Answers to the European Commission on the ... - Eiopa - Europa

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manner that supports <strong>the</strong> validation and approval process, regardless whe<strong>the</strong>r <strong>the</strong>y are 'in-house' or partially 'external-provider' solutions. 11.90 In principle, <strong>the</strong>re should be no restrictions or descriptive rules for IT systems. Limiting this flexibility would limit <strong>the</strong> undertaking’s ability <strong>to</strong> continually upgrade <strong>the</strong>ir IT systems as technologies evolve. 11.91 IT systems should be apt <strong>to</strong> support <strong>the</strong> review processes of internal models. For example, <strong>the</strong>re should be open standardized data interfaces and file formats for proper and fast data transmission. 134
Call for Advice No. 12 Reinsurance (and o<strong>the</strong>r risk mitigation techniques) Extract from <strong>the</strong> Call for Advice: The scope of this CfA is technically challenging. A starting point has <strong>to</strong> be a general assessment of an undertaking’s reinsurance program (and o<strong>the</strong>r risk mitigation programs, where relevant), which constitutes a major part of <strong>the</strong> risk management and internal control processes. Consequently, <strong>the</strong> supervisory review process is of fundamental importance when evaluating <strong>the</strong> credit that can be given for reinsurance with regard <strong>to</strong> solvency requirements (...). At least <strong>the</strong> following areas should be addressed: • <strong>the</strong> SCR standard formula should take intro account insurance risk reduction effects brought about by reinsurance <strong>to</strong> <strong>the</strong> extent <strong>the</strong>y can be reliably quantified and addressed in a standardised way • also <strong>the</strong> possibility <strong>to</strong> take in<strong>to</strong> account financial hedging should be analysed. Fur<strong>the</strong>rmore in order <strong>to</strong> avoid arbitrage opportunities, <strong>the</strong> capital requirements between different industries that provide products should not differ significantly. • The internal model approach <strong>to</strong> SCR should allow for sound reinsurance, hedging and o<strong>the</strong>r risk mitigation techniques <strong>to</strong> <strong>the</strong> extent <strong>the</strong>y can be reliably quantified for prudential purposes • Current rules regarding <strong>the</strong> reinsurance reduction fac<strong>to</strong>r and <strong>the</strong> MCR should be reviewed in <strong>the</strong> light of SCR developments. Fur<strong>the</strong>rmore, <strong>the</strong> possibility <strong>to</strong> take in<strong>to</strong> account financial hedging should be analysed in order <strong>to</strong> avoid regula<strong>to</strong>ry arbitrage possibilities and <strong>to</strong> have consistency between SCR and MCR. The <strong>Commission</strong> Services request CEIOPS <strong>to</strong> take in<strong>to</strong> account reinsurance and o<strong>the</strong>r relevant risk mitigation techniques in its response <strong>to</strong> o<strong>the</strong>r Specific Calls for Advice of <strong>the</strong> <strong>Commission</strong>. This advice should involve <strong>the</strong> afore-mentioned general areas as well as more detailed <strong>to</strong>pics identified by <strong>the</strong> IAA, i.e. credit rating of reinsurer, type of reinsurance, tail behaviour, non-linearity and correlation effects. Background 12.1 Reinsurance is <strong>the</strong> key risk management <strong>to</strong>ol in insurance, notably in non-life insurance, but also in life assurance, and is used in particular <strong>to</strong> mitigate certain volatile or extreme insurance risks. O<strong>the</strong>r general risk mitigation methods include for example alternative risk transfer (ART). On <strong>the</strong> financial side, <strong>the</strong> hedging of investment risks through 135
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CEIOPS-DOC-07/05 Answers</s
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Style convention The following has
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• Safety measures (CfA 9); • So
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sole purpose is to
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Call for Advice No. 7 Technical pro
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one year). Therefore, capital requi
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perhaps through an explicit additio
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Discounting 7.22 The present value
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exposed to risk fr
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insurance liabilities set by refere
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Profit sharing In practice, for uni
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future cash flows will have <strong
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Explanatory text S
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always have resources to</s
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developed. They would help
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8.28 A fourth option could be envis
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In principle, "the
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8.48 Three alternatives can be cons
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essential part of the</stro
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statistical estimate (with a level
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8.77 It may be argued that
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to use more sophis
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consequence on the
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8.105 In some cases, the</s
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This shall be reviewed, at least an
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ut the exposure <s
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Explanatory text M
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9.15 Solvency II could also employ
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9.28 The life formula yields itself
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underestimate them
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'Prudent person plus' approach 9.52
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Uniform or different rules for tech
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through a prescribed list. Lists ar
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addition a range of stresses so tha
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(including the Rei
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for review of the
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eligibility criteria, or principles
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should not lead to
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• the degree of
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9.156 The senior management shall r
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- going-concern aspects of business
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16.14 Generally speaking, complianc
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appoint an additional person <stron
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16.28 It should also be noted that
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Time of application 16.41 The asses
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of the individual
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Background 17.1 This document aims
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Review Panel would be a permanent g
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• the developmen
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asis for considering improvements <
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(I) Regulatory arb
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(II) Capital requirements at group
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into a SCR at grou
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18.31 Additionally, it must be deci
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Capital requirements 18.39 The Fram
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(III) Supervisory Review Process of
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18.60 In view of the</stron
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new structure would need to
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future Framework Directive. CEIOPS
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18.94 Model validation in t
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the assumptions us
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Annexes Annex A (Call for Advice No
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pursuing a strategy which t
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Specific principles for non-life in
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Conformity, suitability and suffici
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• existence of significant insuff
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A.64 In the tests
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the rules on <stro
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TVaR1-α for Tail Value-at-risk. In
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Degree of personalisation B.24 Tran
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B.34 There are two approaches <stro
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Segmentation B.44 In general terms,
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technical technical technical techn
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B.61 The second alternative was cho
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Dutch supervisory authority for <st
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Market risk Equity risk this altern
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B.95 In a scenario-based approach,
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B.106 As an alternative one could t
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where: KTSA = the
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Results from the a
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Solvency ratio prior to</st
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Number of instances Risk group Deta
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Conclusion In general, the<
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where: TP gross = technical provisi
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premium risk, the
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“While proportional reinsurance t
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contribute with any additional info
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E.29 Another way <
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programmes on the
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