Technical Provisions (Versicherungstechnische Rückstellungen)
Technical provisions are an insurer's balance-sheet obligations to policyholders arising from existing contracts, in particular for future benefits and claims not yet fully settled.
Concept
Technical provisions represent, on an insurer’s balance sheet, the value of the obligations arising from its existing insurance contracts towards policyholders and beneficiaries. They regularly constitute the largest item on the liability side of an insurance undertaking’s balance sheet and are therefore central to its financial stability and solvency.
Key Components
The most important technical provisions include the life/mathematical reserve (premium reserve) for future contractual benefits in life and health insurance, the claims reserve for losses that have already occurred but have not yet been fully settled, and the unearned premium reserve for the portion of premiums already received that relates to risk periods not yet expired.
Valuation Bases
Depending on the accounting standard, valuation is carried out either under commercial-law, prudence-based principles with explicit safety margins, or, as under Solvency II and IFRS 17, on a best-estimate basis using realistic, unbiased estimates plus a separately disclosed risk margin; the appropriate measurement of technical provisions is subject to ongoing supervisory review by the responsible actuary and the supervisory authority.