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

3.5. Quarterly calculations
3.444 According to Article 129(4) of the Level 1 text, the MCR needs to be calculated
quarterly. This implies a quarterly calculation of technical provisions
because this item is required
• for the calculation of the own funds that can be used to cover the
MCR; and
• for the calculation of the MCR itself where the underlying formula is
based on the best estimate of technical provisions.
3.445 The calculation of technical provisions between the annual reporting dates
may give rise to additional practicably issues. For example, the data basis
of the undertaking may not be adequate for this task. In non-life insurance,
undertakings often collect data on an annual basis, i.e. ordered per
accident year, underwriting year, run-off year etc. In order to make a full
quarterly calculation of claims provisions, a data basis with a finer granularity,
for example per accident quarter, underwriting quarter etc. is
necessary. Undertakings may not have organised their data in this way in
the past and it may take some time to do so. Approximations may be
necessary in the meantime to produce the quarterly claims provisions.
3.446 Another example are calculations which are so resource intensive that –
compared to a partial recalculation – their full repetition during the year
may not be in proportion with the additional information the calculation
provides. In these cases, it may be appropriate to update the key variables
of the calculations (like interest rates) while other variables with
little influence on the results may be approximated.
3.447 In the application of the proportionality principle, the particular challenges
of quarterly calculations of technical provisions should be taken into
account.
Quarterly calculations specific to the risk margin
3.448 As explained in the introduction to this section, quarterly calculations of
the technical provisions (i.e. both the best estimate and the risk margin)
are required due to the MCR-calculations. It may also be circumstances
where an insurance undertaking will have to calculate its technical provisions
even more frequently 99 .
3.449 With respect to the risk margin, simplified calculations during the year
could be allowed due to several reasons:
(a) the calculations are time consuming,
(b) the calculations are based on figures that are not easily available
during the year.
In this context it should be stressed that the risk margin depends heavily
on the (present and future) SCRs and that full calculations of the SCRs are
in general not carried out during the year.
99 It is worthwhile to clarify that the quarterly calculation of SCR needed for the floor and ceiling of the MCR can
be carried out according to simplified methods.
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© CEIOPS 2010