Q&A

Question

 Article 31 of COMMISSION DELEGATED REGULATION (EU) 2015/35 of 10 October 2014 says that « a cash flow projection used to calculate best estimates shall take into account all of the following expenses, which relate to recognised insurance and reinsurance obligations of insurance and reinsurance undertakings and which are referred to in point (1) of Article 78 of Directive 2009/138/EC: (a) administrative expenses; (b) investment management expenses; (c) claims management expenses; (d) acquisition expenses. […].Expenses shall be projected on the assumption that the undertaking will write new business in the future. »

Could you please specify if the acquisition costs paid next year for business outside the contract boundary must be included in the Best Estimate ?

For example, let's consider, for the year ended 31/12/2017, an annually renewable 1-year insurance contract with renewal date on 1st January 2018 and there is a 2-month advance notification. So, the contract boundary ends on 31/12/2018.

Acquisition costs spent during next year (2018) only influence underwriting of the following year (2019 – which is outside the contract boundary). My question is : these acquisition costs must be taken into account the Best Estimate (at 31/12/2017) ?

EIOPA answer

Only the acquisition costs related to obligations within the contract boundaries should be considered for best estimate valuation. Therefore, direct acquisition costs related to renewals falling within contract boundaries, should be included in best estimate, while direct acquisition costs of new contracts falling beyond contract boundaries should not be included. Indirect acquisition costs should be allocated among new contracts / renewals falling within contract boundaries and new contracts / renewals falling beyond contract boundaries.