Insurers’ financial stability and solvency: new requirements set by Bank of Russia
Insurers will form insurance reserves intended to secure future payments according to new rules. The draft regulation was developed by the Bank of Russia based on the framework for calculating insurance reserves. It takes into account the results of its discussion with the professional community.
The new requirements are another step towards the implementation of a risk-based approach in regulation. They will enable a more accurate assessment of insurance companies’ insurance reserves and, accordingly, their financial stability.
Pursuant to the draft regulation, insurance reserves are calculated as a total of the best present value of cash flows (the difference between the current value of expected cash outflows and inflows under insurance agreements) and the risk margin. Furthermore, for insurance types, other than life insurance, the new regulation sets the procedure for calculating the lower limit of insurance reserves.
The draft regulation allows insurers to refuse to form a stabilisation reserve (except in compulsory motor third-party liability insurance and state-supported agricultural insurance) and establishes criteria for reinsurance agreements to be taken into account in capital adequacy calculation.
The draft regulation is expected to be approved by the end of 2021 and become effective in 2023. The new document will not change approaches to assessing insurance risks. Possible changes will be discussed with insurers after the new regulation comes into force.