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

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D.10 As far as <strong>the</strong> volatility of claims and expenses is concerned, <strong>the</strong> mitigation effect of reinsurance on premium risk may be measured by <strong>the</strong> ratio of premiums net of reinsurance <strong>to</strong> premiums gross of reinsurance. As far as <strong>the</strong> expected profit or loss is concerned, <strong>the</strong> expected value should be determined on a net basis. D.11 If <strong>the</strong> premium risk capital charge gross of reinsurance was measured by premium, gross vola gross p / l, gross RC = f ⋅ P − f ⋅ <strong>the</strong>n <strong>the</strong> premium risk capital charge net of reinsurance could be measured by premium, net vola net p / l, net RC = f ⋅ P − f ⋅ where: P net P gross P gross = premiums gross of reinsurance; P net = premiums net of reinsurance; f vola = volatility fac<strong>to</strong>r; f p/l,gross = profit/loss fac<strong>to</strong>r gross of reinsurance; and f p/l,net = profit/loss fac<strong>to</strong>r net of reinsurance. The fac<strong>to</strong>r f vola reflects <strong>the</strong> volatility of <strong>the</strong> combined ratio and should be calibrated on basis of gross data and on <strong>the</strong> market level. The fac<strong>to</strong>rs f p/l,gross and f p/l,net reflect <strong>the</strong> expected profit or loss of <strong>the</strong> business gross and net of reinsurance. D.12 Where <strong>the</strong> entire business of an insurance undertaking is reinsured on a quota-share basis, this approach completely takes in<strong>to</strong> account <strong>the</strong> insurance risk mitigation of proportional reinsurance, but does not adequately deal with risk such as credit risk. It underestimates <strong>the</strong> risk mitigation of non-proportional reinsurance. In general, it would not reward reinsurance which does not transfer risk, since such reinsurance would lower <strong>the</strong> net premiums and <strong>the</strong> profit fac<strong>to</strong>r alike. Fur<strong>the</strong>r consideration needs <strong>to</strong> be given <strong>to</strong> <strong>the</strong> validity of applying this type of approach by reference <strong>to</strong> subdivisions of an insurance undertaking’s business (e.g. line of business). Catastrophic claims D.13 The answer <strong>to</strong> CfA 10 suggests that <strong>the</strong> proposed fac<strong>to</strong>r-based approach <strong>to</strong> premium risk should be supplemented with simple scenario techniques <strong>to</strong> take account of <strong>the</strong> impact of low-frequency, high severity events. To calculate <strong>the</strong> risk capital charge for this part of 270
premium risk, <strong>the</strong> insurer has <strong>to</strong> estimate <strong>the</strong> impact of specified claim scenarios in view of <strong>the</strong> particularities of its business. D.14 The mitigation effects of reinsurance may be taken in<strong>to</strong> account by estimating <strong>the</strong> impact of <strong>the</strong> scenarios allowing for <strong>the</strong> reinsurance program and o<strong>the</strong>r risk mitigation techniques which risk characteristics are comparable <strong>to</strong> reinsurance. D.15 This approach takes in<strong>to</strong> account reinsurance and comparable risk mitigation techniques in <strong>the</strong> case of specific scenarios. These scenarios might not cover all possible catastrophes. Fur<strong>the</strong>r discussion is needed <strong>to</strong> exclude <strong>the</strong> possibility, that <strong>the</strong> insurer is misled <strong>to</strong> adjust its reinsurance program <strong>to</strong> <strong>the</strong> specified scenarios and <strong>to</strong> neglect <strong>the</strong> mitigation of risks which are not covered by <strong>the</strong> scenarios. Fur<strong>the</strong>r consideration might be given <strong>to</strong> <strong>the</strong> validity of applying this type of approach by reference <strong>to</strong> subdivisions of an insurance undertaking’s business (e.g. line of business). 271
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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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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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Page 265 and 266: Number of instances Risk group Deta
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