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

clearly the present difficulties of applying Article 81 to calculate
reinsurance recoverables (reinsurance assets) in a direct manner.
3.404 Accordingly, it seems reasonable that an option to use simplified grossto-net
techniques – following their integration under the Solvency II
Framework as illustrated in this advice - should apply to all non-life
insurance undertakings, including undertakings being able to stipulate
the best estimate of technical provisions on a gross basis by using
adequate actuarial methods and statistical techniques.
3.405 However, any gross-to-net valuation technique to be used would need to
lead to a valuation which is compatible with the Solvency II valuation
principles and proportionate to the underlying risks. Therefore it can be
expected that the Gross-to-Net methods to be applied would in general
need to be more sophisticated than the Gross-to-Net proxies tested in
QIS4. (This is especially the case for the proxy based on the ratio of net
to gross provisions for RBNS-claims of a reference portfolio.)
3.406 Moreover, non-life insurance undertakings would be expected to use of
Gross-to-Net methods in a flexible way be applying them to either
premium provisions or provisions for claims outstanding or to a subset of
lines of business or accident (underwriting) years, having regard to e.g.
the complexity of their reinsurance programmes, the availability of
relevant data, the importance (significance) of the sub-portfolios in
question or by using other relevant criteria.
3.407 An undertaking would typically use a simplified Gross-to-Net technique
when e.g.
• The undertaking has not directly estimated the net best estimate
• The undertaking has used a case by case approach for estimating the
gross best estimate.
• The undertaking cannot ensure the appropriateness, completeness
and accuracy of the data.
• The underlying reinsurance programme has changed
3.4.3. Degree of Detail and Corresponding Principles/Criteria
3.408 It seems unlikely that a Gross-to-Net simplified technique being applied
to the overall portfolio of a non-life insurance undertaking would give
reliable and reasonably accurate approximations of the best estimate of
technical provisions net of reinsurance. 95 Accordingly, non-life insurance
undertakings should in general carry out the Gross-to-Net calculations at
a sufficiently granular level. In order to achieve this level of granularity a
suitable starting point would be:
• to distinguish between homogenous risk groups or as a minimum
lines of business;
• to distinguish between the premiums provisions and provisions for
claims outstanding (for a given homogenous risk group or line of
business); and
95 A possible exception may be a monoline insurer that has kept its reinsurance programme unchanged
over time.
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© CEIOPS 2010