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  • Appendix Two - Mandatory Loading Requirements - Details

    The Actuary is required to include at least the following loadings within the Office Premium rates: 
     
    1)An expense loading (e)
    2)A commission loading (c)
    3)A profit loading (p)
    4)A contingency loading (co)
    5)A financial condition loading (f).
     
    That is 
     
    Office Premium >= Risk Premium / (1 - e - c - p - co - f) 
     

    • 1. Expense Loading

      The expense loading must cover all of the Company’s expenses, both for policyholders and shareholders. The Actuary should develop an appropriate allocation of expenses for the medical line of business. 
       
      For any Company that was licensed by SAMA to write any class of insurance business as at 1 January 2013. the expense loading is subject to a minimum of the expense ratio of the Company for 2015. For the purposes of this sub- paragraph, expense ratio must be calculated using the formula set out in Appendix Four modified as follows: 
       
       •The item “commission incurred (Form 21, Line 38, Column E) should be omitted, as commission is covered by the separate commission loading.
       •Some companies may have incorrectly reported I PA tees in Forms 81 and 82 on the grounds that they are loss adjustment expenses, as opposed to in line 40 of form 21. Where companies have taken this approach the formula in Appendix Four will need to be adjusted so that 1 PA tees are included in the expense ratio.
       
      For the avoidance of doubt, the Actuary is expected to perform two calculations: 
       
      •An expense loading for the medical expenses line of business using an allocation of expenses to that line of business determined by the Actuary,
      •The expense ratio of the Company using the formula set out in Appendix Four, adjusted as above.
       
      The expense loading is then whichever of these calculations leads to the higher result. 
       
      Any Company that was not licensed to write any class of insurance as at 1 January 2013 may calculate the expense loading using a prudent projection of its expenses and premium income for the third calendar year following the date at which it was first licensed to write any class of business. 
       
      Any Composite Insurance Company, defined as any company writing general/health insurance and a material amount of long-term Protection & Savings business, must not use the expense ratio for the Company as a whole. Instead, an expense report shall determine a suitable split of expenses between Protection & Savings and General/Health. and the Expense Ratio determined for General/Health only. 
       
      Any expenses that may be subject to unusual fluctuations may be smoothed. In particular, the change in Doubtful Debt Reserve must be considered part of the Company's expenses, but consideration should be given to smoothing this item. 
       

    • 2. Commission Loading

      The commission loading will normally reflect the actual commission to be paid on a case by case basis. 
       

    • 3. Profit Loading

      The profit loading must be at least 2% of gross premium. It must be explicitly- approved by the Board of Directors of the Company. 
       

    • 4. Contingency Loading

      The contingency loading must be set at 2.5% of gross premium. 
       

    • 5. Financial Condition Loading

      A Financial Condition Loading is required to allow for the lower risk capacity of any insurance company that does not have sufficient Admissible Assets to meet the Required Margin before application of the Minimum Capital Requirement (Reporting Form 31, Line 43, Column A). 
       
      The required calculation to be adopted for this loading is set out in Appendix Three. 
       
      If a Company is in the process of increasing its capital, then the Actuary must provide two sets of premium rates for the Company to use, one prior to the capital raising exercise, and the other based on the expected solvency position once the additional capital has been raised, allowing for the different Financial Condition Loadings before and after the capital increase. 
       
      The rates based on the post capital raising financial condition may only be used once the Company has received the proceeds of the capital raising exercise.