Balance & Valuation

German commercial code (HGB), Solvency II or IFRS - the assets and financial situation of insurers and reinsurers are nowadays examined from different angles and with increasing transparency. It is important to be fit in the relevant accounting and valuation approaches in order to meet the applicable requirements and to draw the right conclusions for future decisions or risk management.

Meyerthole Siems Kohlruss (MSK) has extensive know-how and experience in dealing with various accounting standards. For many years, Meyerthole Siems Kohlruss (MSK) has assisted its clients in the proper valuation of their own assets and liabilities. The focus is on the area of technical provisions. Against the background of international accounting standards and an increased need for information on the part of the capital markets, their valuation has increasingly become a critical success factor.

In addition to reflecting on past balance sheets, Meyerthole Siems Kohlruss (MSK) supports you in prospective analyses with regard to the development of the financial and asset situation. For this purpose, for example, future profit and loss accounts as well as budgeted balance sheets can be projected in a holistic model in order to quantify the effects of various business decisions or external stress scenarios.

Reserve Valuation

The valuation of technical provisions is one of the traditional tasks of actuaries in property and casualty insurance. Particularly since the introduction of Solvency II, the topic of loss reserves has gained additional importance but also complexity. Meyerthole Siems Kohlruss (MSK) advises you on the calculation or appropriate valuation of technical provisions according to German commercial code (HGB), Solvency II or IFRS. On the basis of the available accounting data, Meyerthole Siems Kohlruss (MSK) determines the technically required reserves (best estimate) and calculates interest effects as well as safety margins (e.g. according to the cost-of-capital model or via stochastic approaches). Meyerthole Siems Kohlruss (MSK) carries out these analyses as required for the overall portfolio, individual lines of business or sub-segments (e.g. major losses or individual products).

In addition to purely quantitative questions, Meyerthole Siems Kohlruss (MSK) is available to you as a competent partner in accounting questions for the various subcomponents of technical provisions.

Meyerthole Siems Kohlruss (MSK) has more than twenty years of experience in claims reserving. Clients include insurance and reinsurance companies, captives and compensation associations.

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Responsible Actuary

The responsible actuary is primarily found in life and personal insurance, but also in certain areas of property and casualty insurance. In the latter, the activity focuses on annuity provisions in motor liability, general liability and accident insurance as well as accident insurance with guaranteed premium refunds.

A responsible actuary is appointed to verify that premiums and actuarial reserves are determined in accordance with regulations. According to the Insurance Supervision Act (VAG), the appointment is obligatory in the respective insurance classes, which is justified by the fact that the fulfilment of current and future financial obligations (e.g. through pension and retirement benefits or through premium refunds) must be permanently secured through premiums and adequate reserves. In particular, the responsible actuary issues an actuarial confirmation in the context of the annual financial statement, which certifies that the actuarial reserves were formed in accordance with legal requirements.

Meyerthole Siems Kohlruss (MSK) is happy to support companies by taking on the role of responsible actuary in all relevant lines of business.

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Valuation of Pension Provisions

Pension provisions are formed for a company’s uncertain future liabilities towards entitled employees. Such liabilities primarily arise from the company pension scheme, but also from various forms of pension obligations. They become due as a result of certain events such as employees reaching an age limit or suddenly losing their ability to work.

At least since international accounting standards such as IAS/IFRS have been introduced, the valuation of such obligations has increasingly become the domain of actuarial and financial mathematics. In addition to biometric calculation principles, also future increases in pension commitments (of a statutory or individual contractual nature) and the measurement of discounting effects must be mentioned as significant valuation aspects. Particularly the differences between commercial and tax law must be taken into account when determining what discount rates to apply.

Meyerthole Siems Kohlruss (MSK) supports companies in the appropriate valuation of their pension provisions and works with a cooperation partner in this field.

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Stock and Business Valuation

When buying or selling insurance portfolios, company shares or entire companies, actuarial valuation usually also plays an important role.

This includes, for example, due diligence in which the company for sale is examined by the potential buyer before its acquisition. As part of such a process, Meyerthole Siems Kohlruss (MSK) supports you in actuarial topics with a focus on the analysis of technical provisions as well as on the premium and stock development in insurance portfolios.

Another example is a squeeze-out. A squeeze-out refers to the majority shareholder of a public limited company excluding minority shareholders by means of cash compensation. The central issue in this context is the appropriate amount of compensation. Meyerthole Siems Kohlruss (MSK) has been successfully cooperating with the auditing company ADKL AG, which has been appointed several times by insurance stock corporations to audit their cash compensation. In the context of a squeeze-out, Meyerthole Siems Kohlruss (MSK) takes on the audit of the appropriate valuation of the relevant key business figures as well as the plausibility check of actuarial planning calculations.

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Projections and Medium-Term Planning

Planning or projections of future business development can play an important role in various areas. A distinction must be made between projections that, for example, project portfolio and claims data from a certain point of time forward to the end of the year, and medium-term planning, in which a projection is made over a time horizon of several years, e.g. three or five years.

Meyerthole Siems Kohlruss (MSK) supports you in the development and implementation of suitable algorithms and projection models in order to forecast the missing accounting material or, according to the issue at hand, to flexibly map the future course of business using historical information and planning parameters. These projections can target selected divisions and segments or even a holistic view of the company's P&L and balance sheet.

An example for an applied projection is an accelerated close with an early booking close (fast close). Medium-term planning must be prepared, for example, in the ORSA (Own Risk and Solvency Assessment) under Solvency II. Furthermore, business planning is common or required by supervisory law when introducing new products or lines of business and when founding a new insurer (start-up).

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IFRS 17

After the introduction of Solvency II, another new accounting standard for capital market-oriented insurers is waiting in the wings: IFRS 17. It is aimed at an internationally uniform accounting of insurance contracts and will replace the currently still valid interim standard IFRS 4 as of 1 January 2023.

In principle, there are similarities to Solvency II, which has already been put into practice, but there are also striking differences. IFRS 17 contains a strict imparity and realization principle. Specifically, profitable and loss-making contracts must be separated immediately upon initial recognition. Losses must be shown immediately when they occur and profits must be distributed over time according to the realization principle. In the context of the realization principle, the regulations allow the creation of the so-called contractual service margin (VSM), a deferred profit amortized over the coverage period.

Meyerthole Siems Kohlruss (MSK) offers you support in the introduction of the new accounting standard and is available as a contact partner for questions relating to this, for example with regard to the demarcation from existing sets of rules (Solvency II, German commercial code (HGB).

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