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

E.21. The QIS4 TS briefly explain some of the properties of this proxy:
• For newer accident years and especially the last accident year (where
i=n) the stipulated proxy might be a bit too high due to the fact that
the IBNR claims are likely to constitute a large part of the provisions
for claims outstanding. 111 Accordingly, the stipulated proxy is likely to
lead to an overestimation of the net provisions in these cases.
• The Gross-to-Net proxies referred to above concern the provisions for
claims outstanding. For the premium provisions, i.e. the provisions for
(covered but not incurred) claims related to the current accident
(business) year (where i=n+1), a Gross-to-Net proxy can be
stipulated by using the (anticipated) proportional part of the
reinsurance cover for this year. This will be a conservative approach
for the ceding (re)insurance undertaking, since the impact of the nonproportional
reinsurance for the current accident (business) year is
not taken into account.
The QIS4 Results
E.22. The use of Gross-to-Net proxies in QIS4 is summarised as follows in
CEIOPS’ QIS4-report (see the sub-section 7.2.5 on simplifications and
proxies): 112
“Concerning reinsurance, only few undertakings were able to determine
amounts relating to reinsurance recoverables (or net figures) by applying
actuarial reserving techniques based on reinsured or net triangular claims
data. Instead, many participants used triangle analysis techniques only for
the calculation of best estimates gross of reinsurance, and derived the
reinsurer’s part of gross provisions by applying one of the two Gross-to-
Net proxies. The wide use of Gross-to-Net proxies underlines that it is
difficult for the undertakings to get data net of reinsurance.
However, some undertakings remarked that an application of this proxy 113
may lead to poor results in the case of excess loss covers, where the risk
mitigating effect of the reinsurance cover would be underestimated. It was
also remarked that the use of both types of Gross-to-Net proxies
described in the specifications on the same portfolio sometimes resulted in
materially different valuations.
A similar situation could be observed with regard to the determination of
premium provisions, where only a few participants were capable of
carrying out an actuarial projection of future cash flows arising from future
claim events. …”
E.23. Some further comments are given regarding the participating
undertakings’ experience with the Gross-to-Net proxies stipulated for
QIS4-purposes (see sub-section 7.3.3 on best estimates in non-life
insurance): 114
111 The underlying assumption seems to be that the gross amounts of IBNR-claims on average are higher
than the average gross amounts of paid claims and RBNS-claims. Accordingly, the impact of the
reinsurance cover is likely to be larger for IBNR-claims than for paid claims and RBNS-claims.
112 ”CEIOPS’ Report on its fourth Quantitative Impact Study (QIS4) for Solvency II”, page 80.
113 CEIOPS’ Report on QIS4 does not state which of tested proxies that these undertakings refer to.
114 CEIOPS’ Report on QIS4, page 107.
108/112
© CEIOPS 2010