The regulator expects to begin implementing the new concept in the life insurance segment from July 2025. At the next stage it is possible to apply similar conceptual approaches to calculating reserves in insurance other than life insurance, that is, for universal insurers. However, the timing of this stage has not yet been determined, according to the Central Bank's materials.
The new approach to calculating life insurance risks is part of the transition to a risk-oriented approach in regulating the industry, the regulator notes.
The implementation of the new concept involves corresponding changes to the Central Bank's provision, which regulates the specifics of forming reserves under insurance contracts (781-P). The changes will affect to a greater extent investment and endowment life insurance contracts. The draft regulatory act in development of the concept is planned to be posted for public discussion in the third quarter of 2024, the regulator reports.
The structure of portfolio of life insurance agreements is not currently taken into account. According to the Central Bank, the new approach to calculating reserves for life insurance contracts "will take into account the portfolio structure and risk level of each individual insurer."
The concept developed by the Central Bank changes the requirements for calculating capital (the standard amount of solvency) for life insurance.
In addition, the Central Bank introduces the notion of "negative reserves", which does not exist in the current regulation for life insurers.
The regulator's new approaches also exclude the "credit risk for future flows of insurance premiums" in calculations, since the new concept introduces "the risk of early termination and changes to life insurance contracts."
The Central Bank proposes to include 4 groups of risks for life insurance contracts for assessment, they are as follows: longevity and mortality risk, expense risk, risk of early termination and changes to contracts, and other risks.
For longevity and mortality risk, the effect of a decrease or increase in the probability of death on the amount of insurance reserves will be taken into account. "Longevity and mortality risks consider possible deviations from the mortality and life expectancy indices from those initially included in the calculation of insurance reserves," the Central Bank reports.
The impact of an increase in expenses on the amount of the insurer's liabilities, that is, “the risk of actual expenses exceeding expected ones” will also be considered in the expense risk.
The “other risks” category includes risks associated with assessing the risk of death, illness, disability, incapacity for work, and injury (the risk is analyzed for a specific group of contracts - IF).
The risk of early termination and modification of contracts is associated "with the possible loss of part of the profit recorded in equity" due to a change in the index that reflects the frequency of "termination and modification of contracts or one-time early termination of contracts," the Central Bank determines.
The formula for calculating life insurance capital requirements has also been adjusted by the Central Bank within the framework of the concept. The formula for calculating the risk margin for life insurance has also been amended due to changes in capital requirements.
The Central Bank's concept includes two assessment scenarios - structural stress and event stress, within the framework of which the stress resistance of life insurers is analyzed when implementing the list of risks expanded by the concept.
The first scenario is calculated for "a relative increase or decrease in the level of early termination of contracts by 50%". The second is - for "an immediate termination of 15% of contracts, leading to an increase in liabilities".
Source: https://prodengi.kz/post/pocemu-k-pokupkam-v-rassrocku-nudno-otnositsya-vnimatelno
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