Guideline for non-life insurance enterprises to enhance special reserves for nature disaster insurance (commercial earthquake insurance and typhoon and flood insurance)

01/01/2013

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For the accounting procedures of reclassification, setoff and recovery with regard to "Special Reserves Recorded Under Liabilities", the FSC issued the Guidelines for Non-life Insurance Enterprises to prepare special reserves for nature disaster insurance (commercial earthquake insurance and typhoon and flood insurance), effective from 1 January 2013, for purposes of strengthening the financial capability of non-life insurance enterprises in responding to nature disasters per the FSC's letter dated 9 November 2012. The main points:
1.	From 1 January 2012, non-life insurance enterprises shall reclassify special reserves for fluctuation of risks and major incidents recorded under "liabilities", which exclude special reserves for compulsory automobile liability insurance, nuclear insurance, public policy housing and earthquake basic insurance, commercial earthquake insurance and typhoon and flood insurance, into the aforesaid special reserves for commercial earthquake insurance and typhoon and flood insurance to reach the special reserves ceiling for fluctuation of risks and major incidents recorded under "liabilities" in financial accounting and after deducting income tax per the International Accounting Standards 12, record such as legal surplus under the account of owner's equity.
2.	The special reserves ceiling for major incidents in the Guidelines refers to the result taking the higher amount of earned premium reserves in 2012 or average earned premium reserves in past five years from 2008 to 2012 multiplied by the recapture rate (7%) for special reserves for major incidents for the number of years required by the Guidelines.
3.	The special reserves ceiling for fluctuation of risks in the Guidelines refers to the result by taking the higher amount of earned premium reserves in 2012 or average earned premium reserves in past five years from 2008 to 2012 multiplied by the cumulative multiple required by the Guidelines.
4.	A non-life insurance company shall disclose in its financial statements (the major accounting policies under the Guidelines and how not adopting the Guidelines would impact the profit and loss, liabilities and shareholders equity) and calculate (earnings per share without adopting the Guidelines). A non-life insurance company shall, when disclosing earnings per share as material public information, simultaneously disclose the earnings per share without adopting the Guidelines.
5.	An attesting CPA engaged by a non-life insurance company shall include the Guidelines into his/her audit scope each year and the internal audit unit of a non-life insurance company shall conduct at least one special audit of the implementation of the Guidelines every year.