Adapted Technical Specifications linked to spreadsheet Solo

[pic] |EUROPEAN COMMISSION
Internal Market and Services DG FINANCIAL INSTITUTIONS
Insurance and pensions
| | Brussels, 5 July
2010
QIS5 Technical Specifications Annex to Call for Advice from CEIOPS on QIS5 This document is a working document of the Commission services for testing
purposes. It does not purport to represent or pre-judge the formal proposals of the
Commission.
All documents relating to QIS5 produced by CEIOPS will be made available on
their website
(http://www.ceiops.eu/index.php?option=content&task=view&id=732 )
Table of content SECTION 1 - VALUATION 6
V.1. Assets and Other Liabilities 6
V.1.1. Valuation approach 6
V.1.2. Guidance for marking to market and marking to model 8
V.1.3. Requirements for the QIS5 valuation process 8
V.1.4. IFRS Solvency adjustments for valuation of assets and other
liabilities under QIS5 10
V.2. Technical Provisions 20
V.2.1. Segmentation 20
V.2.2. Best estimate 25
V.2.2.1. Methodology for the calculation of the best estimate 25
V.2.2.2. Assumptions underlying the calculation of the best estimate
39
V.2.2.3. Recoverables 43
V.2.3. Discount rates 50
V.2.4. Calculation of technical provisions as a whole 52
V.2.5. Risk margin 54
V.2.6. Proportionality 67
V.2.6.1. Possible simplifications for life insurance 74
V.2.6.2. Possible simplifications for non-life insurance 78
V.2.6.3. Possible simplifications for reinsurance recoverables 84
SECTION 2 - SCR - STANDARD FORMULA 90
SCR.1. Overall structure of the SCR 90
SCR.1.1. SCR General remarks 90
SCR.1.2. SCR Calculation Structure 94
SCR.2. Loss absorbing capacity of technical provisions and deferred
taxes 97
SCR.2.1. Definition of future discretionary benefits 97
SCR.2.2. Gross and net SCR calculations 97
SCR.2.3. Calculation of the adjustment for loss absorbency of technical
provisions and deferred taxes 97
SCR.3. SCR Operational risk 102
Description 102
SCR.4. SCR Intangible asset risk module 105
SCR.5. SCR market risk module 106
SCR.5.2. Introduction 106
SCR.5.3. Scenario-based calculations 109
SCR.5.4. Look-through approach 109
SCR.5.5. Mktint interest rate risk 110
SCR.5.6. Mkteq equity risk 112
SCR.5.7. Mktprop property risk 116
SCR.5.8. Mktfx currency risk 117
SCR.5.9. Mktsp spread risk 119
SCR.5.10. Mktconc market risk concentrations 127
SCR.5.11. Mktip illiquidity premium risk 132
SCR.5.12. Treatment of risks associated to SPV notes held by an
undertaking 133
SCR.6. SCR Counterparty risk module 134
SCR.6.1. Introduction 134
SCR.6.2. Calculation of capital requirement for type 1 exposures 136
SCR.6.3. Loss-given-default for risk mitigating contracts 138
SCR.6.4. Loss-given-default for type 1 exposures other than risk
mitigating contracts 141
SCR.6.5. Calculation of capital requirement for type 2 exposures 141
SCR.6.6. Treatment of risk mitigation techniques 142
SCR.6.7. Simplifications 144
SCR.7. SCR Life underwriting risk module 147
SCR.7.1. Structure of the life underwriting risk module 147
SCR.7.2. Lifemort mortality risk 149
SCR.7.3. Lifelong longevity risk 151
SCR.7.4. Lifedis disability-morbidity risk 152
SCR.7.5. Lifelapse lapse risk 155
SCR.7.6. Lifeexp expense risk 159
SCR.7.7. Liferev revision risk 160
SCR.7.8. LifeCAT catastrophe risk sub-module 161
SCR.8. Health underwriting risk 164
SCR.8.1. Structure of the health underwriting risk module 164
SCR.8.2. SLT Health (Similar to Life Techniques) underwriting risk sub-
module 166
SCR.8.3. Non-SLT Health (Not Similar to Life Techniques) underwriting
risk sub-module 174
SCR.8.4. Health risk equalization systems 184
SCR.8.5. Health catastrophe risk sub-module 186
SCR.9. Non-life underwriting risk 196
SCR.9.1. SCRnl non-life underwriting risk module 196
SCR.9.2. NLpr Non-life premium & reserve risk 197
SCR.9.3. NLLapse Lapse risk 203
SCR.9.4. Non life CAT risk sub - module 206
SCR.10. Undertaking specific parameters 244
SCR.10.1. Subset of standard parameters that may be replaced by
undertaking-specific parameters 244
SCR.10.2. The supervisory approval of undertaking-specific parameters
244
SCR.10.3. Requirements on the data used to calculate undertaking-specific
parameters 244
SCR.10.4. The standardised methods to calculate undertaking-specific
parameters 245
SCR.10.5. Premium Risk 246
SCR.10.6. Reserve Risk 253
SCR.10.7. Shock for revision risk 257
SCR.11. Ring- fenced funds 261
SCR.12. Financial Risk mitigation 269
SCR.12.1. Scope 269
SCR.12.2. Conditions for using financial risk mitigation techniques
269
SCR.12.3. Basis Risk 270
SCR.12.4. Shared financial risk mitigation 270
SCR.12.5. Rolling and dynamic hedging 270
SCR.12.6. Credit quality of the counterparty 271
SCR.12.7. Credit derivatives 272
SCR.12.8. Collateral 273
SCR.12.9. Segregation of assets 273
SCR.13. Insurance risk mitigation 274
SCR.13.1. Scope 274
SCR.13.2. Conditions for using insurance risk mitigation techniques
274
SCR.13.3. Basis Risk 274
SCR.13.4. Credit quality of the counterparty 275
SCR.14. Captive simplifications 276
SCR.14.1. Scope for application of simplifications 276
SCR.14.2. Simplifications for captives only 277
SCR.14.3. Simplifications applicable on ceding undertakings to captive
reinsurers 280
SCR.15. Participations 281
SCR.15.1. Introduction 281
SCR.15.2. Valuation 281
SCR.15.3. Solvency Capital requirement Standard formula 283
SCR.15.4. Treatment of participations in insurance or reinsurance
undertakings 284
SECTION 3 - Internal Model 286
SECTION 4 - Minimum Capital Requirement 287
MCR.1. Introduction 287
MCR.2. Overall MCR calculation 287
MCR.3. Linear formula - General considerations 289
MCR.4. Linear formula component for non-life insurance or reinsurance
obligations 289
MCR.5. Linear formula component for life insurance or reinsurance
obligations 290
MCR.6. Linear formula component for composite insurance undertakings
292
SECTION 5 - OWN FUNDS 295
OF.1. Introduction 295
OF.2. Classification of own funds into tiers and list of capital items:
295
OF.2.1. Tier 1 - List of own-funds items 295
OF.2.2. Tier 1 Basic Own-Funds - Criteria for classification 296
OF.2.3. Reserves the use of which is restricted 299
OF.2.4. Expected profits included in future premiums 299
OF.2.5. Tier 2 Basic own-funds - List of own-funds items 300
OF.2.6. Tier 2 Basic own-funds - Criteria for Classification 301
OF.2.7. Tier 3 Basic own-funds- List of own-funds items 302
OF.2.8. Tier 3 Basic own-funds- Criteria 302
OF.2.9. Tier 2 Ancillary own-funds 303
OF.2.10. Tier 3 Ancillary own-funds 304
OF.3. Eligibility of own funds 304
OF.4. Transitional provisions 304
OF.4.1. Criteria for grandfathering into Tier 1 305
OF.4.2. Criteria for grandfathering into Tier 2 306
OF.4.3. Limits for grandfathering 307
SECTION 6 - GROUPS 308
G.1. Introduction 308
G.1.1. Aim 308
G.1.2. Calculation of the group solvency: description of the methods
308
G.1.3. Comparison of the methods 309
G.1.4. Scope 310
G.1.5. Availability of group own funds 310
G.1.6. QIS5 assumptions for the treatment of third country related
insurance undertakings and non-EEA groups 310
G.2. Accounting consolidation-based method 311
G.2.1. Group technical provisions 311
G.2.2. Treatment of participations in the consolidated group SCR
312
G.2.3. Additional guidance for the calculation of the consolidated
group SCR 314
G.2.4. Floor to the group SCR 316
G.2.5. Consolidated group own funds 317
G.2.6. Availability of certain own funds for the group 319
G.3. Deduction and aggregation method 322
G.3.1. Aggregated group SCR 322
G.3.2. Aggregated group own funds 323
G.4. Use of an internal model to calculate the group SCR 324
G.5. Combination of methods (optional) 324
G.6. Treatment of participating businesses and ring fenced funds 325
G.6.1. General comments on group SCR calculation and loss absorbing
capacity of technical provisions 325
G.6.2. General comments on available own funds 325
G.6.3. Example for the calculation of the group SCR with the
consolidated method in the case of several participating businesses
326
G.7. Guidance for firms that are part of a subgroup of a non-EEA
headquartered group 328
G.8. Guidance for running the QIS5 exercise at a national or regional sub-
group level 329
G.8.1. Scope of the sub-group at a national or regional level 330
G.8.2. Methods 330 SECTION 1 - VALUATION 1. Assets and Other Liabilities 1. The reporting date to be used by all participants should be end
December 2009
1 Valuation approach
2. The primary objective for valuation as set out in Article 75 of the
Framework Solvency II Directive (Directive 2009/138/EC) requires an
economic, market-consistent approach to the valuation of assets and
liabilities. According to the risk-based approach of Solvency II,
when valuing balance sheet items on an economic basis, undertakings
should consider the risks that arise from holding a balance sheet