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

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would not necessarily need to be more complex. • Descriptive statistics: in some cases the applied model allows the derivation of descriptive statistics on the estimation error contained in the estimation. 51 Such information may assist in quantitatively describing the sources of uncertainty. • Back-testing: comparing the results of the estimation against experience may help to identify systemic deviations which are due to deficiencies in the modelling. 3.113 The undertaking should not be required to quantify the degree of model error in precise quantitative terms, or to re-calculate the value of its technical provisions using a more accurate method in order to demonstrate that the difference between the result of the chosen method and the result of a more accurate method is immaterial. Instead, it would be sufficient for the undertaking to demonstrate that there is reasonable assurance that the model error implied by the application of the chosen method (and hence the difference between those two amounts) is immaterial. 3.114 Where in the valuation process several valuation methods turn out to be proportionate, the undertaking would be expected to select and apply the method which is most appropriate in relation to the underlying risks.. 3.115 Where the intended use of a valuation technique is expected to lead to a material degree of model error, the undertaking should consider which alternative techniques would be available to him. Where practicable, another more appropriate valuation method should be applied. 3.116 In some circumstances, it may be unavoidable for the undertaking to apply a valuation method which leads to an increased level of estimation uncertainty in the valuation. This could e.g. be the case where there is only insufficient pertinent past experience data available to derive or validate assumptions or in case of portfolios with high-severity-low-frequency claims. 3.117 In such cases, the undertaking should document that this is the case and consider the implications with regard to the reliability of the valuation and its overall solvency position. In particular the undertaking should assess whether the increased level of estimation uncertainty is adequately addressed in the determination of the SCR and the setting of the risk margin in the technical provision.. Step 3: Back testing 3.118 As part of the actuarial function, it should be checked periodically whether the best estimates calculated in past years turn out to be appropriate in subsequent years. Where the back testing identifies systematic deviation between experience and the best estimate calculations, the first two steps of the proportionality process described above should be re-performed to check whether in regard to nature, scale and complexity it would still seem appropriate to use 28/112 © CEIOPS 2010
the chosen valuation method. If it is found that the previously chosen method is no longer appropriate, the undertaking should switch towards a more appropriate method. 3.119 Such a check should also be performed where the undertaking’s risk profile has significantly changed. 3.120 The scope and the frequency of back testing should be proportionate to the materiality of assumptions and the size of the deviation. 29/112 © CEIOPS 2010
Page 1 and 2: CEIOPS e.V. - Westhafenplatz 1 - 60
Page 3 and 4: 1. Introduction 1.1. In its letter
Page 5 and 6: 2.2.2. The following recitals provi
Page 7 and 8: “[…]Where, in specific circumst
Page 9 and 10: 3.6 It is noted that in the recital
Page 11 and 12: have in place internal processes an
Page 13 and 14: not be appropriate to reduce this v
Page 15 and 16: 3.36 Hence where an (re)insurance u
Page 17 and 18: Scale 3.46 Assigning a scale introd
Page 19 and 20: “scale” that will apply in all
Page 21 and 22: circumstances of its omission or mi
Page 23 and 24: 3.81 Under these circumstances, it
Page 25 and 26: • the level of certainty i.e. the
Page 27: 3.105 All in all, at least the foll
Page 31 and 32: development, so that it is likely t
Page 33 and 34: • As part of supervisory guidance
Page 35 and 36: case the threshold is not exceeded.
Page 37 and 38: if the threshold is not exceeded th
Page 39 and 40: principles. In following paragraphs
Page 41 and 42: sign ( x) = −1 if x < 0 . 3.179 E
Page 43 and 44: 3.193 The time value of the investm
Page 45 and 46: distribution to policyholders as th
Page 47 and 48: • assume independency between ass
Page 49 and 50: company or new line of business, al
Page 51 and 52: easonable be supposed proportional
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
Page 71 and 72: eing applicable for life insurance
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
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CEIOPS’s draft advice on the valu
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3.392 In this context, the technica
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clearly the present difficulties of
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• Even if the undertaking’s rei
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information regarding the RBNS-clai
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CEIOPS’ Advice Simplifications re
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3.5. Quarterly calculations 3.444 A
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e to use the simplified calculation
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Annex A. Example to illustrate the
Page 97 and 98:
Annex B. Some technical aspects reg
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is accurate because the payment of
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C.6. The individual elements sketch
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UMRU,lob,≥0 = max{∑ ≤ t Durmo
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E.5. The considered proxies based o
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E.14. The following criteria should
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“The gross-to-net proxy was used
Page 111 and 112:
where Durmod denotes the modified d
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