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

8.105 In some cases, <strong>the</strong> probability distribution for insurance liabilities
entered in<strong>to</strong> could be very skewed. As a result of this skewing,
insurance liabilities set by reference <strong>to</strong> <strong>the</strong> given distribution percentile
will not always be found <strong>to</strong> be adequate. Consequently, <strong>the</strong> risk margin
on <strong>the</strong> expected value should not be less than a proportion of <strong>the</strong>
standard deviation.
8.106 The risk margin related <strong>to</strong> <strong>the</strong> quantitative level of prudence should be
calculated by line of business. However, <strong>the</strong> relevance of additional
levels of aggregation of claims (higher or lower levels) will need <strong>to</strong> be
considered. EU reporting classes from <strong>the</strong> Accounting Directive could be
used as a starting point. Supplementary <strong>to</strong> such classes, a set of
criteria could be defined <strong>to</strong> determine cases where a fur<strong>the</strong>r subdivision
of an insurer’s business in<strong>to</strong> homogenous risk groups would seem
appropriate. In particular, CEIOPS would need <strong>to</strong> assess whe<strong>the</strong>r <strong>the</strong>se
homogenous risk groups might vary from national market <strong>to</strong> national
market, according <strong>to</strong> criteria defined at EU level. CEIOPS will consider
fur<strong>the</strong>r how diversification effects between lines of business or
homogenous risk groups could be taken in<strong>to</strong> account where
demonstrably based on sound actuarial techniques. This should be
tested in QIS.
8.107 The principle of a general quantitative standard should be
supplemented by a set of minimum requirements on <strong>the</strong> use of
statistical methods, including a requirement where practicable <strong>to</strong> use at
least two different statistical approaches <strong>to</strong> provisioning.
8.108 The principle of a general quantitative standard should be stated in
such a way that it is compatible with cases where statistical methods
cannot or need not be applied.
8.109 It is desirable <strong>to</strong> have a quantitative requirement on gross provisions
and one on net provisions. The articulation of <strong>the</strong>se two requirements
requires fur<strong>the</strong>r analysis.
8.110 Requirements on provisioning procedures should be developed with a
view <strong>to</strong> ensure good quality data and <strong>the</strong> adequacy of methods used in
<strong>the</strong> valuation of <strong>the</strong> risk margin.
8.111 A set of common reporting <strong>to</strong>ols for supervisory purposes could be
usefully developed across <strong>the</strong> EU.
8.112 CEIOPS has not yet determined a view on discounting. The costs and
benefits of different discounting methods (considering also <strong>the</strong> absence
55
One CEIOPS member notes that <strong>the</strong> implications of this floor on achieving <strong>the</strong> benchmark level of prudence
would need <strong>to</strong> be assessed.
56 Some CEIOPS members hold <strong>the</strong> view that this advice is premature, and that <strong>the</strong> inclusion or o<strong>the</strong>rwise of
equalisation provisions in <strong>the</strong> future system requires fur<strong>the</strong>r consideration.
57 Although an actuary can be a member of <strong>the</strong> board, <strong>the</strong> Board as a whole should have access <strong>to</strong>
independent actuarial advice, internal or external.
58 See Annex A <strong>to</strong> answer on CfA 16 on Fit and Proper which proposes a framework for <strong>the</strong> actuarial function.
47