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

• Even if the undertaking’s reinsurance programme is the same for all
lines of business, the impact of this programme on the technical
provisions may differ substantially between the lines of business due
to e.g. differences between the relevant claims distributions and
especially whether the line of business is exposed to large claims or
not.
3.413 All five types of Gross-to-Net techniques briefly described in annex E.1
should in principle be able to capture the distinction between lines of
business. However, for the Gross-to-Net technique based on historic
accounting data only (i.e. type (1)), this is likely to depend on the
reporting requirements in force. Moreover, the Gross-to-Net technique
based on the premium model (i.e. type (5)) applies – for obvious
reasons – only to the premium provisions.
3.4.5. Distinguishing between premium provisions and provisions
for claims outstanding
3.414 For both the premium provisions and the provisions for claims outstanding
it is assumed at the outset that the Gross-to-Net methods should be stipulated
for the individual lines of business.
Premium provisions
3.415 With respect to the premium provisions, the relationship between the
provisions on a gross basis (PPGross,k), the provisions on a net basis
(PPNet,k) and the Gross-to-Net “factor” (GNk(ck)) – for line of business
(or homogeneous risk group) no. k – can be represented in a somewhat
simplified manner as follows: 96
PPNet,k = GNk(ck)×PPGross,k,
where ck is a parameter-vector representing the relevant characteristics of
the reinsurance programme covering the CBNI claims related to line of
business no. k at the balance sheet day.
3.416 With respect to the various types of Gross-to-Net techniques briefly
described in annex E.1, it is only the alternative approaches (4) and (5)
that in general are able to stipulate Gross-to-Net techniques to be used for
converting best estimates of gross premium provisions to best estimates
of net premiums provisions.
3.417 However, if the reinsurance programme for the current accident year (the
current business year) is the same as the programme for the preceding
year(s), type (2) or (3) – or a combination of these – may also be used in
this context, in the context of this advice.
3.418 For lines of business where premiums, claims and technical provisions are
related to the underwriting year (and not the accident year), the distinction
between premium provisions and provisions for claims outstanding
is not clear-cut. In these cases the technical provisions related to the last
underwriting year comprise both premiums provisions and provisions for
96 For the sake of simplicity it is assumed that the Gross-to-Net techniques in question can be represented
by a multiplicative factor to be applied on the gross provisions.
85/112
© CEIOPS 2010