) of this Act.

(7) Insurance undertakings shall be obliged, in an appendix to the annual reports, to provide an explanation of the bases and methods applied in calculating mathematical provisions.

Equalisation provisions

Article 118

(1) An insurance undertaking shall set up its equalisation provisions only for the credit insurance class referred to in Article 2(2)(14) of this Act.

(2) The method of setting up equalisation provisions referred to in the preceding Paragraph of this Article shall be laid down by the Insurance Supervision Agency in accordance with Annex D to Council Directive 87/343/EC of 22 June 1987 amending, as regards credit insurance and suretyship insurance, First Directive 73/239/EEC on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct insurance other than life assurance (OJ L 185, of 4 July 1987, p. 72).

Other technical provisions

Article 119

Other technical provisions shall be formed with regard to the anticipated future obligations and risks of major damages arising from insurance covering nuclear damage liability and pharmaceuticals producers' liability, earthquake, flood, as well as other obligations and risks for which none of the provisions referred to in items 1 to 4 of Paragraph (2), and Paragraphs (3) and (4) of Article 113 of this Act are formed.

5.5. Assets covering technical provisions