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3.392 In this context, the technical provisions net of reinsurance are given
(defined) as the difference between the technical provisions gross of
reinsurance and the reinsurance recoverables:
Net provisions = gross provisions – reinsurance recoverables
Role of gross-to-net techniques in Solvency II Framework
3.393 The technical “gross-to-net” methods considered in this sub-section are
designed to calculate the value of net technical provisions in a direct
manner, by converting best estimates of technical provisions gross of
reinsurance to best estimates of technical provisions net of reinsurance.
The value of the reinsurance recoverables is then given as the excess of
the gross over the net valuation:
Reinsurance recoverables = gross provisions – net provisions
3.394 It is noted that the level 1 text contains no direct reference to any such
gross-to-net methods. However, since a determination of the value of
technical provisions net of reinsurance gives rise to a determination of
reinsurance recoverables (and vice versa), an application of gross-to-net
valuation techniques – and more broadly of any methods to derive net
valuations of technical provisions – may be integrated into the Solvency
II Framework by using a three-step approach as follows:
• Step 1: Derive valuation of technical provisions net of reinsurance.
• Step 2: Determine reinsurance recoverables as difference between
gross and net valuations.
• Step 3: Assess whether valuation of reinsurance recoverables is
compatible with Article 81.
In the following, these steps are examined in more detail.
Step 1:Derivation of technical provisions net of reinsurance
3.395 The starting point for this step is a valuation of technical provisions gross
of reinsurance. For non-life insurance obligations, the value of gross
technical provisions would generally be split into the following
components per homogeneous group of risk or (as a minimum) lines of
business: 91
PPGross = the best estimate of premiums provisions gross of reinsurance;
PCOGross = the best estimate of claims provisions gross of reinsurance;
and
RM = the risk margin. 92
3.396 From this, a valuation of the best estimate technical provisions net of
reinsurance within a given homogeneous risk group or line of business
91 Note that according to Article 80 insurers shall segment their insurance obligations into homogeneous risk
groups or – as a minimum – lines of business when calculating their technical provisions.
92 This analysis assumes that the risk margin is not split further into a premium provision part and a claims
provision part (following QIS4 specifications). It also assumes that the risk margin is calculated net of
reinsurance.
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