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(estimated) technical provisions gross of reinsurance and the
(estimated) reinsurance recoverables. However, from a practical
perspective it seems (more) likely that the wording of the Level 1 text
should not prevent methods of calculations – including simplifications –
whereby the technical provisions net of reinsurance is estimated in a first
step, while an estimate of the reinsurance recoverables is fixed as a
residual (i.e. as the difference between the estimated technical
provisions gross and net of reinsurance, respectively). Accordingly, this
approach has been chosen in the following discussion of the Gross-to-Net
techniques that may be applied in the context of non-life insurance.
Gross-to-net techniques
3.386 Annex E of this paper contains a detailed analysis of the gross-to-net
techniques (“proxies”) developed in the Report on Proxies elaborated by
CEIOPS/Groupe Consultatif Coordination Group 90 as well as the gross-tonet
techniques which were tested (based on the recommendations
contained in this report) in the QIS4 exercise.
3.387 This description of gross-to-net techniques has been included purely for
informational purposes; it is intended to provide an overview on the
range and technical specificities of such methods developed so far.
CEIOPS considers that further technical work may be relevant, for
example as additional level 3 guidance.
3.4.2.1. Analysis
3.388 This sub-section considers in general terms under which circumstances it
would be appropriate to use gross-to-net techniques for a valuation of
net technical provisions (and, following this, reinsurance recoverables)
under the Solvency II framework, having regard to the proportionality
assessment framework outlined in section 3.1.
3.389 It first considers the compatibility of such techniques with the valuation
principles set out in the Level 1 text. Further to this, the potential scope
of an application of gross-to-net techniques is analysed. Finally, it is
considered which level of detail/granularity would generally be needed in
an application of gross-to-net techniques.
3.390 In the advice, these considerations are used for setting general highlevel
criteria to be followed by an (re)insurance undertaking applying
gross-to-net techniques under the Solvency II framework.
3.4.2.2. Compatibility of Gross-to-Net Calculations with the Level 1
Text
Reinsurance recoverables and net technical provisions
3.391 As has been set out, the determination of reinsurance recoverables
should follow the same principles as for the determination of gross
technical provisions (i.e. it shall comply with Articles 76 to 80 of the
Level 1 text), with an additional adjustment (imposed by Article 81) to
take into account of expected losses due to counterparty defaults.
90 CEIOPS/Groupe Consultatif Coordination Group: ”Report on Proxies”, July 2008.
80/112
© CEIOPS 2010