French Insurance Code
In forceI.-The undertakings referred to in article L. 310-3-2 are able to estimate at any time the impact on their commitments to policyholders and reinsured undertakings and on the realisable value of their assets referred to in 1° to 13° of article R. 332-2 and in article R. 332-5 , as well as their forward financial instruments, of any assumption regarding changes in interest rates and the securities, real estate and foreign exchange markets.
These assumptions make it possible to simulate the effects of an immediate and permanent increase in the rate of ten-year government bonds and the corresponding change in the yield curve, an immediate and permanent decrease in the rate of ten-year government bonds and the corresponding change in the yield curve, and an immediate and permanent decrease in the realisable value of shares, units or rights issued by commercial companies as well as rights in rem in real estate.
These assumptions are set out in a model statement defined by the Autorité de contrôle prudentiel et de résolution. However, the Autorité de contrôle may ask companies to carry out other simulations based on other values.
II - Simulations on assets
The impact of each of the assumptions mentioned in I on the assets listed in 1° to 13° of Article R. 332-2 is evaluated as follows.
The assets mentioned in 1°, 2°, 2° bis, 2° ter, 10°, 11°, 12° and 13° of article R. 332-2 as well as the securities issued by mutual insurance companies mentioned in 6° of the same article are valued in accordance with article R. 343-11 and then at the current values resulting from the various simulated rate curves. These valuations take into account a premium linked to liquidity and counterparty risks. This premium depends on the premium resulting from the valuation of the security carried out in accordance with article R. 343-11.
The assets mentioned in 4°, 5°, 5° bis, 6°, with the exception of the securities mentioned in the previous paragraph and 9° of Article R. 332-2 are valued in accordance with Article R. 343-11 and then estimated according to the assumptions set out in the statement model defined by the Autorité de contrôle prudentiel et de résolution.
For the assets mentioned in 3°, 7°, 7° bis, 8° and 9° bis of Article R. 332-2, the undertaking substitutes for the units or shares of the undertaking held a percentage of the assets listed in 1° to 13° of the same article held by that undertaking, valued as provided for in the previous paragraph and net of the undertaking's liabilities, equal to the percentage interest held by the undertaking in that undertaking.
Where it is not possible or not relevant to carry out this valuation, the company treats the shares held as shares, bonds, property or a combination of these different types of assets.
Forward financial instruments are valued at their replacement cost, resulting from each of the simulated realisable values of the underlying assets.
The results of the simulations described above are presented by distinguishing, on the one hand, between securities traded on a recognised market within the meaning of Article R. 332-2 and units or shares of undertakings for collective investment in transferable securities invested exclusively in such securities and, on the other hand, securities of the same type not traded on such a market.
III - Limitations on life and non-life mathematical provisions
The technical provisions referred to in 1° and 2° of articles R. 343-3 and R. 343-8, and in 1° of article R. 343-7 are valued as follows:
-the provision for bonuses is valued at its last known book value;
-life insurance commitments and lifetime non-life insurance commitments, with the exception of those mentioned in article R. 332-5, are valued by discounting, using the interest rate curve at the date of calculation and then each of the simulated interest rate curves, and applying, in respect of management expenses, a discount of 30 basis points to each of the rates used, the difference between the probable values of the commitments entered into by the company and the commitments entered into by the policyholders, taking account in particular, where possible, of the contractual and regulatory profit-sharing rules. Separate estimates are made for commitments relating to contracts with a surrender value;
-the commitments referred to in Article R. 332-5 are valued by calculating the difference between the probable values of the commitments made by the company and the commitments made by the policyholders, using the various simulated values of the unit of account.
For the valuation of commitments relating to variable capital contracts, the estimate of the probable result linked to the investment risk is carried out separately.
IV - Liquidation of other non-life technical provisions
The company also indicates the last known book value of the technical provisions mentioned in 2°, 2 bis, 4° and 5° of article R. 343-7. It evaluates, in accordance with past liquidation rates or any other assessment element that it can justify, the portion of these provisions liquidated at 31 December of each of the next five financial years, assuming a total absence of future premium issues.
V.-Dispersion of assets
In accordance with article R. 343-11, the undertaking shall value its five largest outstanding assets listed in 1° to 13° of article R. 332-2 vis-à-vis counterparties outside OECD Member States and international public bodies to which one or more Member States of the European Union belong. It also indicates the book value of these outstandings, distinguishing between interest rate products and other assets. For these valuations, a counterparty is either a single company or several companies belonging to the same group within the meaning of 1° of article R. 332-13. The amount outstanding with a counterparty is the amount outstanding of all securities issued, loans obtained or guaranteed by the counterparty, as well as the amount of deposits made or forward positions credited with this counterparty, net of the amount outstanding guaranteed by other counterparties.
