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

have in place internal processes and procedures to ensure the
appropriateness, completeness and accuracy of such data. 14
3.16 Under certain circumstances, however, it will be unavoidable for the
undertaking to have only insufficient company-specific data of
appropriate quality to apply a reliable statistical actuarial method for the
determination of technical provisions. 15 It is therefore important to
develop valuation techniques which would substitute a lack of companyspecific
data by e.g. using external market information.
3.17 In the Solvency II debate, the term “proxy” was introduced to denote
such valuation techniques. In view of their practical relevance, a number
of proxy techniques have been included in the QIS4 exercise. 16 In the
Level 1 text, such techniques are referred to as “approximations” (Article
87).
3.18 Where approximation techniques are applied these would typically be
based on a fixed set of assumptions and would tend to be less complex
than techniques which carry out explicit cash flow projections based on
undertaking-specific data. Approximations may therefore often be
regarded as a specific kind of simplified methods (where the
simplification is due to a lack of data). The use of expert judgement
plays a key role in this context.
Role of simplified methods in the valuation framework
3.19 We note that CEIOPS has laid out advice with regard to actuarial and
statistical methodologies for the calculation of the best estimate (as
requested in Article 85(a)). This has regard to:
• the quality and selection of valuation techniques;
• the elements that need to be taken into account when estimating the
future cash-flows;
• the setting of assumptions underlying the valuation; and
• the validation methods for ensuring the quality of the valuation.
3.20 Where the (re)insurance undertaking selects a valuation methodology
(irrespective of whether this is regarded as a simplified method or an
approximation), it should be appropriate for the calculation of the
technical provision. Hence, the principles-based expectations and
requirements set out in CEIOPS’ advice as referred to above are
intended to apply generally, including the use of approximations and
simplified methods and techniques. 17
3.21 In this context, it is noted that Consultation Paper 26 introduces a
distinction between simulation, analytic and deterministic techniques. A
(stochastic) simulation technique would involve choosing a (suitably
14
Cf. Article 81 and the corresponding implementing measure in Article 85(f). CEIOPS has set out its
advice relating to this Article in a separate consultation paper, cf. CEIOPS-CP43-09
15
http://www.ceiops.eu/content/view/14/18/
For example, this may be the case where the insurer writes a new line of business, cf. CEIOPS-CP43-09
http://www.ceiops.eu/content/view/14/18/.
16
Cf. to the Coordination Group’s Report on Proxies and QIS4 technical specifications.
17
Note that this is in line with the observation contained in para. 3.14 that a categorisation of the range of
methods into “simplified” and “non-simplified” methods would not seem appropriate.
11/112
© CEIOPS 2010