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Bank of Russia approves regulation on requirements for insurers’ financial sustainability and solvency

23 January 2020

The document implements new approaches to assessing insurers’ financial sustainability and solvency and to calculating their equity (capital) and takes into account the risk of changes in asset and liability values when the capital adequacy ratio is determined.

An insurer’s equity is defined as the difference between all its assets and liabilities. As opposed to the current regulation in which the asset requirements only refer to the amount of insurance reserves and the insurer’s equity, the new document factors in all the assets of the insurer in the calculation of its equity.

Moreover, in addition to the indicator characterising the insurance risks accepted by an insurer (the required solvency margin), the new regulation provides for a new indicator characterising the amount of risks accepted by the insurer in connection with its investment activity.

Additionally, the impact of risks is assessed over a one-year horizon as the overall influence of concentration risk, credit spread risk, interest rate risk, equity price risk, exchange rate risk, real estate price risk, credit risk and the risk of changes in the value of other assets.

The new requirements will be implemented on a step-by-step basis. 1 July 2021 is the effective date of the requirement for equity calculation, and the calculation of the regulatory ratio will take into account the required solvency margin and the assessment of the impact of concentration risk.

The requirement to assess the influence of all risks provided for by the new regulation on an insurer’s solvency comes into force on 1 July 2022 to a limited extent, and from 1 July 2025, all the requirements of the new document will be in full force.

The new regulation has been submitted to the Ministry of Justice of the Russian Federation for state registration.

Preview photo: Diego Fiore / Shutterstock / Fotodom