S.I. No. 5/1991 - European Communities (Non-Life Insurance) (Amendment) Regulations, 1991.

S.I. No. 5 of 1991.

EUROPEAN COMMUNITIES (NON-LIFE INSURANCE) (AMENDMENT) REGULATIONS, 1991.

I, DESMOND O'MALLEY, Minister for Industry and Commerce, in exercise of the powers conferred on me by section 3 of the European Communities Act, 1972 (No. 27 of 1972), and for the purpose of giving effect to Council Directive No. 87/343/EEC of 22 June, 1987¹ hereby make the following Regulations:

1. These Regulations may be cited as the European Communities (Non-Life Insurance) (Amendment) Regulations, 1991, and shall come into operation on the 11th day of January, 1991.

2. In these Regulations—

"Council Directive" means Council Directive No. 87/343/EEC¹;

"The Principal Regulations" means the European Communities (Non-Life Insurance) Regulations, 1976 ( S.I. No. 115 of 1976 ).

3. Article 2 of the Principal Regulations is hereby amended by the substitution in subarticle (1) of the following definition for the definition of "the Directive":

"'The Directive' means Council Directive 73/239/EEC* as amended by Council Directive 87/343/EEC of 22 June, 1987, O.J. No. L185, 4.7.1987, pp. 72-76;"

4. Article 14 of the Principal Regulations is hereby amended by the insertion of the following subarticle after subarticle (7):

"(8) (a) Any undertaking which is underwriting risks included in class 14 in Section A of the Annex (referred to subsequently in these Regulations as 'credit insurance') shall, subject to paragraph (d) of this subarticle set up an equalisation reserve for the purpose of offsetting any technical deficit or above-average claims ratio arising in that class for a financial year.

¹ O.J. L185, 4.7.1987, pp. 72-76.

(b) The equalization reserve shall be calculated in accordance with whichever of the four methods set out in Section D of the Annex is chosen by the undertaking concerned, with the approval of the Minister.

(c) The equalization reserve shall be disregarded for the purpose of calculating the solvency margin, up to the amount calculated in accordance with the method chosen as aforesaid.

(d) Paragraph (a) does not apply to undertakings for which the premiums or contributions receivable in respect of their credit insurance business are less than 4 per cent of the total premiums or contributions receivable by them and less than 2,500,000 ECU."

5. Article 16 of the Principal Regulations is hereby amended by the substitution in subarticle 4 of the following paragraph for paragraph (b):

"(b) in the case of an undertaking which substantially underwrites one or more of the risks of credit, storm, hail or frost only, the preceding seven financial years shall be taken as the period of reference for the average burden of claims."

6. Article 19 of the Principal Regulations is hereby amended—

(a) in subarticle (3) by the substitution of the following paragraphs for paragraph (a):

"(a) 1,400,000 ECU in a case where all or some of the risks included in that class are covered, as respects an undertaking for which the annual amount of premiums or contributions due in the class listed in Section A of the Annex at Reference Number 14 for each of the preceding three financial years exceeded 2,500,000 ECU or 4 per cent of the total amount of premiums or contributions receivable by that undertaking,

(a) (a) 400,000 ECU in a case where all or some of the risks included in any one of the classes listed in Section A of the Annex at reference numbers 10, 11, 12, 13 and 15 and (as respects undertakings other than those referred to in paragraph (a)) reference number 14 are covered," and

(b) by the insertion of the following subarticle after subarticle (6):

"(7) (a) Where an undertaking carrying on credit insurance is required to increase the fund referred to in subarticle (3) (a) of this Article to 1,400,000 ECU, such undertaking shall have:

(i) a period of three years in which to bring the fund up to 1,000,000 ECU,

(ii) a period of five years in which to bring the fund up to 1,200,000 ECU,

(iii) a period of seven years in which to bring the fund up to 1,400,000 ECU.

(b) The periods referred to in paragraph (a) of this subarticle shall run from the date from which the conditions referred to in subarticle (3) (a) of this Article are fulfilled."

7. Schedule 1 of the Principal Regulations is hereby amended by the insertion of the following Section after Section C of the Annex:

"D Methods of calculating the equalization reserve for the credit insurance class.

Method No. 1

1. In respect of the risks included in the class of insurance in Section A No. 14 (hereiafter referred to as 'credit insurance'), the undertaking shall set up an equalization reserve to which shall be charged any technical deficit arising in that class for a financial year.

2. Such reserve shall in each financial year receive 75% of any technical surplus arising on credit insurance business, subject to a limit of 12% of the net premiums or contributions until the reserve has reached 150% of the highest annual amount of net premiums or contributions received during the previous five financial years.

Method No. 2

1. In respect of the risks included in the class of insurance listed in Section A No. 14 (hereinafter referred to as 'credit insurance') the undertaking shall set up an equalization reserve to which shall be charged any technical deficit arising in that class for a financial year.

2. The minimum amount of the equalization reserve shall be 134% of the average of the premiums or contributions received annually during the previous five financial years after subtraction of the cessions and addition of the reinsurance acceptances.

3. Such reserve shall in each of the successive financial years receive 75% of any technical surplus arising in that class until the reserve is at least equal to the minimum calculated in accordance with paragraph 2.

4. Member States may lay down special rules for the calculation of the amount of the reserve and/or the amount of the annual levy in excess of the minimum amounts laid down in this Directive.

Method No. 3

1. An equalization reserve shall be formed for class 14 in Section A (hereinafter referred to as 'credit insurance') for the purpose of offsetting any above-average claims ratio for a financial year in that class of insurance.

2. The equalization reserve shall be calculated on the basis of the method set out below.

All calculations shall relate to income and expenditure for the insurer's own account.

An amount in respect of any claims shortfall for each financial year shall be placed to the equalization reserve until it has reached, or is restored to, the required amount.

There shall be deemed to be a claims shortfall if the claims ratio for a financial year is lower than the average claims ratio for the reference period. The amount in respect of the claims shortfall shall be arrived at by multiplying the difference between the two ratios by the earned premiums for the financial year.

The required amount shall be equal to six times the standard deviation of the claims ratios in the reference period from the average claims ratio, multiplied by the earned premiums for the financial year.

Where claims for any financial year are in excess, an amount in respect thereof shall be taken from the equalization reserve. Claims shall be deemed to be in excess if the claims ratio for the financial year is higher than the average claims ratio. The amount in respect of the excess claims shall be arrived at by multiplying the differences between the two ratios by the earned premiums for the financial year.

Irrespective of claims experience, 3.5% of the required amount of the equalization reserve shall be first placed to that reserve each financial year until its required amount has been reached or restored.

The length of the reference period shall be not less than 15 years and not more than 30 years. No equalization reserve need be formed if no underwriting loss has been noted during the reference period.

The required amount of the equalization reserve and the amount to be taken from it may be reduced if the average claims ratio for the reference period in conjunction with the expenses ratio show that the premiums include a safety margin.

Method No. 4

1. An equalization reserve shall be formed for class 14 in Section A (hereinafter referred to as 'credit insurance') for the purpose of offsetting any above-average claims ratio for a financial year in that class of insurance.

2. The equalization reserve shall be calculated on the basis of the method set out below.

All calculations shall relate to income and expenditure for the insurer's own account.

An amount in respect of any claims shortfall for each financial year shall be placed to the equalization reserve until it has reached the maximum required amount.

There shall be deemed to be a claims shortfall if the claims ratio for a financial year is lower than the average claims ratio for the reference period. The amount in respect of the claims shortfall shall be arrived at by multiplying the difference between the two ratios by the earned premiums for the financial year.

The maximum required amount shall be equal to six times the standard deviation of the claims ratio in the reference period from the average claims ratio, multiplied by the earned premiums for the financial year.

Where claims for any financial year are in excess, an amount in respect thereof shall be taken from the equalization reserve until it has reached the minimum required amount. Claims shall be deemed to be in excess if the claims ratio for the financial year is higher than the average claims ratio. The amount in respect of the excess claims shall be arrived at by multiplying the difference between the two ratios by the earned premiums for the financial year.

The minimum required amount shall be equal to three times the standard deviation of the claims ratio in the reference period from the average claims ratio multiplied by the earned premiums for the financial year.

The length of the reference periods shall be not less than 15 years and not more than 30 years. No equalization reserve need be formed if no underwriting loss has been noted during the reference period.

Both required amounts of the equalization reserve and the amount to be placed to it or the amount to be taken from it may be reduced if the average claims ratio for the reference period in conjunction with the expenses ratio show that the premiums include a safety margin and that safety margin is more than one-and-a-half times the standard deviation of the claims ratio in the reference period. In such a case the amounts in question shall be multiplied by the quotient of one-and-a-half times the standard deviation and the safety margin.

GIVEN under my Official Seal, this 7th day of January, 1991.

DESMOND O'MALLEY,

Minister for Industry and Commerce.

EXPLANATORY NOTE.

These Regulations amend the European Communities (Non-Life Insurance) Regulations, 1976 by requiring insurance undertakings carrying on a certain level of credit insurance business to set up an equalization reserve calculated in accordance with any of four alternative methods and to increase the minimum guarantee fund in respect of such business.