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

3.335 The percentages fixed for the QIS4-exercise varied from 4–6 per cent for
(very) short-tailed lines of business to 17–21 per cent for (very) longtailed
lines of business. This approach was, however, criticised by some
participants for leading to too high risk margins (at least for some lines of
business).
3.336 It may be argued that this rather simple method for calculating the risk
margin could have possible uses beyond being a “proxy”-method under
QIS4. Some potential applications are briefly described below:
(A) Cases where an undertaking at given point in time and for a given
line of business has calculated the risk margin according to a method
belonging to one of the levels 1–4 as listed in para 3.276.
If the undertaking can justify that the characteristics and proportions
of the risks in the line of business in question have not changed (after
the more detailed calculations were carried out) or that the impact of
changes in these characteristics and proportions are not material,
then the ratio of the risk margin to the best estimate can be assumed
to be the same as in the initial calculations.
(B) Cases where the impact of the risk margin calculated for a given line
of business on the overall risk margin is not material.
(C) Cases of small undertakings for which the more advanced calculations
of the risk margin may be very time-consuming compared to the
undertakings available (human) resources.
In such cases the method based on a percentage of the best estimate
may be deemed as sufficiently accurate.
3.337 It should be stressed that there is a considerable difference between
alternative A and alternatives B and C as described in the previous
paragraph. While in alternative A it is assumed that the undertaking has
carried out a more detailed calculation of the risk margin at least once,
alternatives B and C presuppose that some prescribed percentages (per
line of business) are readily available for the undertaking. Accordingly, the
use of alternative A may in practise be limited to cases where the timeconsuming
aspect of the risk margin calculations is the issue at stake. On
the other hand, the use of alternative B and C may be justified also in
other settings.
3.338 At the outset, the cases referred to in the previous paragraphs should in
principle apply to lines of business within both life and non-life insurance –
given that the indicated criteria for using the various simplifications are
fulfilled.
3.339 However, it seems likely that only alternative A will be relevant for the
lines of business within life insurance. For these lines of business it will in
any case be necessary to carry out at least one calculation of the risk
margin being more detailed than the one based on percentages of the best
estimate, in order to have an idea regarding the level/size of the percentages
(i.e. the αlobs) to be used. In addition, it should be noted that in
practise it will turn out to be very difficult to find a set of such percentages
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© CEIOPS 2010