Answers to the European Commission on the ... - Eiopa - Europa

8.77 It may be argued that <strong>the</strong> present split between provision for unearned
premiums and provision for unexpired risk is not suitable and may even
be confusing. In a ra<strong>the</strong>r straightforward manner all claim payments
arising from future events insured under existing policies up until <strong>the</strong>ir
next renewal are related <strong>to</strong> risks being unexpired at <strong>the</strong> balance sheet
date (<strong>the</strong> reporting date). 46
8.78 Moreover, <strong>the</strong> present split does not seem <strong>to</strong> be compatible with <strong>the</strong>
anticipated phase II of <strong>the</strong> IFRS on insurance contracts. It is likely that
under IAS <strong>the</strong> two items may be replaced by a single provision for
unexpired risks, on a basis similar <strong>to</strong> that envisaged for claims
outstanding. However, this change may be largely presentational and it
is asserted that <strong>the</strong> unearned premium in general will be a floor <strong>to</strong> <strong>the</strong>
provision for unexpired risks.
8.79 Based on <strong>the</strong> comments above, a slightly revised wording of <strong>the</strong> rules
regarding <strong>the</strong> provision for unexpired risks may be as follows:
The provision for unexpired risks should comprise <strong>the</strong> amount set aside
in respect of risks <strong>to</strong> be borne by <strong>the</strong> insurance undertaking after <strong>the</strong>
end of <strong>the</strong> financial year, in order <strong>to</strong> provide for all claims and expenses
in connection with insurance contracts in force.
This wording could be amended in <strong>the</strong> following manner:
The provision for unexpired risks should in any case at least equal <strong>the</strong>
unearned premiums calculated according <strong>to</strong> a recognised method. 47
With this revised wording of <strong>the</strong> rules regarding <strong>the</strong> provision for
unexpired risks a separate provision for unearned premiums would
become superfluous.
8.80 Moreover, it should be stressed that it is still necessary <strong>to</strong> clarify <strong>to</strong>
what extent (administrative) expenses – beyond (expected) claims
handling and claims settlement expenses related <strong>to</strong> <strong>the</strong> claims
stemming from "<strong>the</strong> future events insured under existing policies up
until <strong>the</strong>ir next renewal" 48 – should be covered by this provision, cf. <strong>the</strong>
present wording of Article 58 of <strong>the</strong> Accounting Directive.
Methodological issues
8.81 The relative amount of premium provisions <strong>to</strong> outstanding claims
provisions varies from undertaking <strong>to</strong> undertaking (for example due <strong>to</strong>
business mix) and depends on market practice (due <strong>to</strong> market
practices of writing new business and of paying claims). For example,
46 Additional liabilities may arise for multi-year contracts or where <strong>the</strong>re are guarantees and options.
47
Less deferred acquisition costs, where <strong>the</strong>se are not recognised as an asset. In this regard, account will
have <strong>to</strong> be taken of <strong>the</strong> results of <strong>the</strong> IASB project.
48
Australian Prudential Regula<strong>to</strong>ry Authority (2002): "Actuarial Opinions and Reports on General Insurance
Liabilities", Guidance Note GGN 210.1, page 9.
41