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

eing applicable for life insurance undertakings in all EU/EEA-states.
Finally, it should be stressed that a life insurance undertaking should be
expected to know the duration of its obligations and accordingly it should
be able to apply at least the duration approach as described in para 3.323-
3.328 above.
3.340 The statement in the previous paragraph regarding knowledge of the duration
of obligations applies in general also for the lines of business within
non-life insurance. However, it may be argued that it is premature to rule
out from the very beginning that e.g. small and medium-sized non-life
insurance undertakings – in a similar manner as in QIS4 – may need simplifications
like the ones indicated by alternative B and C above.
3.341 In order for a non-life insurance undertaking to be able to use alternative
B or C as sketched above a set of estimated percentages needs to be
available and therefore procedures for fixing these parameters as well as
updating them need to be elaborated.
3.342 A possible approach could be to update the percentages per lines of (nonlife)
business as used in the QIS4-exercise by taking into account the
feedback received on these parameters.
3.343 However, even for the lines of business within non-life insurance it may
turn out to be difficult to come up with percentages that can be considered
as reasonable for undertakings (allowed to use this simplification) in all
EU/EEA-states. An alternative approach that may be worthwhile to consider
could be to estimate
(i) regional percentages for at least some lines of business (e.g. the
most heterogeneous lines of business); or
(ii) different percentage for some homogenous risk groups (or sub-lines
of business) within the most heterogeneous lines of business,
to the extent that such approaches can be considered to be in line with the
Level 1 text. In any case the more detailed work on this issue would be a
task for the Level 3 guidance.
Simplifications for individual modules and sub-modules
3.344 As already explained in the sub-section on the hierarchy of simplifications
(para 3.276-3.285, level no. 3 and 4 of the hierarchy should be prioritised
at the present stage of the work regarding simplifications. However, a
more sophisticated approach to the simplifications would be to focus on
the individual modules or sub-modules in order to approximate the
individual risks and/or sub-risks covered by the relevant modules.
3.345 In practise, this would require that the undertakings look closer at the
risks and sub-risks being relevant for the following modules:
• underwriting risk (life, health and non-life, respectively),
• counterparty default risk with respect to ceded reinsurance and SPVs,
and
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