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Annex D. Additional comments regarding the formula for unavoidable market risk D.1. The main steps in deriving the simplification formula for the unavoidable market risk are briefly explained in the following paragraphs. D.2. The SCR for unavoidable interest rate risk at t=0 (UM(int,0)) can be approximated by a duration approach as follows: UM(int,0) ≈ BENet(0)·Durmod·∆rn – BENet(0)·n·∆rn = BENet(0)·(Durmod–n)·∆rn D.3. This calculation is based on the assumption that the liabilities are covered by assets with duration n and market value BENet(0). For reasons of simplicity the interest rate stress is not differentiated according to maturity; instead the stress that is defined for maturity n is applied to all maturities. D.4. For the risk at t=1 the calculation can be repeated as follows: UM(int,1) ≈ BENet(0)·(Durmod–1)·∆rn – BENet(0)·n·∆rn = BENet(0)·(Durmod–n–1)·∆rn In this step, the additional assumption is made that the duration of the insurance liabilities after one year are decreased by 1. Furthermore, it is assumed that the value of the best estimate does not change significantly during the first run-off year. D.5. For the risk in the following years t, 1
UMRU,lob,≥0 = max{∑ ≤ t Durmod -n t≥0 = max{∑ ≤ t Durmod -n t≥0 UM(int,t) ; 0} BENet(0)·(Durmod–n–t)·∆rn; 0} =max{0.5·BENet,lob(0)·(Durmod,lob–n) (Durmod,lob–n+1)·∆rn; 0} D.8. Note that – apart from approximating the yearly capital charge for unavoidable market risk – further simplifications have been introduced by summing the estimated capital charges without taking into account the time value of money, i.e. the estimated capital charges for unavoidable market risk at time t are summed without discounting them with the riskfree interest rate curve. 103/112 © CEIOPS 2010
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CEIOPS e.V. - Westhafenplatz 1 - 60
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1. Introduction 1.1. In its letter
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2.2.2. The following recitals provi
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“[…]Where, in specific circumst
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3.6 It is noted that in the recital
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have in place internal processes an
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not be appropriate to reduce this v
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3.36 Hence where an (re)insurance u
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Scale 3.46 Assigning a scale introd
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“scale” that will apply in all
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circumstances of its omission or mi
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3.81 Under these circumstances, it
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• the level of certainty i.e. the
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3.105 All in all, at least the foll
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the chosen valuation method. If it
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development, so that it is likely t
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• As part of supervisory guidance
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case the threshold is not exceeded.
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if the threshold is not exceeded th
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principles. In following paragraphs
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sign ( x) = −1 if x < 0 . 3.179 E
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3.193 The time value of the investm
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distribution to policyholders as th
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• assume independency between ass
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company or new line of business, al
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Page 53 and 54: incurred when the method is applied
Page 55 and 56: 3.261 The general rule for calculat
Page 57 and 58: • the loss absorbing capacity of
Page 59 and 60: 3.285 As a consequence of this, the
Page 61 and 62: SCR for the individual lines of bus
Page 63 and 64: • the loss absorbing capacity of
Page 65 and 66: OPRU,lob,>0 = an approximation of t
Page 67 and 68: Life insurance 3.323 With respect t
Page 69 and 70: 3.330 With respect to health insura
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Page 73 and 74: 3.351 The structure of the health u
Page 75 and 76: ∆rn = the absolute decrease of th
Page 77 and 78: the methods to be used for projecti
Page 79 and 80: CEIOPS’s draft advice on the valu
Page 81 and 82: 3.392 In this context, the technica
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Page 85 and 86: • Even if the undertaking’s rei
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Page 89 and 90: CEIOPS’ Advice Simplifications re
Page 91 and 92: 3.5. Quarterly calculations 3.444 A
Page 93 and 94: e to use the simplified calculation
Page 95 and 96: Annex A. Example to illustrate the
Page 97 and 98: Annex B. Some technical aspects reg
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Page 111 and 112: where Durmod denotes the modified d
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