October 3rd/2023.
On August 29, 2023, the URF published a draft of decree that amends Decree 2555 of 2010 in order to modify the regime of technical reserves of insurance companies to harmonize the regulations with the IFRS 17 “Insurance Contracts” accounting standard and the Solvency II risk-based regulatory standard.
Current Risk Reserve
Decree 2555 currently provides that the reserve for current risks is calculated with the unearned premium reserve and the reserve for insufficient premiums to meet future obligations according to the commitments in force at the date of calculation.
The draft decree considers that the premium deficiency reserve is intended to supplement the unearned premium reserve. In the event that the amount of a particular premium is not sufficient to cover the sum of the current risk and unearned expenses, the draft proposes that the premium reserve be repealed and that the current risk premium serves the purpose of the unearned premium reserve.
On this front, it is proposed to add a loss component for onerous contracts. In addition, it is clarified that the current risk reserve is part of a remaining hedge liability, created by IFRS 17.
Mathematical Reserve
Its current purpose is to meet the payment of obligations assumed in individual life insurance and in insurance policies where the premium is calculated on a level basis or in insurance policies where the benefit is paid as an annuity.
The project proposes adjustments in the mathematical reserve methodology to take into account IFRS 17 discount rates, as well as to clarify that the reserve must be part of the liability for remaining coverage or of the liability for claims incurred for cases of labor risks.