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

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<strong>the</strong>refore not feasible <strong>to</strong> ask <strong>the</strong> insurance undertakings <strong>to</strong> conduct QIS calculations during <strong>the</strong> first 3 months of a year. 13.24 According <strong>to</strong> <strong>the</strong> current version of <strong>the</strong> Solvency II Roadmap (Annex <strong>to</strong> MARKT/2502/05-rev. 1) <strong>the</strong> <strong>European</strong> <strong>Commission</strong> will conduct an impact assessment <strong>to</strong> be presented July 2007 . CEIOPS will contribute <strong>to</strong> this impact assessment by providing greater clarity on <strong>the</strong> implicit prudence embedded in <strong>the</strong> current level of technical provisions, <strong>to</strong>ge<strong>the</strong>r with assessing <strong>the</strong> impact of its advice on technical provisions and capital requirements under Solvency II. To this extent, it will organize a limited QIS1 exercise during <strong>the</strong> fourth quarter of 2005 that will be primarily focussed on testing <strong>the</strong> various confidence levels with respect <strong>to</strong> <strong>the</strong> determination of <strong>the</strong> proposed risk margin surrounding <strong>the</strong> best estimate of <strong>the</strong> insurers’ liabilities. From <strong>the</strong> PFS <strong>the</strong> valuation of insurance liabilities appeared <strong>to</strong> be one of <strong>the</strong> central elements when striving for greater harmonisation of prudence levels requested under Solvency II. In this context, QIS 1 will test <strong>the</strong> 75 th and 90 th percentile, as well as inviting firms <strong>to</strong> bring <strong>the</strong> 60 th percentile and/or alternative approaches (such as <strong>the</strong> cost of capital approach) <strong>to</strong> CEIOPS' attention. Simultaneously, <strong>the</strong> Pillar I Working Group will work on fur<strong>the</strong>r refinements of <strong>the</strong> MCR and SCR formulas, which would allow <strong>the</strong> CEIOPS FSC <strong>to</strong> conduct its first full-blown QIS (QIS2) exercise e.g. on technical provisions, MCR and SCR during <strong>the</strong> second quarter of 2006. CEIOPS envisages that <strong>the</strong>re will still be different options for technical provisions <strong>to</strong> be tested under QIS2. Planning for progressively more sophisticated and comprehensive approaches <strong>to</strong> field testing. 13.25 Throughout <strong>the</strong> entire Solvency II project (e.g. up <strong>to</strong> and beyond <strong>the</strong> presentation of <strong>the</strong> Directive in July 2007) a series of QIS is foreseen. The QIS process will thus have several iterations with progressively more sophisticated and comprehensive approaches. Input for more sophisticated assumptions <strong>to</strong> be included in <strong>the</strong> subsequent QIS will come as progress is achieved by <strong>the</strong> Solvency II Working Groups. Aside from <strong>the</strong> impact of <strong>the</strong> minimum and solvency capital requirements on <strong>European</strong> insurance undertakings, CEIOPS may contribute <strong>to</strong> <strong>the</strong> EU <strong>Commission</strong>'s Impact Assessment by addressing broader economic consequences of <strong>the</strong> overall Solvency II project as well as cost-benefit analyses of all waves under work. CEIOPS' Advice 13.26 QIS will test <strong>the</strong> impact of proposed principles with respect <strong>to</strong> <strong>the</strong> financial resources of individual insurance undertakings. As <strong>the</strong> QIS is very challenging from a technical, resource and timing point of view, it will require careful planning and effective execution. 13.27 The QIS process is expected <strong>to</strong> have several iterations with progressively more sophisticated and comprehensive approaches as quantitative requirements are developed in more detail (e.g., fur<strong>the</strong>r 156
components of <strong>the</strong> standard formula). In order <strong>to</strong> ensure that <strong>the</strong> QIS framework is adequate, it has been decided <strong>to</strong> include a pre-test phase carried out with a small sub-sample of insurers in each country. 13.28 The QIS process will involve a series of work streams, which are partly <strong>the</strong> responsibility of CEIOPS and partly of <strong>the</strong> national supervisor. The first step in preparing for <strong>the</strong> calculations of <strong>the</strong> QIS is <strong>to</strong> determine <strong>the</strong> exact scope of <strong>the</strong> QIS compared <strong>to</strong> <strong>the</strong> Impact Assessment. It should be as clear as possible what <strong>the</strong> QIS is attempting <strong>to</strong> quantify including calibration issues. Agreeing on data definitions will also be important in order <strong>to</strong> achieve an acceptable degree of harmonisation. 13.29 Samples of insurance undertakings participating in QIS should be sufficiently large and varied (size and type of business, complexity of products and used financial instruments of undertakings participating) <strong>to</strong> give a fairly accurate picture of <strong>the</strong> quantitative impact of <strong>the</strong> Solvency II proposals in <strong>the</strong> individual member countries and in <strong>the</strong> EU as a whole. 13.30 While participating in a QIS exercise is optional for any undertaking, all undertakings wishing <strong>to</strong> participate should have <strong>the</strong> possibility <strong>to</strong> do so. CEIOPS takes <strong>the</strong> view that taking part in QIS will give insurers <strong>the</strong> opportunity <strong>to</strong> contribute in shaping <strong>the</strong> subsequent technical advice that CEIOPS gives <strong>the</strong> EU <strong>Commission</strong>, particularly because QIS will allow a dialogue with insurers and associations about <strong>the</strong> practicalities of <strong>the</strong> approaches envisaged. 157
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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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features. 81 TailVaR is an example
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10.17 The SCR should also reflect <
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10.26 The risk of asset liability m
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Naturally, the pra
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too few categories
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- Choice of volume measures 10.57 W
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Underwriting risk in non-life insur
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volatility of thei
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those insurers this possible increa
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10.103 A factor-ba
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10.112 Assessing whethe</st
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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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