01 Gothaer Konzern_E_09_Umschl - Gothaer Allgemeine ...


01 Gothaer Konzern_E_09_Umschl - Gothaer Allgemeine ...

Consolidated Financial Statements

Adequacy of

underwriting reserves

Provisions for contingent losses are established for some insurance portfolios in property/casualty

following the premium deficiency test. Equalization reserves established

pursuant to the provisions of HGB are not considered liabilities and are therefore not

permissible under IAS 37.

Application of IFRS 4 requires regular assessment of the adequacy of insurance liabilities

(liability adequacy test).

In the area of property/casualty insurance, a so-called premium deficiency test is

conducted pursuant to FAS 60 to establish whether future premiums and the corresponding

investment result of the relevant insurance portfolio is expected to cover the anticipated

claims and costs. If it emerges that future income will not cover the anticipated

expenses, the reversal of deferred acquisition costs needs to be followed by the

establishment of a provision for contingent losses calculated at the level of the line of


The adequacy of life insurance underwriting reserves is assessed pursuant to FAS 60 by

means of what is referred to as loss recognition test. This involves estimation of future

cash flows, taking into account realistic estimates of mortality and other probabilities for

termination as well as expense ratios. The cash flows are discounted at a rate commensurate

with current interest expectations. The results of the loss recognition test show

that reserves and future revenues estimated on the basis of realistic assumptions

currently suffice to cover all contractual obligations.

The margins of safety included in the underlying assumptions for health insurance

underwriting reserves are sufficiently high so that it is possible to dispense with assessment

of appropriateness of the liabilities.

Underwriting reserves for unit-linked life insurance

In addition to policy reserves, other underwriting reserves are also established here for

liabilities in connection with life insurance policies that transfer investment risk to policyholders

or provide index-linked benefits.

Pursuant to FAS 97, the amount stated for gross policy reserves is the same as the

amount stated for investments held for unit-linked life insurance policies.

Investments assigned to unit-linked life insurance are carried separately from those of

the Group. In this case unrealized gains and losses result in an increase or decrease in

the corresponding reserves. All gains on these investments accrue to policyholders, as

do all losses.

130 Gothaer Group Annual Report 2009

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