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

This shall be reviewed, at least annually and whenever <strong>the</strong>re are
changes in <strong>the</strong> insurance undertaking’s circumstances or new
information that may be significant <strong>to</strong> technical provisions.
Data used in <strong>the</strong> valuation of technical provisions
8.120 Suitable controls, systems and procedures should be in place <strong>to</strong> ensure
<strong>the</strong> reliability, sufficiency and adequacy of both <strong>the</strong> statistical and
accounting data <strong>to</strong> be considered in <strong>the</strong> valuation of technical
provisions. For provisions <strong>to</strong> be considered, reliable backtesting of <strong>the</strong>
methods used against <strong>the</strong> run-off of claims reserves (in particular <strong>the</strong>
ma<strong>the</strong>matical-statistical methods for <strong>the</strong> evaluation of technical
provisions along with <strong>the</strong> quality of <strong>the</strong> underlying claim data) must be
carried out in proper form and in line with approved procedures. The
SCR capital charge for reserve risk allows only for run-off losses during
<strong>the</strong> limited solvency assessment time horizon. Therefore, <strong>the</strong> allocation
of capital does not solve <strong>the</strong> underlying problem when technical
provisions have been underestimated and cannot be a permanent
solution with respect <strong>to</strong> prudent technical provisions. Where technical
provisions prove inadequate it is <strong>the</strong>refore not sufficient <strong>to</strong> rely on <strong>the</strong>
SCR capital charge and <strong>the</strong> insurance undertaking has <strong>to</strong> ensure that
<strong>the</strong> causes for <strong>the</strong> run-off-losses incurred by increasing <strong>the</strong> level of its
technical provisions are remedied.
8.121 Strict internal controls should be in place namely, in <strong>the</strong> cases where
algorithms are used <strong>to</strong> process data under computing systems.
8.122 The data should be complete; e.g., for claims provisions all claims
reported should be introduced in <strong>the</strong> systems.
8.123 It should be ensured that all <strong>the</strong> liabilities are taken in<strong>to</strong> account,
namely that <strong>the</strong> products are well unders<strong>to</strong>od and that all <strong>the</strong> options
embedded in <strong>the</strong> products are taken in<strong>to</strong> account.
8.124 Insurers must be able <strong>to</strong> explain <strong>the</strong>ir methodologies in collecting <strong>the</strong>
data used <strong>to</strong> calculate <strong>the</strong> technical provision, including how <strong>the</strong>y have
checked <strong>the</strong>ir data and dealt with data irregularities.
8.125 The requirements for <strong>the</strong> data and <strong>the</strong> overall calculation system should
be established having regard <strong>to</strong> <strong>the</strong> characteristics of each company,
namely <strong>the</strong> specific requirements of <strong>the</strong> users (e.g. <strong>the</strong> actuary), <strong>the</strong>
data sources available and <strong>the</strong> homogeneity of <strong>the</strong> groups of insurance
or persons insured.
IT system
8.126 To support <strong>the</strong> adequate valuation of <strong>the</strong> technical provisions,
resources in terms of staff, equipment and software allocated in IT
should be appropriate, both in quality and in quantity, for ensuring that
<strong>the</strong> systems and controls are effective and reliable at all times.
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