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3.311 A similar comment concerns the scenario-based adjustments for the loss
absorbing capacity of technical provisions to be taken into account when
projecting the future SCRs, since it is likely to be (very) difficult to develop
reliable scenarios to be applied to these projections. Accordingly, it may in
practise be difficult to find other workable possibilities than allowing also
this component to develop in line with the best estimate technical provisions
net of reinsurance. It should, however, be required to make some
assessments of the potential bias caused by this simplification.
3.312 As indicated above, a simplification as the one sketched in para 3.301-
3.304 may be applied also at a more granular level, i.e. for individual
modules and/or sub-modules. However, it should be noted that the
number of calculations to be carried out will in general be proportional
with the number of modules and/or sub-modules for which this
simplification is applied (within a given line of business). Moreover, it
should be considered whether a more granular calculation as indicated
above will lead to a more accurate estimate of the future SCRs to be used
in the calculation of the risk margin.
Estimation of all future SCRs “at once”
3.313 A representative example of a simplification belonging to level no. 4 of the
hierarchical structure sketched in paragraph 3.276 is using information
regarding the modified duration of the liabilities (for the individual lines of
business) in order to calculate the present and all future SCRs in one
single step.
3.314 These simplifications were introduced in QIS4 and different formulas were
described for non-life insurance, life insurance and health insurance, respectively.
The descriptions given in the following paragraphs are to a large
extent based on the QIS4 Technical Specifications.
Non-life insurance
3.315 With respect to non-life insurance (excluding non-life annuities) the
duration approach implies that the risk margin for an individual line of
business (CoCMlob) can be calculated in the following manner:
CoCMlob = CoC·{SCRRU,lob(0)/(1+r1) + ∑t>0SCRRU,lob(t)/(1+rt+1) t+1 },
≈ {CoC/(1+r1)}·{SCRRU,lob(0) + UWRU,lob,>0 + OPRU,lob,>0 + CDRU,lob,>0},
where the following variables and parameters all relate to the same line of
business:
SCRRU,lob(0) = the SCR as calculated at time t = 0 for the reference
undertaking’s portfolio of (re)insurance obligations;
UWRU,lob,>0 = an approximation of the sum of all future SCRs covering
the underwriting risk related to the reference undertaking
(as discounted to t = 1);
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