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

checked and cleaned up <strong>the</strong>ir data and dealt with data irregularities.
When a methodology is considered inadequate by <strong>the</strong> supervisor, <strong>the</strong>
latter should have <strong>the</strong> power <strong>to</strong> require <strong>the</strong> undertaking <strong>to</strong> use ano<strong>the</strong>r
approach.
8.15 These solutions are sketched out here for illustration purposes only. It
is probably premature <strong>to</strong> try <strong>to</strong> fix <strong>the</strong> right balance between <strong>the</strong> level
of harmonisation in methods and <strong>the</strong> necessary flexibility needed <strong>to</strong>
ensure that <strong>the</strong> ultimate responsibility for <strong>the</strong> level of provisions
remains with <strong>the</strong> insurer. However, <strong>the</strong> introduction of a quantitative
standard on provisions, even expressed at a very general level, must
provide for:
• cases for which statistical data will be inadequate or of doubtful
applicability (although <strong>the</strong>se cases cannot be identified ex ante in
regulation);
• <strong>the</strong> need <strong>to</strong> supplement <strong>the</strong> general quantitative principle with
minimum requirements for statistical techniques used by
undertakings agreed at <strong>European</strong> level.
8.16 Given that no single calculation method will be appropriate <strong>to</strong> all
circumstances, <strong>the</strong> supervisory review process related <strong>to</strong> <strong>the</strong>
quantitative standard on provisions will have <strong>to</strong> take in<strong>to</strong> account, as
far as possible, <strong>the</strong> specificity of each undertaking. To ensure that <strong>the</strong>
quantitative standard is fulfilled, <strong>the</strong> supervisor will, when appropriate,
have <strong>to</strong>:
• review <strong>the</strong> quality of <strong>the</strong> data. This step will be key in <strong>the</strong>
supervisory review process: bad quality data may increase
significantly <strong>the</strong> estimation error of statistical methods;
• review <strong>the</strong> applicability and <strong>the</strong> relevance of statistical methods;
• examine o<strong>the</strong>r actuarial 30 or technical justification (case-by-case
estimation, etc);
• assess whe<strong>the</strong>r <strong>the</strong> level of prudence retained by <strong>the</strong> undertaking
is in line with <strong>the</strong> quantitative standard.
When <strong>the</strong> results of this process lead <strong>the</strong> supervisor <strong>to</strong> conclude that
technical provisions are insufficient, <strong>the</strong> supervisor should have <strong>the</strong>
formal power <strong>to</strong> require that provisions be increased or/and
provisioning procedures be revised.
8.17 Checking <strong>the</strong> level of prudence is part of <strong>the</strong> supervisory review
process related <strong>to</strong> provisioning procedures.
8.18 Although no mechanical supervisory method can be envisaged, early
warning indica<strong>to</strong>rs on <strong>the</strong> level of prudence finally achieved should be
30 By actuarial CEIOPS does not mean that <strong>the</strong> work necessarily has <strong>to</strong> be done by an actuary who belongs <strong>to</strong>
any professional association of actuaries, just that <strong>the</strong> work has <strong>to</strong> be actuarial in nature and done by
someone of suitable competence.
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