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

• the loss absorbing capacity of the technical provisions
• etc.
3.272 As a general principle, where an (re)insurance undertaking applies a simplified
valuation method, this should be proportionate to the underlying
risks and compatible with the Solvency II valuation principles. 71 This would
apply irrespectively of whether the method is specified under Level 2
implementing measures or not.
3.273 If a full projection of all future SCRs is necessary in order to capture the
undertaking’s risk profile – for all or some lines of business – the undertaking
is expected to carry out these calculations.
3.274 When an undertaking considers whether or not it would be appropriate to
apply a simplified valuation technique for the risk margin, it should carry
out separate assessments at least for each line of business. This means
that a decision to use simplifications in one line of business should have no
definitive impact on the decisions made for other lines of business. As an
integral part of this assessment, the undertaking should consider what
kind of simplified methods would be most appropriate for the given line of
business. The chosen method should be proportionate to the nature, scale
and complexity of the risks in the line of business in question.
3.275 When the undertaking has decided to use a simplified method for a given
line of business, it should consider whether the method could be used for
the projections of the overall SCR (for the given line of business) or if the
relevant (sub-)risks should be projected separately. In this context, the
undertaking should also consider whether it should carry out the simplified
projections of future SCRs individually for each future year or if it is
possible to calculate all future SCRs in one step – but still for a given line
of business.
A hierarchy of simplifications
3.276 Based on the general principles and criteria referred to above, the
following hierarchy could be seen as a possible decision basis regarding
the methods to be used for projecting future SCRs per line of business:
(1) make a full calculation of all future SCRs 72 without using simplifications;
(2) approximate the individual risks or sub-risks within some or all
modules and sub-modules to be used for the calculation of future
SCRs;
(3) approximate the whole SCR for each future year, e.g. by using a
proportional approach; and
(4) estimate all future SCRs “at once”, e.g. by using an approximation
based on the duration approach.
71 Cf. section 3.1.
72 Note that, where all future SCRs have been projected, it should be straightforward to calculate the risk
margin according to the general formula set out in CEIOPS-DOC-36-09 on the calculation of the risk margin in
technical provisions.
57/112
© CEIOPS 2010