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

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CEIOPS’ Advice Quarterly calculations 3.459 In the application of the proportionality principle, the particular challenges of quarterly calculations of technical provisions should be taken into account. 3.460 Risk margin. Simplified calculations during the year. A likely candidate for these simplifications may be to stipulate the risk margin for an individual line of business at a given point in time during the forthcoming year (i.e. CoCMlob(t)) as follows: CoCMlob(t) = CoCMlob(0)·BENet,lob(t)/BENet,lob(0), 0 < t < 1, where CoCMlob(0) = the risk margin as calculated at time t = 0 for the reference undertaking’s portfolio of (re)insurance obligations in an individual line of business, BENet,lob(0) = the best estimate technical provisions net of reinsurance as assessed at time t = 0 for the reference undertaking’s portfolio of (re)insurance obligations in an individual line of business; and BENet,lob(t) = the best estimate technical provisions net of reinsurance as assessed at time t for the reference undertaking’s portfolio of (re)insurance obligations in an individual line of business. 3.461 It may be inappropriate to apply this formula in cases where the best estimates are expected to decrease, in relative terms to the business, e.g. in cases of negative best estimates or best estimates close to zero. Furthermore, there may be situations, such as run-off undertakings, that may deserve specific analysis. Therefore, level 3 guidance may be developed to define the features of the situations where this formula may or may be used or should not be used, as for all the other admissible simplifications. 94/112 © CEIOPS 2010
Annex A. Example to illustrate the first method of simplification to calculate the best estimate of incurred but not reported claims provision. General formulation. The final estimate of this technical provision is derived from the following expression, where just for illustrative purposes a three-year period of observation has been considered (the adaptation of the formula for longer series is immediate): where and IBNR reserve year t = C t x N t , C t = average cost of IBNR claims, after taking into account inflation and discounting. This cost should be based on the average cost of claims reported in the year t. Since a part of the overall cost of claims reported in the year t comes from provisions, a correction for the possible bias should be applied. Nt = Rt * Av, being AV = [ (Nt-1 / p1) + (Nt-2 / p2) + Nt-3 ] / [ R t-1+R t-2+R t-3 ] Furthermore, in these expressions N t-i = number of claims incurred but not reported at the end of the year t-i, independently of the accident year (to assess the number of IBNR claims all the information known by the undertaking till the end of the year t should be included). P1= percentage of IBNR claims at the end of year t-3 that have been reported during the year t-2 p2= percentage of IBNR claims at the end of year t-3 that have been reported during the years t-2 and t-1 R t-i= claims reported in year t, independently of accident year. It should be noted that the sufficiency of this method should be regularly checked using run-off results. Numeric example Assuming as date of reference of the valuation December the 31 st of 2008, the undertaking has the following information: N_2007 = 90 N_2006 = 100 95/112 © CEIOPS 2010
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CEIOPS e.V. - Westhafenplatz 1 - 60
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1. Introduction 1.1. In its letter
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2.2.2. The following recitals provi
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“[…]Where, in specific circumst
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3.6 It is noted that in the recital
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have in place internal processes an
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not be appropriate to reduce this v
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3.36 Hence where an (re)insurance u
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Scale 3.46 Assigning a scale introd
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“scale” that will apply in all
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circumstances of its omission or mi
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3.81 Under these circumstances, it
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• the level of certainty i.e. the
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3.105 All in all, at least the foll
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the chosen valuation method. If it
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development, so that it is likely t
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• As part of supervisory guidance
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case the threshold is not exceeded.
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if the threshold is not exceeded th
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principles. In following paragraphs
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sign ( x) = −1 if x < 0 . 3.179 E
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Page 59 and 60: 3.285 As a consequence of this, the
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Page 63 and 64: • the loss absorbing capacity of
Page 65 and 66: OPRU,lob,>0 = an approximation of t
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Page 81 and 82: 3.392 In this context, the technica
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Page 91 and 92: 3.5. Quarterly calculations 3.444 A
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Page 101 and 102: C.6. The individual elements sketch
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