1 Definition of pro forma population
In accounting, pro forma financial statements (or accounts) are used to assess a company’s performances on a like-for-like basis. According to CRC Regulation 99-02,23 “pro forma presentations are intended to render comparable over time accounting data series that are difficult, if not impossible, to compare directly because of events that have already occurred or are expected to occur”.
In other words, while the non-restated accounts of a company may reflect the actual situation, they cannot be used to assess changes. The pro forma statements published by banks, insurers, mutual insurers and others, in addition to their half-yearly or annual reports, thus restate what has come before to make it comparable with the entity’s current scope.
There are four reasons why a company’s accounts may not be comparable between time t-1 and time t:
- inclusion or exclusion of subsidiaries;
- changes to and number of frameworks used;
- currency movements: the translation of foreign subsidiaries’ accounts may affect consolidated values, ceteris paribus;
- the number and choice of accounting options (asset valuation, pooling of interest method).
In the Insurance section of this report, pro forma year t-1 (2011*):
- includes entities that filed reports in t-1 (2011) and t (2012);
- excludes entities that filed reports in t-1 (2011) but had not yet filed for t (2012).
While the “official” population (i.e. the list of filing insurance entities identified by matriculation number) may vary slightly between pro forma year t-1 and year t owing to mergers and demergers in t, in terms of the economic scope, the two populations are the same.
23 Source: F. Pourtier “L’information pro forma en questions” available at http://hal.archives-ouvertes.fr/docs/00/59/40/71/PDF/Pourtier.pdf and Comité de la Règlementation Comptable “Règlement 99-02 relatif aux comptes consolidés des sociétés commerciales et entreprises publiques” available at http://www.anc.gouv.fr/sections/normes_privees/reglements/reglements_1999/reg1999_02_modifie/downloadFile/file/reg1999_02_modifie.pdf?nocache=
1319638434.32
The pro forma 2011 population (denoted 2011*) thus keeps entities that filed the following year, while excluding those that have not yet filed for 2012, making it possible to prepare aggregate comparisons and changes representative of the overall market, shown as growth rates between 2011* and 2012.
2 Population of firms offering health insurance
The population of entities offering health insurance (or reimbursing healthcare expenses) described in this report is a sub-set of the population of entities offering casualty insurance. These two populations partly overlap with the population of entities offering supplementary health insurance monitored by the Research, Studies, Assessment and Statistics Directorate (DREES) of the Ministry for Social Affairs and Health (which tracks entities contributing to the CMU fund).
Source: DREES and ACPR.
ACPR - Num ber of entities offering casualty insurance
ACPR - Entities offering health
insurance
DREES - Entities contributing to CMU
fund
Positive difference (ancillary cover/dossiers filed
on a voluntary basis)
Negative difference (annual dossiers
not received by deadline, branches,
exem pt)
Provident institutions 36 23 27 -4
Insurers governed by the Insurance Code 171 102 94 19 -11
Mutual insurers (Mutual Insurance Code) 365 340 376 17 -53
Total 572 465 497 36 -68
There are three reasons for negative differences:
- seven European branches operating under the FPS contribute to the CMU but do not file annual dossiers;
- four insurance companies are exempt from filing;
- some annual dossiers were not available by the deadline.24
Positive differences are attributable to the following:
- 22 entities offering only health insurance as ancillary cover (voluntary additional, reimbursement of healthcare expenses under driver insurance, etc.);
- 14 substituted mutual insurers file annual dossiers on a voluntary basis.
24 As noted in the annual report of the ACP (now ACPR), in 2012, the Authority stepped up efforts to obtain all annual documents within the specified regulatory timeframe, with the College even instigating injunction procedures with fines. This led to more timely deliveries. However, more than 60 mutual insurance companies and unions said that they would be holding their general meetings in the final quarter of 2012, which would delay by several months the earliest time by which they could file their annual documents. Unlike insurance companies, institutions falling within the scope of the Mutual Insurance Code do not have to hold an AGM to approve their accounts within the six months following the end of their financial year. A change in the legislation on this point is under discussion.
Glossary
Capital All permanent capital resources available to a company, plus the interest maintenance reserve.
Capital gains and capital losses A capital gain corresponds to the profit that a company would generate from the sale of a fixed asset item. The gain could be potential (i.e. unrealised) or realised in the event of an actual sale. However, if the asset’s disposal price is lower than its market value as recorded on the company’s balance sheet, there is a real or potential capital loss. A capital gain or loss is thus measured by subtracting the book value of an asset as recorded on the balance sheet from the market value.
Claims and benefits (income statement)
Claims and benefits refer to activation of coverage provided for under a contract leading to partial or total payment of whatever is owing to the policyholder.
In the income statements presented in this report, this item is the sum of claims + expenses + profit-sharing +/- adjustment for unit-linked life insurance (ACAV).
Class 26 schemes Class 26 schemes are points-based group retirement insurance schemes also known as “L. 441 schemes”, after Article L. 441-1 of the Insurance Code, which defines them, and “June 4th schemes”, after the founding legislation, which was passed on 4 June 1964. These schemes are governed by the provisions of Article L. 932-24 of the Social Security Code if offered by provident institutions, and by the provisions of Article L. 222-2 of the Mutual Insurance Code if offered by mutual insurers.
CMU Fund Fund set up to finance supplementary protection under the Universal Health Cover (CMU) scheme in France.
Combined ratio The combined ratio is the technical ratio for non-life insurance activities for a given year. It is obtained by dividing the cost of claims and overheads by net premiums (or contributions) earned. This ratio may be used to measure an insurer’s performance taking account of the loss ratio and processing costs. If the ratio is over 100%, this means that the cost of claims and associated processing expenses exceed premiums (or contributions), and insurers must cover the technical deficit with financial profits.
Contributions See “Premiums”.
Coverage ratio of regulated commitments
The coverage ratio of regulated commitments can be expressed as assets held in respect of regulated commitments. The Insurance Code, the Mutual Insurance Code and the Social Security Code set out the list of securities and other assets accepted to cover regulated commitments. The list includes five main classes: bonds, equities, property, loans and deposits. Investments accepted to cover regulated commitments cannot however exceed certain ceilings for the following asset classes: 65% for equities, 40% for property and 10% for loans. Moreover, to split risk, investments must also comply with the following requirements: no more than 5% of regulated commitments may be concentrated in securities issued by the same company (equities, bonds or loans); this 5% limit is raised to 10% provided that the total does not exceed 40% of all investments accepted to cover these commitments.
Regulated commitments correspond to technical provisions and other preferred debts (mortgages, deposits received to be returned, supplementary
employee pensions, tax and social securities).
Direct business The direct business of an insurance entity corresponds to undertakings taken on from an establishment in France and with respect to which the insurer is responsible for paying claims and benefits. Accordingly, this excludes assumptions (equivalent to reinsurance) and foreign business (FPS and business of branches).
European Economic Area Association set up for the purpose of extending the European Union’s internal market to Member States of the European Free Trade Association (EFTA) that do not wish, or are not ready, to join the EU. The EEA aims to remove all obstacles to the creation of an area of complete freedom of movement similar to a national market. It is therefore based on the four freedoms of the internal market, i.e. free movement of goods, persons, services and capital among member countries.
Interest maintenance reserve Reserve composed of gains realised on sales of bonds and reversed in the same amount if losses are realised on assets of the same type. It is designed to mitigate loss of income generated by life insurance companies’ assets when interest rates fall, by preventing the payout of capital gains on sales, thereby ensuring that life insurers keep sufficient investments to honour interest rate commitments. This special reserve is considered a provision with regard to commitment coverage requirements and is one of the items that make up the solvency margin.
Investment income
(non-underwriting income statement)
Income or expenses from investment of capital.
Investment income (underwriting income statement)
Investment income from insurance activities.
Mathematical reserves Mathematical reserves correspond to the difference between the present value of the commitments made by the insurer and policyholders respectively.
For savings contracts, the amount of the reserve corresponds to the value of accumulated savings (premiums net of charges, technical interest credited and profit-sharing recorded in the account) net of any partial surrender.
Minimum solvency margin In life insurance, the minimum solvency margin is calculated as a percentage of the mathematical reserves of unit-linked and non-linked contracts to which is added a percentage of death claims; in non-life insurance it is calculated as a proportion of premiums or claims. For life insurers, the proportions used for this calculation stand at 4% of the mathematical reserves of non-linked contracts and 1% of the reserves of unit-linked contracts, and for non-life insurers at 16% of premiums or 23% of claims (for a detailed calculation see Articles R344-1 et seq. of the Insurance Code).
Net income Underwriting plus non-underwriting income, making up the profit or loss for the year.
Non unit-linked investments All assets held by the insurer other than those held to cover the technical obligations of contracts whose obligations are expressed in units of account.
Other balance sheet assets An asset is an identifiable balance sheet item that has a positive economic value for the entity, i.e. an item generating a resource that the entity controls because of past events and from which it expects future economic benefits.
Other balance sheet liabilities A liability is a balance sheet item that has a negative economic value for the entity, i.e. an obligation placed on the entity towards a third party that is likely or certain to entail an outflow of resources to the third party without anything being expected from this party in exchange. Taken together, these items are known as external liabilities.
Other non-underwriting income or loss
The income of an insurance company is equal to the sum of underwriting income and other non-underwriting income or loss. Non-underwriting income includes, in particular:
- non-underwriting income and expenses, - net investment income relating to capital, - non-recurring income and expenses and tax.
Premiums or contributions (income statement)
Payment made by the policyholder or member in return for coverage provided by the insurer. In the case of insurance contracts other than life insurance, failure to pay causes coverage to lapse.
In the case of life insurance contracts, depending on the procedures initially set down in the contract or amended in riders, payment may be a one-off (when the contract is taken out), regular (amount and frequency set down in the contract) or at the policyholder’s discretion.
Known as a contribution in the case of insurance provided by mutual insurers subject to the Mutual Insurance Code, provident institutions and mutual insurance companies. Known as a premium in other cases.
In the income statements presented in this report, the term “premiums” means gross earned premiums and contributions including cessions.
Premiums cession rate The premiums cession rate represents the ratio of premiums ceded to net premiums earned by insurers.
Policyholders’participation Investment of insurance premiums produces income referred to as technical and financial profit. Policyholder’participation is a legal obligation placed on insurers (L. 331-3 of the Insurance Code), which are required to pay policyholders a portion of the return on investments, over and above technical interest.
Profit sharing The sum of Policyholders’participation and technical interest.
Ratio of claims to premiums (applicable to non-life insurance)
The ratio of claims to premiums, which applies to non-life business, is the ratio between the cost of known claims and premiums earned for the same insurance contract or sector. When measured by year of occurrence, it provides a good measure of the loss ratio of insurers.
Reinsurance Reinsurance is a technique whereby an insurer transfers all or part of the risks it has underwritten to another insurer. This form of cover is legally represented by a contract traditionally known as a reinsurance treaty. In return for payment, a reinsurer, known as the transferee, commits to reimburse an insurer, known as the cedant, under stated conditions for all or part of amounts due or to be paid by the insurer to the insured in the event of a claim. The original insurer always remains solely liable to the insured (Art.
L. 111-3 of the Insurance Code).
Reinsurance balance Positive or negative balance of reinsurance transactions included in underwriting income.
Solvency margin coverage ratio The solvency margin coverage ratio can be expressed as the ratio of capital to the minimum solvency margin requirement. In life insurance, the minimum
solvency margin is calculated as a percentage of the mathematical reserves of unit-linked and non unit-linked contracts to which is added a percentage of death claims; in non-life insurance it is calculated as a proportion of premiums or claims. For life insurers, the proportions used for this calculation stand at 4% of the mathematical reserves of non unit-linked contracts and 1%
of reserves without investment risk for insurers; and for non-life insurers at 16% of premiums or 23% of claims (for a detailed calculation see Articles R344-1 et seq. of the Insurance Code).
Technical provisions The “technical provisions” item in the insurance sector represents insurers’
obligations towards policyholders. These obligations are evidenced on the insurer’s balance sheet via a variety of provisions that give an estimate of the future cost of claims and benefits that will be paid to policyholders. See Article R 331-3 of the Insurance Code for life provisions and R 331-6 for non-life provisions.
Underwriting income Income from all technical transactions (premiums, claims and benefits, change in provisions, overheads, commissions and associated net investment income) net of reinsurance. Separate life and non-life underwriting income statements are prepared.
Unit-linked investments Investments covering the technical provisions of unit-linked contracts. Unlike non unit-linked investments, unit-linked investments are investments made to cover the obligations of life insurance contracts whose coverage, premiums and mathematical reserves are expressed with reference to investment units known as account units. The regulations establish the list of assets that may be used to provide reference values. Among the most commonly used are bonds, equities, units of investment funds, negotiable debt securities, UCITS and units of property companies. Obligations and the corresponding assets are valued based on the current value of the account unit. Accordingly assets are not valued at their historical cost, in contrast with other investments. The change in value of these assets is recorded in a separate line of the income statement.