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may be derived by applying Gross-to-Net techniques to the best
estimates components referred to above. 93
3.397 The technical provisions net of reinsurance in the given homogeneous
risk group or line of business would then exhibit the same components
as the gross provisions, i.e.
PPNet = the best estimate of premiums provisions net of
reinsurance;
PCONet = the best estimate of claims provisions net of reinsurance;
and
RM = the risk margin.
Step 2:Determination of reinsurance recoverables as difference between gross
and net valuations
3.398 On basis of the results of step 1, the reinsurance recoverables (RR) per
homogenous risk groups (or lines of business) may be calculated as
follows (using the notation as introduced above):
RR = (PPGross – PPNet) + (PCOGross – PCONet)
3.399 Note that implicitly this calculation assumes that the value of reinsurance
recoverables does not need to be decomposed into best estimate and
risk margin components.
Step 3: Assessment of compatibility of reinsurance recoverables with Article 81
3.400 In this step, it would need to be assessed whether the determination of
the reinsurance recoverables in step 2 is consistent with Article 81 of the
Level 1 text.
3.401 In particular, this would require an analysis as to whether the issues
referred to in the second and third paragraph of Article 81, i.e. the time
difference between direct payments and recoveries and the expected
losses due to counterparty risks, were taken into account. Additional
level 3 guidance may be provided.
3.402 To achieve consistency with the required adjustment related to expected
losses due to counterparty defaults, it would generally be necessary to
integrate an analogous adjustment into the determination of net of
reinsurance valuation components in step 1. Such an adjustment would
need to be treated separately (in the context of Article 86(g) as well as
the relevant aspects of the SCR counterparty risk module) and would not
be covered by one of the gross-to-net techniques discussed in this subsection.
3.4.2.3. The Scope of Gross-to-Net Techniques
3.403 It follows from the summary of the QIS4-results that Gross-to-Net
techniques 94 have been extensively used by all kind of participating nonlife
insurance undertakings (irrespectively of their size). This illustrates
93 Alternatively, the best estimates net of reinsurance may also be derived directly, e.g. on basis of triangles
with net of reinsurance claims data.
94 Cf. annex B.
82/112
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