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

More documents

Recommendations

Info

9.107 For <strong>the</strong> calibration of limits, and particularly <strong>to</strong> establish whe<strong>the</strong>r <strong>the</strong> proposed limits could be uniformly applied <strong>to</strong> <strong>the</strong> coverage 73 of <strong>the</strong> technical provisions, <strong>the</strong> MCR and <strong>the</strong> SCR, QIS will be helpful. 9.108 A degree of flexibility should be maintained at national level <strong>to</strong> reflect particular characteristics of national markets. 9.109 The quantitative limits should be breached only in exceptional circumstances, temporarily and under approval of <strong>the</strong> Supervisor. Qualitative Requirements on <strong>the</strong> Management of Assets and Liabilities 9.110 In <strong>the</strong> context of a 'prudent person' approach, this implies discharging duties with care, skill, cautiousness, diligence and due regard <strong>to</strong> <strong>the</strong> interests of policyholders. Similar concepts are included in <strong>the</strong> Reinsurance Directive and <strong>the</strong> IORP Directive 74 . 9.111 Consequently, although <strong>the</strong> intention in this specific case is <strong>to</strong> respond <strong>to</strong> CfA 9, this answer complements <strong>the</strong> advice given in <strong>the</strong> answers <strong>to</strong> CfAs 5 and 6 and should necessarily build upon CEIOPS’ advice on <strong>the</strong> Supervisory Review Process (CfA 2) 75 . CEIOPS' Advice Minimum Capital Requirement 9.112 CEIOPS offers <strong>the</strong> following working definition of <strong>the</strong> MCR: The MCR reflects a level of capital below which an insurance undertaking’s operations present an unacceptable risk <strong>to</strong> policyholders. If an undertaking’s available capital falls below <strong>the</strong> MCR, ultimate supervisory action should be triggered. 9.113 'Ultimate supervisory action' is described in <strong>the</strong> answers <strong>to</strong> CfAs 14 and 15. 9.114 The MCR should be a simple, robust and objective measure. CEIOPS recommends that it should be calculated by a fac<strong>to</strong>r-based formula that is suitable for interim calculations, and its data requirement is auditable and reasonably simple. It should include an absolute floor expressed in Euros. 9.115 It is preferable <strong>to</strong> keep <strong>the</strong> fac<strong>to</strong>rs of <strong>the</strong> MCR formula harmonised at a <strong>European</strong> level. However, <strong>the</strong> precondition for this is <strong>the</strong> successful harmonisation of technical provisions. The future regime should allow 73 These might be specified by <strong>the</strong> regula<strong>to</strong>r or meet criteria set by <strong>the</strong> regula<strong>to</strong>r. 74 Directive 2003/41/EC on <strong>the</strong> activities and supervision of institutions for occupational retirement provision. 75 CEIOPS-DOC-03/05, available on CEIOPS’ website www.ceiops.org. 70
for review of <strong>the</strong> fac<strong>to</strong>rs of <strong>the</strong> MCR formula. 9.116 CEIOPS suggests that <strong>the</strong> Solvency I requirements could be used <strong>to</strong> calculate <strong>the</strong> MCR for a set transitional period <strong>to</strong> smooth <strong>the</strong> introduction of Solvency II. It is suggested that <strong>the</strong> <strong>Commission</strong> is asked <strong>to</strong> review <strong>the</strong> MCR after this period <strong>to</strong> find a standard that is possibly better aligned <strong>to</strong> <strong>the</strong> objectives set out by <strong>the</strong> <strong>Commission</strong> and CEIOPS. A transitional period that could only end when a replacement formula had been agreed would not be acceptable <strong>to</strong> CEIOPS. 9.117 Regarding <strong>the</strong> transitional period, CEIOPS proposes <strong>to</strong> apply <strong>the</strong> following concept as a starting point: • For a transitional period of up <strong>to</strong> three years CEIOPS suggests that <strong>the</strong> MCR should be based on <strong>the</strong> existing Solvency I requirements <strong>to</strong> smooth <strong>the</strong> introduction of Solvency II and <strong>to</strong> ensure continuity with <strong>the</strong> current capital requirements. • CEIOPS recommends calibrating <strong>the</strong> MCR during <strong>the</strong> transitional period such that, on average, <strong>the</strong> demand on an insurance undertaking is comparable <strong>to</strong> <strong>the</strong> level of a specified percentage (e.g. 50%) of <strong>the</strong> solvency requirement under <strong>the</strong> current solvency system. This may require some recalibration of its components, as changes in <strong>the</strong> valuation of assets and liabilities would also need <strong>to</strong> be reflected <strong>to</strong> achieve this goal. The future regime should allow for a review of <strong>the</strong> second floor for internal models. • For internal models, CEIOPS suggests that a second floor of <strong>the</strong> form MCR x j (with a fac<strong>to</strong>r j ≥1) should apply during <strong>the</strong> transitional period. The fac<strong>to</strong>r j could be calibrated (using QIS) such that, on average, <strong>the</strong> floor is comparable <strong>to</strong> <strong>the</strong> level of e.g. 100% of <strong>the</strong> solvency requirement under <strong>the</strong> current regime. The practical implications of <strong>the</strong> two approaches described above should be tested under QIS, including <strong>the</strong> extent <strong>to</strong> which <strong>the</strong>y meet <strong>the</strong> design criteria in para. 9.114. 9.118 CEIOPS is considering a number of alternatives for <strong>the</strong> revised MCR (after <strong>the</strong> transitional period): 76 O<strong>the</strong>r than that part of unit-linked life business where <strong>the</strong> policyholder bears <strong>the</strong> investment risk. 77 A minority of CEIOPS members support an approach based only on principles. 78 Whilst excess holdings would <strong>the</strong>refore be deemed <strong>to</strong> have no value for <strong>the</strong> purposes of covering technical provisions or capital requirements, such a formulation of limits would s<strong>to</strong>p short of requiring a firm <strong>to</strong> divest itself of <strong>the</strong> excess holdings, if it could demonstrate that it had sufficient assets (within <strong>the</strong> limits) <strong>to</strong> cover its technical provisions and its capital requirement. 79 At least one member holds <strong>the</strong> view that a subsidiary exposed <strong>to</strong> insurance risk should not be an exception <strong>to</strong> <strong>the</strong> rule. O<strong>the</strong>r CEIOPS members note <strong>the</strong> similarities with <strong>the</strong> current Directives. 80 Including, for with-profits and unit-linked business, any undertakings or commitments given <strong>to</strong> <strong>the</strong> insured. 71
Page 1 and 2:
CEIOPS-DOC-07/05 Answers</s
Page 3 and 4:
Style convention The following has
Page 5 and 6:
• Safety measures (CfA 9); • So
Page 7 and 8:
sole purpose is to
Page 9 and 10:
Call for Advice No. 7 Technical pro
Page 11 and 12:
one year). Therefore, capital requi
Page 13 and 14:
perhaps through an explicit additio
Page 15 and 16:
Discounting 7.22 The present value
Page 17 and 18:
exposed to risk fr
Page 19 and 20: insurance liabilities set by refere
Page 21 and 22: Profit sharing In practice, for uni
Page 23 and 24: future cash flows will have <strong
Page 25 and 26: Explanatory text S
Page 27 and 28: always have resources to</s
Page 29 and 30: developed. They would help
Page 31 and 32: 8.28 A fourth option could be envis
Page 33 and 34: In principle, "the
Page 35 and 36: 8.48 Three alternatives can be cons
Page 37 and 38: essential part of the</stro
Page 39 and 40: statistical estimate (with a level
Page 41 and 42: 8.77 It may be argued that
Page 43 and 44: to use more sophis
Page 45 and 46: consequence on the
Page 47 and 48: 8.105 In some cases, the</s
Page 49 and 50: This shall be reviewed, at least an
Page 51 and 52: ut the exposure <s
Page 53 and 54: Explanatory text M
Page 55 and 56: 9.15 Solvency II could also employ
Page 57 and 58: 9.28 The life formula yields itself
Page 59 and 60: underestimate them
Page 61 and 62: 'Prudent person plus' approach 9.52
Page 63 and 64: Uniform or different rules for tech
Page 65 and 66: through a prescribed list. Lists ar
Page 67 and 68: addition a range of stresses so tha
Page 69: (including the Rei
Page 73 and 74: eligibility criteria, or principles
Page 75 and 76: should not lead to
Page 77 and 78: • the degree of
Page 79 and 80: 9.156 The senior management shall r
Page 81 and 82: - going-concern aspects of business
Page 83 and 84: features. 81 TailVaR is an example
Page 85 and 86: 10.17 The SCR should also reflect <
Page 87 and 88: 10.26 The risk of asset liability m
Page 89 and 90: Naturally, the pra
Page 91 and 92: too few categories
Page 93 and 94: - Choice of volume measures 10.57 W
Page 95 and 96: Underwriting risk in non-life insur
Page 97 and 98: volatility of thei
Page 99 and 100: those insurers this possible increa
Page 101 and 102: 10.103 A factor-ba
Page 103 and 104: 10.112 Assessing whethe</st
Page 105 and 106: 10.121 The SCR should deliver a lev
Page 107 and 108: whenever its effects on the
Page 109 and 110: scenario techniques to</str
Page 111 and 112: Operational risk just ratings infor
Page 113 and 114: Call for Advice No. 11 Solvency cap
Page 115 and 116: Costs and Benefits 11.6 It should b
Page 117 and 118: • Qualitative requirements for <s
Page 119 and 120: 11.19 Risk management criteria set
Page 121 and 122:
individual undertaking is exposed a
Page 123 and 124:
• sensitivity analyses that have
Page 125 and 126:
• visualizations of flows of prod
Page 127 and 128:
Partial models and the</str
Page 129 and 130:
11.58 There should be few descripti
Page 131 and 132:
of the SCR estimat
Page 133 and 134:
equirements to imp
Page 135 and 136:
Call for Advice No. 12 Reinsurance
Page 137 and 138:
Reflection in technical provisions
Page 139 and 140:
• provide an estimate of an under
Page 141 and 142:
particular reinsurer(s)’ aggregat
Page 143 and 144:
they auto<
Page 145 and 146:
einsurer to <stron
Page 147 and 148:
should be a reduction in risk regar
Page 149 and 150:
Call for Advice No. 13 Quantitative
Page 151 and 152:
• the process of
Page 153 and 154:
• handling questions from insuran
Page 155 and 156:
member countries and in the
Page 157 and 158:
components of the
Page 159 and 160:
Background 14.1 Current insurance D
Page 161 and 162:
14.12 In order to
Page 163 and 164:
groups in its answer to</st
Page 165 and 166:
affected; • Impose restrictions o
Page 167 and 168:
14.43 Regarding the</strong
Page 169 and 170:
off all contracts; • to</
Page 171 and 172:
Call for Advice No. 15 Solvency con
Page 173 and 174:
Minimum capital requirement (MCR) D
Page 175 and 176:
adjusted SCR. From a purely technic
Page 177 and 178:
to be implemented.
Page 179 and 180:
capital
Page 181 and 182:
absolute floor (expressed in euros
Page 183 and 184:
Bolkestein agreed to</stron
Page 185 and 186:
16.14 Generally speaking, complianc
Page 187 and 188:
appoint an additional person <stron
Page 189 and 190:
16.28 It should also be noted that
Page 191 and 192:
Time of application 16.41 The asses
Page 193 and 194:
of the individual
Page 195 and 196:
Background 17.1 This document aims
Page 197 and 198:
Review Panel would be a permanent g
Page 199 and 200:
• the developmen
Page 201 and 202:
asis for considering improvements <
Page 203 and 204:
(I) Regulatory arb
Page 205 and 206:
(II) Capital requirements at group
Page 207 and 208:
into a SCR at grou
Page 209 and 210:
18.31 Additionally, it must be deci
Page 211 and 212:
Capital requirements 18.39 The Fram
Page 213 and 214:
(III) Supervisory Review Process of
Page 215 and 216:
18.60 In view of the</stron
Page 217 and 218:
new structure would need to
Page 219 and 220:
future Framework Directive. CEIOPS
Page 221 and 222:
18.94 Model validation in t
Page 223 and 224:
the assumptions us
Page 225 and 226:
Annexes Annex A (Call for Advice No
Page 227 and 228:
pursuing a strategy which t
Page 229 and 230:
Specific principles for non-life in
Page 231 and 232:
Conformity, suitability and suffici
Page 233 and 234:
• existence of significant insuff
Page 235 and 236:
A.64 In the tests
Page 237 and 238:
the rules on <stro
Page 239 and 240:
TVaR1-α for Tail Value-at-risk. In
Page 241 and 242:
Degree of personalisation B.24 Tran
Page 243 and 244:
B.34 There are two approaches <stro
Page 245 and 246:
Segmentation B.44 In general terms,
Page 247 and 248:
technical technical technical techn
Page 249 and 250:
B.61 The second alternative was cho
Page 251 and 252:
Dutch supervisory authority for <st
Page 253 and 254:
Market risk Equity risk this altern
Page 255 and 256:
B.95 In a scenario-based approach,
Page 257 and 258:
B.106 As an alternative one could t
Page 259 and 260:
where: KTSA = the
Page 261 and 262:
Results from the a
Page 263 and 264:
Solvency ratio prior to</st
Page 265 and 266:
Number of instances Risk group Deta
Page 267 and 268:
Conclusion In general, the<
Page 269 and 270:
where: TP gross = technical provisi
Page 271 and 272:
premium risk, the
Page 273 and 274:
“While proportional reinsurance t
Page 275 and 276:
contribute with any additional info
Page 277 and 278:
E.29 Another way <
Page 279:
programmes on the
show all

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

Create successful ePaper yourself

Delete template?

Save as template?