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

CEIOPS’ Advice
Simplifications regarding risk margin
3.366 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. 85 This would apply irrespectively of whether the method is
specified under Level 2 implementing measures or not.
3.367 As aforementioned, and as a general approach, especially in respect
of best estimates simplifications, CEIOPS advises not to introduce an
exhaustive list of methods and techniques as level 2 implementing
measures for the estimation of the best estimate, and would prefer to
keep such methods and techniques as level 3 guidance.
3.368 However, CEIOPS recognizes that the risk margin is a specific area
where additional considerations should be included in the level 2 text,
due to the complexity and uncertainty around the calculation
methodology, see para 3.369-3.372 below. Moreover, CEIOPS would
support flexibility for undertakings to use other simplified methods or
techniques, provided they can demonstrate that these are
appropriate.
3.369 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.
3.370 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.
3.371 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.
3.372 Based on the general principles and criteria referred to above, the
following hierarchy could be seen as a possible decision basis regarding
85 Cf. section 3.1.
76/112
© CEIOPS 2010