CEIOPS' Advice for Level 2 Implementing ... - EIOPA - Europa

E.5. The considered proxies based on accounting figures include also combinations
of case (2) and (3), e.g. proxies where cumulated paid claims and
RBNS-provisions, both gross and net of reinsurance, are applied when
calculating the IBNR-provisions net of reinsurance.
E.6. The application criteria for the various Gross-to-Net proxies referred to in
the report are not always explained. However, some comments regarding
these criteria may be given:
• With respect to the Gross-to-Net proxies based on historic accounting
figures only it is in general not possible to distinguish between the
individual accident years. However, it may be possible to distinguish
between insurance classes or lines of business (depending on e.g. the
reporting requirements in force).
• Therefore, in order for these proxies to lead to reasonable results, it
would be necessary to assume that the reinsurance programme and
probably also the composition of the portfolio is stable over time.
• On the other hand, Gross-to-Net proxies based on cumulated claims
payments or provisions for RBNS claims (or both) can be stipulated
for individual lines of business as well as for individual accident years
(for a given line of business). In these cases it is not necessary to
presuppose that the reinsurance programme is stable over time.
• The considered Gross-to-Net proxies are first and foremost designed
for calculating provisions for claims outstanding (“post claims”) net of
reinsurance – whether these calculations distinguish between RBNSprovisions
and IBNR-provisions or not. However, some of the considered
proxies may be used when calculating the premium provisions
(“pre claims”) net of reinsurance, although the degree of accuracy/
precision may be less in these cases, cf. also the alternative proxies.
• It is tacitly assumed that the accounting figures referred to in cases
(1)–(3) above are undertaking-specific and as such must be available
for undertakings that want to apply these Gross-to-Net proxies.
However, it should be possible to use market data (e.g. risk statistics
for the overall market) – in combination with some basic
characteristics of (simplified) reinsurance treaties – in order to
establish Gross-to-Net proxies for individual lines of business and
individual accident years (for a given line of business), cf. e.g. case
(5) referred to below.
E.7. The list of Gross-to-Net proxies referred to in the report on proxies
comprises also two proxies that go beyond the application of accounting
data:
(4) The first of these alternative proxies applies the premium model for
the line of business in question (based on e.g. separate estimation
of claim frequencies and claim severities) in order to derive the
percentage of the expected claims costs being reinsured and uses
this information as a basis for stipulating the Gross-to-Net proxy.
(5) The other alternative proxy is using available market data (per line
of business) regarding the (empirical) distribution of single claim
amounts to establish ratios between:
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