A stable, well-functioning financial market for allA stable, well-functioning financial market for allCovering of losses by insurance companies – a presentation of various methods
One starting point for the life insurance business is that policyholders should be treated fairly and reasonably. Any surplus that arises in a company should be distributed to policyholders, and the distribution should be based on how they have contributed to the surplus.
Since, in principle, each segment should be self-contained and the surplus from one segment may not systematically be used to subsidize another one, a company may not continue operations of a segment working at a loss for an extended period of time. However, when assessment related to distribution of surplus or shortfalls between different groups of policyholders is involved, this starting point is ambiguous and unclear. Assessing fairness and reasonableness is not always an issue of mathematical precision. For that reason, there is a certain amount of scope allowed for interpretation and application of different methods.
When a segment within a company is working at a loss, the company must naturally take action. The insurance companies included in the investigation utilize various methods for handling shortfalls in one or more business segments. No one method can be considered illegitimate.
Companies should establish internal rules regarding, for example, how different segments of a company should be managed among themselves in various situations, and when action should be taken. It should also be of value for policyholders and others to be informed regarding what pertains and what the resulting consequences can be. For this reason, Finansinspektionen intends to expand the demands placed on technical statements, information to policyholders and the content of annual reports.
