How should the premium provision for basic health insurance be determined under Solvency II?
The premium provision is determined as the present value of future liabilities less future income, subject to the contract boundaries set in Article 18 of the Solvency II Commission Delegated Regulation. Early premium payments (unearned premiums) do not form part of the premium provision. As the basic health insurance has a renewal date that always falls at the start of the year, the extent of the cover provided by the premium provision decreases during the year. At the start of an insurance year, the premium provision covers the coming period of 12 months, but this is reduced to 9 months after a quarter, 6 months after half a year, 3 months after three quarters of a year and disappears entirely at the end of the current claim year.
As the end of the financial year approaches, a new claim year comes into sight. A new premium provision is then created for the approaching claim year and can be assigned a value at the end of the old financial year on the basis of expected cash flows, which can be gauged with a fair degree of certainty. In practice, this certainty does not exist until 31 December, which is the end of the period during which insured persons may cancel their policy. The value of the premium provision at the end of the financial year therefore serves as the premium provision at the start of the new financial year.
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