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On 28 October 2022, the Insurance Committee of the IDW (VFA) published a technical note on the valuation of investments in insurance companies under commercial law in accordance with Section 341b of the German Commercial Code (HGB).

The technical note deals with the procedure for insurance undertakings to determine and record an expected permanent impairment of investments in fixed assets (application of the mitigated lower-of-cost-or-market principle), especially for shares and interest-bearing debt instruments in the direct portfolio, but also for indirect investments in a fund. The VFA confirms the applicability of the previous pronouncements on this topic (i.e. IDW RS VFA 2 as well as further VFA meeting reports) also in the current market situation of an increased and presumably further increasing interest rate level. In particular, it is clarified that changes in the value of fixed-interest debt instruments solely due to changes in the general level of market interest rates are in principle not an indicator of an expected permanent impairment of these debt instruments. Rather, a sufficient concretisation of a default risk is required.

Overall, the relevant pronouncements of the VFA are supplemented by additional explanations. Isolated innovations relate, for example, to a simplification permitted under defined conditions in the determination of an expected permanent impairment in the case of pure equity funds.

The IDW's technical note can be downloaded from the IDW website here.

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