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

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Operational risk B.110 In <strong>the</strong> banking sec<strong>to</strong>r, <strong>the</strong> CRD offers two fac<strong>to</strong>r-based methods for <strong>the</strong> calculation of operational risk requirements, namely: • <strong>the</strong> basic indica<strong>to</strong>r approach (BIA); and • <strong>the</strong> standardised approach (TSA). B.111 The BIA uses a measure of gross income as a proxy for <strong>the</strong> scale of an undertaking's operations, and <strong>the</strong>refore <strong>the</strong> likely scale of operational risk exposure. A fixed percentage is applied <strong>to</strong> <strong>the</strong> undertaking's average positive income over <strong>the</strong> previous three years. K BIA where: α = × T T ∑ t = 1 GI t KBIA = <strong>the</strong> capital charge under <strong>the</strong> basic indica<strong>to</strong>r approach; GIt = Annual gross income in year t (where positive) over <strong>the</strong> previous three years; T = <strong>the</strong> number of previous years for which <strong>the</strong> gross income is positive; and α = <strong>the</strong> industry-wide level of <strong>the</strong> indica<strong>to</strong>r, set at 15% by <strong>the</strong> Basel Committee on Banking Supervision B.112 The TSA applies different fac<strong>to</strong>rs <strong>to</strong> eight different business lines 156 , varying from 12 <strong>to</strong> 18%. K TSA = t i 3 ⎛ 8 ⎧ ∑⎜ ⎜ max⎨0, ∑GI = 1 ⎝ ⎩ = 1 3 i, t ⎫⎞ × β ⎬⎟ i ⎟ ⎭⎠ 156 Alternative treatments are available for commercial and retail banking, subject <strong>to</strong> certain conditions. 258
where: KTSA = <strong>the</strong> capital charge under <strong>the</strong> standardised approach; GIi,t = annual gross income for year t in business line i βi = <strong>the</strong> industry-wide level of <strong>the</strong> indica<strong>to</strong>r for business line i, set by <strong>the</strong> Basel Committee on Banking Supervision B.113 The TSA also allows for 'negative capital charges' in any business line (resulting from negative gross income) <strong>to</strong> offset positive operational risk capital charges in <strong>the</strong> business as a whole.8%. 259
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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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10.121 The SCR should deliver a lev
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whenever its effects on the
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scenario techniques to</str
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Operational risk just ratings infor
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Call for Advice No. 11 Solvency cap
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Costs and Benefits 11.6 It should b
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• Qualitative requirements for <s
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11.19 Risk management criteria set
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individual undertaking is exposed a
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• sensitivity analyses that have
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• visualizations of flows of prod
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Partial models and the</str
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11.58 There should be few descripti
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of the SCR estimat
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equirements to imp
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Call for Advice No. 12 Reinsurance
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Reflection in technical provisions
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• provide an estimate of an under
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particular reinsurer(s)’ aggregat
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they auto<
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einsurer to <stron
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should be a reduction in risk regar
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Call for Advice No. 13 Quantitative
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• the process of
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• handling questions from insuran
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member countries and in the
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components of the
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Background 14.1 Current insurance D
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14.12 In order to
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groups in its answer to</st
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affected; • Impose restrictions o
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14.43 Regarding the</strong
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off all contracts; • to</
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Call for Advice No. 15 Solvency con
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Minimum capital requirement (MCR) D
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adjusted SCR. From a purely technic
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to be implemented.
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capital
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absolute floor (expressed in euros
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Bolkestein agreed to</stron
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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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