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

programmes on <strong>the</strong> capital charge (net of reinsurance). Within <strong>the</strong>
context of fac<strong>to</strong>r-based standard models this approach may in fact be
viewed as a manner of introducing personalised fac<strong>to</strong>rs.
E.41 In any case, fur<strong>the</strong>r analyses and impact studies are necessary before
a final decision can be taken with respect <strong>to</strong> how (much) reinsurance
should impact on <strong>the</strong> SCR (and especially <strong>the</strong> capital charge for
underwriting risk).
E.42 In this connection it may be referred <strong>to</strong> <strong>the</strong> IAA Solvency Report where
<strong>the</strong> comments regarding <strong>the</strong> impact of reinsurance on <strong>the</strong> risk profile
and accordingly <strong>the</strong> SCR are summarised as follows:
“The recognition of reinsurance for solvency purposes must be closely
linked <strong>to</strong> <strong>the</strong> ability of <strong>the</strong> company, <strong>the</strong> supervisor or both <strong>to</strong> assess
<strong>the</strong> impact of <strong>the</strong> reinsurance program on <strong>the</strong> risk profile. Given <strong>the</strong>
diversity and complexity of reinsurance contracts, it is apparent that a
simple fac<strong>to</strong>r-based approach is likely <strong>to</strong> be <strong>to</strong>o crude <strong>to</strong> reflect <strong>the</strong>
effect of reinsurance on capital requirements accurately.
The possibility <strong>to</strong> adequately reflect <strong>the</strong> risk reducing impact of
reinsurance crucially depends on <strong>the</strong> ability <strong>to</strong> reliably come up with a
risk profile of <strong>the</strong> portfolio <strong>to</strong> be reinsured. The less information is
available and <strong>the</strong> cruder <strong>the</strong> model is, <strong>the</strong> less adequately <strong>the</strong> impact of
reinsurance can be assessed and, consequently, <strong>the</strong> less credit should
be given.”
E.43 With respect <strong>to</strong> internal models an adequate treatment of non-linearity,
tail behaviour and correlation effects should in any case be included as
an integral part of <strong>the</strong> design criteria for such models.
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