Review of Solvency Margin Reports

Review of Solvency Margin Reports

What is the definition of solvency margin, and what is its importance?

The solvency margin is the excess value of a company’s actual assets over its liabilities, enabling it to meet its entire obligations and settle the outstanding claims amounts immediately upon falling due without resulting in difficulties facing the company’s business or weakening its financial position, in accordance with the recognized international standards and any other standards set by the executive regulations.

In this context, the solvency margin is the extra capital that can accommodate the claims that the company is likely to incur and protect it from the risks of business interruption.

What are the solvency margin calculation methods?

The Executive Bylaw of Law No. 125 of 2019 regarding the Regulation of Insurance, Chapter 6 “Obligations of Companies Licensed to carry on Insurance Business”, Section 2 “Solvency Margin”, Article 140, sets forth the solvency margin calculation methods:

Article 140

The company that carries on general and property insurance activities and their lines of business shall maintain the required solvency margin by adopting the highest margin based on any of the following three methods:

  1. Minimum capital
  2. Total underwritten premiums
  3. Claims method

This shall exclude the application of the total underwritten premiums method in calculating the solvency margin for the first three years of the company’s registration in the IRU register.

What are the business entities required to prepare a solvency margin report?

All insurance companies operating in the State of Kuwait are supervised by the Insurance Regulatory Unit.

What is the frequency of preparing solvency margin reports by insurance companies?

Annually, based on the audited financial statements for the financial year.

The report shall be reviewed by an actuary licensed by the Insurance Regulatory Unit, whether internally employed by the company or an independent external actuary.

Law No. 125 of 2019 regarding the Regulation of Insurance, Chapter 6 “Obligations of Companies Licensed to carry on Insurance Business”, Section 1 “Financial Obligations”, Article 35 sets forth as follows:

Article (35)

Companies licensed to carry on insurance business shall have solvency margin and technical reserves that enable them to meet their financial obligations.

The solvency margin and technical reserves shall be calculated at least once a year, provided that the company shall submit the relevant supporting documents. The Executive Bylaw shall specify the method for calculating the margin and reserves as well as the conditions and procedures for verifying the same…

What is the frequency of approving solvency margin reports by independent audit firms?

Every three years, based on the audited financial statements for the last three financial years.

The report shall be approved by an independent audit firm registered with the Insurance Regulatory Unit.

Law No. 125 of 2019 regarding the Regulation of Insurance, Chapter 6, “Obligations of Companies Licensed to carry on Insurance Business”, Section 1 “Financial Obligations”, Article 35 sets forth as follows:

Article (35)

… The solvency margin and technical reserves shall be reviewed every three years by an IRU-registered independent audit firm

What are the international standards governing the calculation of solvency margin?

The International Standards of Actuarial Practice (ISAPs) issued by the International Actuarial Association.

What is the added value to business entities from the Review of Solvency Margin Reports?

  • Ensure compliance with the regulatory requirements issued by the Insurance Regulatory Unit.
  • Ensure business continuity
  • Enhance the stakeholders’ confidence

What are the services offered by Baker Tilly Kuwait?

Baker Tilly Kuwait provides the following services:

  1. Review of Annual Solvency Margin Reports
  2. Review of Consolidated Solvency Margin Reports Every Three Years