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• unavoidable market risk, in order to investigate to what extent the calculations could be simplified or approximated. 3.346 In the following paragraphs some proposals for such simplifications are put forward and the main aspects of the simplifications are briefly explained. These proposals are in to a large extent based on the proposals put forward in the QIS4 Technical Specifications or the CP on simplifications for the SCR calculations. Life Underwriting Risk 3.347 In the QIS4 Technical Specifications simplifications were described for all sub-modules regarding life underwriting risk (life mortality risk, life longevity risk, life disability risk etc.). 3.348 With respect to the capital charges for mortality, longevity and disability risk the simplifications allowed for in QIS4 concerned the following aspects (of the assumptions for the calculations): • the permanent increase/decrease (“the shock”) of the “baseline” mortality and “baseline” disability, respectively, • the expected average death rate / disability inception rate over the next year, • the projected mortality/disability increase and • the modified duration of the liability cash flows. 3.349 With respect to the other sub-modules the simplified calculations allowed for in QIS4 may be summarised as follows: (a) Lapse risk: A simple factor-based (multiplicative) method taking into account an increase (decrease) in the assumed lapsation rates for policies with expected positive (negative) surrender strains. (b) Expenses risk: A fixed (initial) shock of the renewal expenses combined with the impact of changes in the future expected expense inflation. (c) Revision risk and life catastrophe risk: A fixed percentage applied to suitable bases of calculation (the net technical provisions for annuities (exposed to revision risk) and the capital at risk, respectively). 3.350 The simplifications given by the QIS4 Technical Specifications are assessed in CP on simplified calculations in the standard formula for SCR. With respect to mortality, longevity and disability risk the conclusion is that the main structure of the simplified calculation of capital charges for these risks should be kept. However, the shock applied to the “baseline” mortality is increased for mortality risk. Moreover, with respect to disability a distinction has been introduced between the first and the subsequent runoff years regarding the expected movement from healthy to sick. See the summary description in annex C. Health Underwriting Risk 72/112 © CEIOPS 2010
3.351 The structure of the health underwriting risk module has been substantially changed compared to the version described in the QIS4 Technical Specifications, cf. CP 50 (SCR standard formula – Health underwriting risk module). As a consequence the simplifications used in the context of health underwriting risk in the QIS4 exercise are no longer valid. 3.352 According to CP on simplified calculations in the SCR standard formula, the simplifications applied in the life underwriting module can in general be applied also in the sub-module for SLT health underwriting risk, i.e. for health insurance obligations pursued on a similar basis as life insurance. However, some adjustment should be made regarding revision risk (inflation risk should be included), while no simplifications are proposed for health catastrophe risk. 3.353 With respect to the sub-module for non-SLT health underwriting risk, the simplifications introduced for the non-life underwriting risk (if any) should be used. Non-life Underwriting Risk 3.354 Within the context of simplifications for individual modules and submodules, there seems to be no obvious manner in which the formula (per se) applied for calculating the capital charges for premium and reserve risk can be simplified. 3.355 However, the calculation of the future SCRs related to premium and reserve risk will be somewhat simplified due to the fact that renewals and future business are not taken into account: • If the premium volume in year t is small compared to the reserve volume, then the premium volume (for the individual lines of business) for year t can be set to 0. An example may be the lines of business comprising no multiple-year contracts, where the premium volume can be set to 0 for all future years t where t ≥ 1. • If the premium volume is zero, then the capital charge for non-life underwriting can be approximated by the formula: 3·σ(res,mod)·PCONet,lob(t) where σ(res,mod) represents the standard deviation for reserve risk and PCONet,lob(t) the best estimate provision for claims outstanding net of reinsurance in year t. 3.356 As a further simplification it can be assumed that the undertaking-specific estimate of the standard deviation for premium risk and reserve risk (for the individual lines of business) remain unchanged throughout the years. 3.357 Also the underwriting risk charge for catastrophe risk should be taken into account only with respect to the insurance contracts that exist at t = 0. With respect to the present and future capital charge for this risk further simplifications may be applied for allocating this charge to the individual lines of business, e.g. by using the earned premiums net of reinsurance per line of business as weights. 73/112 © CEIOPS 2010
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CEIOPS e.V. - Westhafenplatz 1 - 60
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1. Introduction 1.1. In its letter
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2.2.2. The following recitals provi
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“[…]Where, in specific circumst
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3.6 It is noted that in the recital
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have in place internal processes an
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not be appropriate to reduce this v
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3.36 Hence where an (re)insurance u
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Scale 3.46 Assigning a scale introd
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“scale” that will apply in all
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Page 23 and 24: 3.81 Under these circumstances, it
Page 25 and 26: • the level of certainty i.e. the
Page 27 and 28: 3.105 All in all, at least the foll
Page 29 and 30: the chosen valuation method. If it
Page 31 and 32: development, so that it is likely t
Page 33 and 34: • As part of supervisory guidance
Page 35 and 36: case the threshold is not exceeded.
Page 37 and 38: if the threshold is not exceeded th
Page 39 and 40: principles. In following paragraphs
Page 41 and 42: sign ( x) = −1 if x < 0 . 3.179 E
Page 43 and 44: 3.193 The time value of the investm
Page 45 and 46: distribution to policyholders as th
Page 47 and 48: • assume independency between ass
Page 49 and 50: company or new line of business, al
Page 51 and 52: easonable be supposed proportional
Page 53 and 54: incurred when the method is applied
Page 55 and 56: 3.261 The general rule for calculat
Page 57 and 58: • the loss absorbing capacity of
Page 59 and 60: 3.285 As a consequence of this, the
Page 61 and 62: SCR for the individual lines of bus
Page 63 and 64: • the loss absorbing capacity of
Page 65 and 66: OPRU,lob,>0 = an approximation of t
Page 67 and 68: Life insurance 3.323 With respect t
Page 69 and 70: 3.330 With respect to health insura
Page 71: eing applicable for life insurance
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Page 77 and 78: the methods to be used for projecti
Page 79 and 80: CEIOPS’s draft advice on the valu
Page 81 and 82: 3.392 In this context, the technica
Page 83 and 84: clearly the present difficulties of
Page 85 and 86: • Even if the undertaking’s rei
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Page 89 and 90: CEIOPS’ Advice Simplifications re
Page 91 and 92: 3.5. Quarterly calculations 3.444 A
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Page 95 and 96: Annex A. Example to illustrate the
Page 97 and 98: Annex B. Some technical aspects reg
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Page 101 and 102: C.6. The individual elements sketch
Page 103 and 104: UMRU,lob,≥0 = max{∑ ≤ t Durmo
Page 105 and 106: E.5. The considered proxies based o
Page 107 and 108: E.14. The following criteria should
Page 109 and 110: “The gross-to-net proxy was used
Page 111 and 112: where Durmod denotes the modified d
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