FME has issued Guidelines No. 3/2006 on prudential filters regarding the implications of the introduction of IFRS on the solvency of insurance undertakings
The Guidelines are directed to insurance companies which already have implemented or will in the future implement IFRS. The Guidelines give an overview on FME’s position regarding necessary prudential filters for the measurement of the available and minimum solvency margin for insurance undertakings.
The Guidelines will filter the effects if the one of the following changes would lead to more than 1% change in the available solvency margin:
- The decrease of technical provisions and increase of equity related to changes in the definition of insurance contracts.
- Changes in the accounting value of investments and property previously accounted for at market price, but accounted for at purchase price according to IFRS.
- Profit or loss related to changes in the company’s own credit standing.
Discretionary Participation Features classified as equity.
FME has the position that some of the changes related to the implementation of IFRS in fact give better picture of the companies’ financial position. The following changes are therefore allowed the influence the available solvency margin of insurance companies:
- Changes in the accounting value of investments and property previously accounted for at purchase cost, but accounted for at fair value according to IFRS.
- The increase in equity related to the deduction of equalisation provisions from the value of technical provisions.
- The increase in equity related to the decrease in technical provisions if the company would take up new methods of assessing technical provisions, fulfilling the requirements of IFRS 4 and FME’s rules on claims provisions.
For further information contact Sigurður Freyr Jónatansson