Own Funds (OF)

We refer to Article 1, item 46 (EU 2015/35): 46. ‘the expected profit included in future premiums’ means the expected present value of future cash flows which result from the inclusion in technical provisions of premiums relating to existing insurance and reinsurance contracts that are expected to be received in the future, but that may not be received for any reason, other than because the insured event has occurred, regardless of the legal or contractual rights of the policyholder to discontinue the policy and the EIOPA whitepaper ”Report of the Task Force on Expected Profits arising from Future Premiums” dated June 20, 2011. In the context of a non-life company with contracts of one year or less and assuming an expected combined ratio of 90% we would like to know if the concept of EPIFP (Estimated Profit In Future Premiums) is correctly understood and calculated in the following two examples: Example 1: All premiums are paid before inception of the contract, and policies are written the month before inception. Thus, the premium provisions evaluated at inception do not include any future premiums, and therefore EPIFP is 0. Example 2: Consider 1 contract with a premium of 100 paid in half on December 31 and June 30 incepting on January 1. With a combined ratio of 90%, the premium provision at inception is 90. There is a future premium of 50, of which 5 is expected as profit. Thus, EPIFP is 5.