Equalization provision

Gross provision is used in the calculation of the variable total gross technical provisions (37 31 0 + 37 32 0 + 37 33 0 + 37 34 0 + 37 35 0 + 37 36 0 + 37 37 0).

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

The equalization provision shall comprise any amounts set aside in compliance with legal or administrative requirements to equalize fluctuations in loss ratios in future years or to provide for special risks.

An equalization reserve shall be formed for class 14 in point 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.

An equalization reserve shall be formed for class 14 in point 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.

Name: Equalisation provision

Equalisation provision

Name: Change in the equalisation provision (+/-)

Change in the equalisation provision is used in the calculation of the gross balance of the technical account (32 17 0) and other aggregates and balances.

Change in the equalisation provision

Secondly, the external account of primary incomes and current transfers records the balancing item of the previous account, and also primary income, current transfers and adjustment for the change in net equity of households on pension funds, to and from the rest of the world, respectively.

Apart from disposable income, the row of this account records an adjustment for changes in net equity of households on resident pension funds (11) on the diagonal and an adjustment for changes in net equity of households on non-resident pension funds (0) in column 15. The column contains, in addition to final consumption (1371) and the diagonal item, an adjustment for changes in net equity of non-resident households on resident pension funds (0), see cell (15, 5), and the balancing item, net saving (233), which is put on the first capital subaccount (account 6).

Change in the equalization provision (+/)

Up to the amount calculated in accordance with the methods set out in point D of the Annex, the equalization reserve shall be disregarded for purposes of calculating the solvency margin.

The equalization reserve must be calculated, under the rules laid down by each Member State, in accordance with one of the four methods set out in point D of the Annex which shall be regarded as being equivalent.

Whereas insurance undertakings whose credit insurance business amounts to more than a small proportion of their total business require an equalization reserve which does not form part of the solvency margin;

In respect of the risks included in the class of insurance in point 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.

In respect of the risks included in the class of insurance listed in point 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.

Methods of calculating the equalization reserve for the credit insurance class

This means that to insure short-term commercial risks, public or publicly supported insurers must have a certain amount of own funds (solvency margin, including guarantee fund) and technical provisions (notably and equalization reserve) and must have obtained authorization in accordance with Article 6 et seq. of Directive 73/239/EEC,

Where claims for any financial year are in excess, an amount in respect thereof shall be taken from the equalization reserve.

Each Member State shall require undertakings established on its territory and underwriting risks included under class 14 in point A of the Annex (hereinafter referred to as "credit insurance") to set up an equalization reserve for the purpose of offsetting any technical deficit or above-average claims ratio arising in that class for a financial year.

No equalization reserve need be formed if no underwriting loss has been noted during the reference period.

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.

Pending further coordination, those Member States which require the constitution of equalization provisions shall prescribe the valuation rules to be applied to them.

Up to the amount calculated in accordance with the methods set out in point D of the Annex, the equalization reserve shall be disregarded for the purpose of calculating the solvency margin.

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.

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.

The equalization reserve shall be calculated in accordance with the rules laid down by the home Member State in accordance with one of the four methods set out in point D of the Annex, which shall be regarded as equivalent.

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 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.

The minimum amount of the equilization 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.

Member States may exempt establishments from the obligation to set up an equalization reserve for credit insurance business where the premiums or contributions receivable in respect of credit insurance are less than 4 % of the total premiums or contributions receivable by them and less than 2 500 000 ECU.'

Member States may exempt insurance undertakings with head offices within their territories from the obligation to set up equalization reserves for credit insurance business where the premiums or contributions receivable in respect of credit insurance are less than 4 % of the total premiums or contributions receivable by them and less than ECU 2 500 000.'

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.

Member States shall require every insurance undertaking with a head office within their territories which underwrites risks included in class 14 in point A of the Annex (hereinafter referred to as "credit insurance") to set up an equalization reserve for the purpose of offsetting any technical deficit or above-average claims ration arising in that class in any financial year.

The Court held that although the Directive on partial harmonization of equalization reeserves for insurance companies, which exempted export-credit insurance operatings for the account of or guaranteed by the State, was not unlawful, the factors distorting competition between private and public or publicly supported export-credit insurers 'might justify recourse to legal action to penalize infringement of the provisions (of Article 92)` (18).

Gross premiums written (12 11 0), + Gross change in the provision for unearned premiums (32 11 2), + Investment income (32 42 0), - Value readjustments on investments (32 71 5), - Gains on the realisation on investments (32 71 6), - Income from participating interests (32 71 1), + ((Total gross technical provisions (37 30 0) - Total net technical provisions (37 30 1))/Total net technical provisions (37 30 1)) x (Investment income (32 42 0) - Value re-adjustments on investments (32 71 5) - Gains on the realisation of investments (32 71 6) - Income from participating interests (32 71 1)), + Other technical income, net amount (32 16 1), + Other income (32 46 0), - Gross claims payments (32 13 1), - Gross change in the provision for outstanding claims (32 13 4), + External and internal claims management expenses (32 61 5), + Gains on the realisation on investments (32 71 6), - Losses on the realisation on investments (32 72 3), - Bonuses and rebates, net amount (32 16 3), - Change in the equalisation provision (32 15 0), - Net changes in other technical provisions, not shown under other headings (32 16 2).