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

always have resources <strong>to</strong> develop sophisticated methods for evaluating
<strong>the</strong>ir risk margin.
8.11 Against <strong>the</strong> <strong>European</strong> background, it will be necessary <strong>to</strong> develop
common interpretation of what 'acceptable' statistical methods are.
8.12 If <strong>the</strong> Solvency II project provides <strong>the</strong> undertaking with very detailed
formula for <strong>the</strong> capital requirements, introducing a quantitative
standard on provisions only as a general principle could be seen as
inconsistent. A minimum level of specification on <strong>the</strong> methods <strong>to</strong> be
used could avoid this risk of inconsistency.
• A first approach would be <strong>to</strong> set a 'menu' of acceptable
calculation methods <strong>to</strong> reflect different circumstances. In certain
cases ano<strong>the</strong>r calculation method might be used after approval of
<strong>the</strong> supervisory authority. This option would permit greater
harmonisation and could be considered as helpful for small and
medium sized companies.
• In order <strong>to</strong> ease even more <strong>the</strong> stipulation of risk margins for
small and medium sized insurance undertakings, ano<strong>the</strong>r possible
solution may be <strong>to</strong> stipulate some standardised values
('benchmarks') for <strong>the</strong> ratio of <strong>the</strong> risk margin <strong>to</strong> <strong>the</strong> best
estimate 27 28 . These ratios may be fixed for <strong>the</strong> individual lines of
business (possibly, by country). However, <strong>the</strong> results of statistical
studies on <strong>the</strong> level of prudence in provisions for claims in <strong>the</strong>
German and Portuguese markets 29 suggest that it may be
problematic <strong>to</strong> fix a single ratio for all undertakings.
8.13 The concern with <strong>the</strong>se solutions is that <strong>the</strong>y might stifle innovation
and prevent companies from taking responsibility for assessing <strong>the</strong>ir
own provisions. Also a focus on methodology might divert attention
from <strong>the</strong> issue of data, which may be much more important. A
preferable alternative would be <strong>to</strong> state some general rules and
minimum requirements for actuarial methods <strong>to</strong> be considered
appropriate, referring <strong>to</strong> advantages and disadvantages of
well-established methods and <strong>the</strong>ir typical area of application. This
would promote a common understanding of possible methodologies and
ways of assessing <strong>the</strong>m among supervisors and insurers. Audi<strong>to</strong>rs could
check that appropriate methods have been used.
8.14 Under this approach, it might be useful <strong>to</strong> require <strong>the</strong> use of at least
two statistical methods based on two different approaches. In addition,
companies should explain <strong>the</strong>ir methodologies, including how <strong>the</strong>y have
27 That is <strong>the</strong> expected value of <strong>the</strong> liabilities.
28 The ratios suggested by <strong>the</strong> Australian studies (Trowbridge Consulting for <strong>the</strong> Institute of Actuaries of
Australia (2001) – APRA risk margin analysis) were not explicitly for small companies but for those that, for
any reason (namely lack of accurate data) could not do <strong>the</strong>ir own evaluation. If such benchmarks were <strong>to</strong>
be fixed in Solvency II, CEIOPS should take in<strong>to</strong> account <strong>the</strong> fact that those ratios should not represent
average market values but should, in a way, "penalise" those undertakings – representing an incentive for
improving <strong>the</strong> undertakings’ procedures – namely in ga<strong>the</strong>ring <strong>the</strong> necessary data).
29
Internal studies by Bundesanstalt für Finanzdienstleistungsaufsicht and Institu<strong>to</strong> de Seguros de Portugal,
<strong>the</strong> results of which were made available <strong>to</strong> CEIOPS.
27