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INFLUENCE OF THE LEGAL FRAMEWORK
IN DETERMINING THE REQUIRED AMOUNT
OF TECHNICAL RESERVES FOR MOTOR THIRD PARTY LIABILITY INSURANCE
The problems arising from the recent global financial and economic crisis have led to a rethinking of many texts both in local laws and at Community level. New rules and regulations have gradually been introduced concerning all economic agents operating within the European Union. The introduction of these regulations in the field of insurance is ...
The problems arising from the recent global financial and economic crisis have led to a rethinking of many texts both in local laws and at Community level. New rules and regulations have gradually been introduced concerning all economic agents operating within the European Union. The introduction of these regulations in the field of insurance is associated with the adoption of Solvency II Directive. The implementation of the Directive in the Bulgarian legislation was realized with the adoption of a new Insurance Code, effective as of 1 January 2016 and Financial Supervision Commission’s Ordinance No 53 of 19 January 2017, which determines the order and method of allocation of technical reserves by the insurers working on the Bulgarian insurance market.
The study assesses the impact of the regulatory framework on the technical reserves of insurance companies offering Motor Third Party Liability Insurance. It outlines the problems that insurers have to deal with and the effect that the methods, used for calculating the required amount of technical reserves, have on the insurance company’s balance sheet.
The study has shown that there are differences in the methodologies described in the Solvency II Directive and Ordinance No 53 of Financial Supervision Commission. They concern the valuation of insurance companies’ assets and liabilities, the recognition of cash flows and the treatment of insurance income and expenses. Therefore, legislative changes are needed to synchronize the requirements of Bulgarian legislation with the European Directive Solvency II, with a view to optimizing the amount of technical reserves for Motor Third Party Liability Insurance.
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CLASSIFICATION, EVALUATION
AND ACCOUNTING POSSIBILITIES
FOR DERIVATIVE FINANCIAL INSTRUMENTS
The undeniable interest of economic theory and practice towards financial derivatives makes them a current subject of analysis. The existence of derivatives raises the logical question about their purpose. If an investor participates in the distribution of a company’s profits by holding its shares, why do they apply another instrument that is ...
The undeniable interest of economic theory and practice towards financial derivatives makes them a current subject of analysis. The existence of derivatives raises the logical question about their purpose. If an investor participates in the distribution of a company’s profits by holding its shares, why do they apply another instrument that is related to owner’s equity? The derivative markets create favorable opportunities by improving the efficiency of the underlying assets markets. Derivatives have lower transaction costs compared to other transactions with basic instruments on the spot market, they are more liquid and the risk can be transferred into a more effective, simple and inexpensive way. Proof for the significance of derivative instruments is also the EU-accepted IFRS 9 Financial Instruments. Therefore, it is important that the management of every organization is aware of the regulatory framework for financial instruments, as well as the effects of each transaction with financial instrument.
The main purpose of the study is to define a classification of derivative instruments and to mark key points in their accounting. The specific objectives that have to be solved are to highlight the alternatives for classifying derivatives and to focus on their immediate current accounting. The thesis is that the adequate classification and evaluation of these instruments are important factors for their correct accounting. The main conclusion is that proper classification of derivatives has a practical significance because there has to be determined whether the instrument has a value at the beginning, which has a timely accounting impact. Their internal and time values have a significant role as well, because in the changes they must be clearly distinguished from the change in the fair value of the derivative itself.
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STRUCTURAL CHANGES IN THE PRODUCT PORTFOLIO OF BULGARIAN INSURANCE COMPANIES
The structure of the portfolio of insurance companies shows what consumer preferences to different insurance products are. The comparison of product structures makes it possible to determine whether there is a change in the pattern of insurance consumption, to outline the reasons if there is a change and insurers to take adequate actions in line ...
The structure of the portfolio of insurance companies shows what consumer preferences to different insurance products are. The comparison of product structures makes it possible to determine whether there is a change in the pattern of insurance consumption, to outline the reasons if there is a change and insurers to take adequate actions in line with new trends in consumer demand.
The objective of this article is to assess the strength of the structural changes in the product portfolio of Bulgarian insurance companies. The assessment of the structural changes is done by tracing the dynamics in the distribution of Gross Premium Income by insurance sectors and insurance classes and also on the basis of the values of the integral coefficient of structural changes. The thesis defended is that tracking changes in the product structure makes it possible to identify the dynamics of the market shares of the insurance sectors and the insurance classes, to outline the trends in their market positions and to assess the degree of change in the consumer preferences.
In order to achieve the objective and to prove the thesis, the following tasks have been formulated: formation of the structure of the insurance market by calculating the market shares of general and life insurance; formation of the structure of the product portfolio in general and life insurance by calculating the market shares of different types of insurance; establishing the changes in the positions of the individual insurance sectors and insurance classes in the product structure; characterizing the strength of the outlined structural changes.
The survey results show that there have been changes in consumer preferences for different insurance products during the period under review. The changes in the product structure of life insurance are the most significant.
