21 May 2014
Related topic
Subtopic
No. Para.
Keywords
Run-off
SCR.9.4. Non life
Standard_SCR CAT risk sub module
CAT Helper
tab
Headings of
natural
catastrophe
risk for
European
countries
Your question
The technical specifications assumes that a
company is writing new business – what about
run-off situations?
Answer
In light of the general scope of the question,
institutions in run-off should assume zero for new
business.
Risk: For all natural catastrophe risks.
CAT Helper Tab: “Windstorm”, cell E19 and F19.
Same issue for the rest of natural CAT.
Cell E19 states “Gross CAT Risk Charge” but it
should be “Specified Gross Loss”.
Cell F19 states “Gross Loss Event 1 and 2” but it
should be “Gross CAT Risk Charge”.
Please could you confirm if our understanding is
right?
Article 88 specifies the term "capital requirement
for windstorm risk", therefore the term capital
charge seems more appropriate than gross loss.
Risk: For all natural catastrophe risks.
CAT Helper Tab: “Windstorm”, cell G63.
Same issue for the rest of natural CAT and Nonproportional property reinsurance.
SCR.9.4. Non life
Standard_SCR CAT risk sub module
CAT Helper
tab
Calculation of
geographical
diversification
for non-EEA
regions
1) Please could you confirm that geographical
diversification should be calculated on Vprem
(volume measure for premium risk) and not on
gross earned premium?
2) Please could you confirm that geographical
diversification should only be calculated on Vprem
(volume measure for premium risk) and not on
Vres (volume measure for reserve risk).
It is not confirmed. The calculation is based on
gross earned premiums only.
Risk: Non-proportional reinsurance.
Tab: “Input mm, other”, cell AH4.
Tab: “NP Reinsurance”, cell K38.
SCR.9.4. Non life
Standard_SCR CAT risk sub module
CAT Helper
tab
Input and
diversification
for
catastrophe
risk of nonproportional
property
reinsurance
1) Please could you confirm if cell AH4 [Tab: “Input
mm, other”] requires as input the estimated gross
premiums for every country in which the
undertaking is exposed to? (World exposure).
2) Please could you confirm that the estimated
gross premiums should be restricted to “the
following 12 months”?
3) Please could you confirm if geographical
diversification (cell K38, Tab: “NP Reinsurance”)
should be calculated only for the Non-European
regions?
1. yes.
2. yes
3. No, for all regions defined in the annex NLUR 2
paragraph 8.
Risk: Liability risk.
SCR.9.4. Non life
Standard_SCR CAT risk sub module
SCR 9.130
Number of
losses in the
capital
requirement
for liability
risk
It is our understanding that the number of losses
and the “Largest liability limit of indemnity” is only
needed when calculating the capital requirement
net of risk mitigating effects.
In other words, they have no impact on the gross
capital requirement for this risk.
Could you please confirm if our interpretation is
right?
yes.
SCR.7.4. Lifedis
Standard_SCR disability-morbidity
risk
Can EIOPA please confirm that the Lapse stress is
to be applied at a per policy level?
The lapse stress should in principle be applied on a
per policy level, and should consider only those
policies where the lapse shock applied leads to an
increase in technical provisions excluding the risk
margin. Multiple insurance policies in respect of
the same insured person may be treated as if they
were one insurance policy. Where the calculation
of technical provisions is based on groups of
policies, the identification of the policies for which
technical provisions increase under a lapse stress
may also be based on those groups of policies
instead of single policies, provided that it would
give approximately the same result.
Valuation
V.2.2.1.
Methodology for
the calculation of
the best estimate
Contract
boundaries
(1) A single premium whole of life contract. Return
of fund on death. No guarantee on future charges
(can be amended at 1 months notice). Is the
contract boundary 1 month from the valuation
date? (i.e. are all future cashflows beyond 1 month
excluded from the calculation). (2) Assume that a
single premium unit linked contract boundary is 1
month and no future cashflows are taken into
account. In the case where the contract is loss
making on an economic basis (i.e. future expenses
exceed future charges), this will lead to the
technical provision being lower than would be the
case if future cashflows are included. Or can it be
assumed that charges will be increased to cover
the expenses? Please confirm either way.
1/ More details on the features of this contract
would be needed to answer this question, notably
to assess whether this contract provide
compensation for a specified uncertain event or
financial guarantee with a discernable effect. In the
case of a single premium contract, no future
premiums are expected to be paid and the
question of the boundary of the contract is less
relevant. All obligations relating to the paid
premium should be taken into account in the
calculation of the best estimate in accordance with
TP.2.17.
2/ More details on the features of this contract
would be needed to answer this question. It should
be noted however that all obligations relating to
paid premiums should be taken into account in the
calculation of the best estimate whatever the date
of the contract boundary. It is recommended to
check Technical Specification (Part I) Annex D to
determine the contract boundary for your specific
contracts.
Valuation
Valuation
V.2.2.1.
Methodology for
the calculation of
the best estimate
V.2.2.1.
Methodology for
the calculation of
the best estimate
Contract
boundaries
Contract
boundaries
A single premium whole of life contract. 101% of
fund on death. No guarantee on future charges
(can be amended at 1 months notice). Is the
contract boundary 1 month from the valuation
date? (i.e. are all future cashflows beyond 1 month
excluded from the calculation).
No, even though more details on the features of
the contract would be needed to answer this
question extensively. Note that, according to
TP.2.17, "… all obligations relating to the contract,
including obligations relating to unilateral rights of
the insurance or reinsurance undertaking to renew
or extend the scope of the contract and obligations
that relate to paid premiums, shall belong to the
contract unless otherwise stated in paragraphs 3 to
6." IN case of a single premium contract, it is
assumed that all obligations relating to the single
premium paid are to be taken into account in the
calculation of the best estimate during the lifetime
thereof. It is recommended to check Technical
Specification (Part I) Annex D to determine the
contract boundary for your specific contracts.
Whole of life regular premium unit linked policy
paying 100% of units on death. Fixed regular
premiums and charges. Do all future premiums
belong to the contract?
More details on the feature of the contract are
needed to answer this question. Note however that
future premiums belongs to the contract only if
they relate to a contract providing compensation
for a specified uncertain event or a financial
guarantee with a discernable effect on the
economics of the contract according to TP.2.21. It
is recommended to check Technical Specification
(Part I) Annex D to determine the contract
boundary for your specific contracts.
Valuation
Valuation
V.2.2.1.
Methodology for
the calculation of
the best estimate
V.2.2.1.
Methodology for
the calculation of
the best estimate
Contract
boundaries
Contract
boundaries
A regular premium whole of life policy. 101% of
fund on death. No guarantee on future charges on
unit fund or premium. Charges can be amended at
1 months notice. Is the contract boundary 1
month from valuation date or end of contract? If it
is the latter, are future premiums taken into
account in determining the technical provisions?
More details on the features of the contract are
necessary to answer this question, in particular it
may be important to know whether the benefit is
gross or net of charges. It is recommended to
check Technical Specification (Part I) Annex D to
determine the contract boundary for your specific
contracts.
A reinsurance agreement states that the reinsurer
has the right to review the premium rates
annually. The cedant has the right to accept the
rates, reject the rates (and recapture the contract)
or it goes to arbitration. The outcome of the
arbitration is binding on both parties. Does
arbitration count as a "third party"? Is the contract
boundary at the point of the rate review or is it the
end of the contract?
According to TP.2.19, insurance and reinsurance
undertakings should consider the right to amend
premiums or benefits payable under an insurance
or reinsurance contract as being unilateral when
neither the policy holder nor any third party can
restrict the exercise of that right.
It is indeed likely, from the information given by
the question, that arbitration count as a third party
which can restrict the unilateral right to amend
premiums or benefits. However, TP.2.19 also
provides that undertakings should "ignore
restrictions of the unilateral right and limitations of
the extent by which premiums and benefits can be
amended that have no discernable effect on the
economics of the contract". Therefore, the date of
the contract boundary will depend, inter alia, on
whether the arbitration is likely to have a
discernable effect on the economics of the contract
where it limits the extent by which premiums and
benefits can be amended.