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

• As part of supervisory guidance on Level 3; or
• As part of supplementary technical guidance or standards.
3.141 We note that where external thresholds are introduced in Level 2, these
would be legally binding, which would not be the case for the other
levels. This may lead to different conclusions on the feasibility and
appropriateness of an introduction of thresholds on different levels. In
the following, the analysis is focused on a potential inclusion of
thresholds in Level 2 implementing measures.
3.2.1.4. Types of thresholds to be considered
3.142 Where external thresholds are considered in the context of a valuation of
technical provisions, these would typically apply to either
• the scale of the underlying risks; 56 or
• the degree of model error inherent in valuation methods. 57
3.143 Usually, they would be defined as materiality thresholds, i.e. where they
are not exceeded it would be considered that the scale of the risk (or,
respectively, the degree of model error in the calculation) is immaterial,
so that an application of certain simplified valuation techniques would
seem appropriate.
3.144 It is also useful to distinguish between
• thresholds which are proposed to apply to individual valuation
techniques; and
• thresholds which apply more broadly to all methods or to a specific
class of methods.
3.145 The following figure illustrates these different types of thresholds:
Table 1: Types of thresholds for the valuation of technical provisions
Thresholds
Relating to
scale of
risk
33/112
Relating to
model
error
Applying broadly Type 1 Type 2
Applying to
individual methods
Type 3 Type 4
3.146 Most often a threshold would be expressed quantitatively, either in
relative or in absolute terms. However, it would also be possible to
specify a threshold in qualitative terms.
3.147 An example of a quantitative “Type 1” threshold (expressed in relative as
well as absolute terms) is given by the (indicative) materiality threshold
specified by CEIOPS for the use of simplified methods for the valuation of
technical provisions in QIS4. 58 The intention of this threshold was to
indicate when the liability that is valued would not be material in
56 Cf. to the description of the scale of risks in sub-section 3.1.2.1.
57 Cf. to the discussion of model risk contained in sub-section 3.1.2.2.
58 Cf. QIS4 Technical Specifications
http://www.ceiops.eu/media/docman/Technical%20Specifications%20QIS4.doc
© CEIOPS 2010