- 08 Apr 2016
On 23 March the Act of 13 March 2016 regarding the statute and supervision of insurance and reinsurance companies was published in the Belgian State Gazette. The main objectives of this act are to transpose into Belgian law the European “Solvency II” Directive, which introduces new rules regarding the solvency and supervision of insurance companies. It concerns an important change in the legislation regarding insurances and reinsurances.
Among others, the Act of 13 March 2016 introduces a new calculation method and procedure to determine the maximum technical interest rate for life insurances. This might influence the guaranteed return which insurers can offer to employers and industry-wide organisers for their group insurances (branch 21).
By determining the maximum guaranteed rate, the legislator wishes to ensure that insurance companies do not offer too high an interest rate and so be unable to guarantee long-term returns. Insurers are free to offer lower guaranteed rates, but in any case they may not offer higher interest rates.
Until now the National Bank was competent to determine the maximum interest rate, with possible review by the Minister of Economy (as previously mentioned in our Newsflash of 8 February 2016). This was an occasional and not very transparent procedure.
The new calculation method is largely similar to the new calculation method of the minimum guaranteed return of the AOP (see our Newsletter Pension wake-up call of January 2016). The interest rate equals 85% of the average return of Belgian bonds (OLOs/linear bonds) on 10 years over 24 months, rounded to 0.25%. There is, however, one important difference. The minimum interest rate of the Act of 13 March 2016 amounts to 0.75% while the minimum guaranteed return of the AOP amounts to 1.75% (which is also the applicable rate for 2016). This means that when both minimums apply, the rate guaranteed by the insurer will not cover the minimum guaranteed return of the AOP. When the actual return is not sufficient to cover the AOP minimum guaranteed return, the employers and industry-wide organisers will be obliged to pay additional contributions.
Although the calculation method is now more objective and transparent, the Minister of Economy retains, as before, the possibility to deviate from or change the maximum interest rate.
The maximum interest rate (whether it is changed or not) must be published in the Belgian Official Gazette and on the website of the National Bank at the latest on 1 September of each year. It applies as from 1 January of the following year.
This new method and procedure will first apply in 2016 to determine the maximum interest rate for 2017.
> Action point
At the latest on 1 September 2016, the National Bank will publish the maximum interest rate for 2017. If this rate is lower than 1.75%, the rate guaranteed by the insurers will not cover the AOP minimum guaranteed return.