Background
As part of the Review of Solvency II, the Commission (subject to agreement from Council and Parliament) has adopted the EIOPA recommendation to allow prudent deterministic valuation of contracts with options and guarantees, where it is proportionate to do so. The criteria for applying proportionality measures are yet to be finalised, but it is expected that the measures will apply automatically to undertakings that are small and non-complex. For example, undertakings with a low risk-profile that currently perform deterministic technical provisions (TP) calculations due to computational constraints.
The objective of the Prudent Harmonized Reduced Set of Scenarios (PHRSS) framework is to provide undertakings with an approach to reflect a prudent level of the time value of options and guarantees (TVOG) in their calculation of TP.
EIOPA will be expected to provide a methodology and tools to produce the scenarios under the PHRSS framework, as well as a description of the methodology to adjust deterministic TP using these scenarios in order to ensure a prudent TVOG assessment. In this context, EIOPA plans to conduct two information requests with industry. The first information request has already been concluded. It was targeted towards undertakings which already perform a full stochastic valuation of their TP and was aimed at assessing the impact of a limited number of options for the PHRSS methodology. This information request was limited to liabilities denominated in the Euro currency. The target participants to this second information request are undertakings applying deterministic valuations for their TP, as well as, for currencies other than the Euro, undertakings using full stochastic valuations for their TP. With regard to undertakings that assess their TP on a deterministic basis, the request aims to assess the feasibility of the calculations foreseen under the PHRSS framework and the size of the resulting adjustments to deterministic technical provisions. With regard to undertaking using a stochastic valuation, the second request, as the first one, will allow a comparison between full ESG TP and PHRSS TP which EIOPA will use to further improve the sensitivities of the PHRSS scenarios.
Rolling out of information request
To facilitate the rolling out of this second information request on PHRSS, EIOPA is providing access to technical documents and information related to the request. The documents available on this webpage are the following:
- technical specifications which describe the specificities of the request and details the information to be provided by the participants;
- a description of the methodology applied by EIOPA to derive the PHRSS scenarios;
- files containing technical information, including the specified PHRSS scenarios to be applied by the participants;
- a reporting template to be filled by the participants that specifies both quantitative and qualitative information; and
- information on Q&A’s pertinent to the request.
On basis of the information provided centrally by EIOPA, national supervisory authorities are expected to select the participants and to launch and carry out the request in their markets.
To support participating undertakings, EIOPA will organise an online workshop after the launch of the information request, on 11 October 2023 from 09:30 to 12:00 CET/CEST, to discuss practical aspects of this PHRSS second information request with participating undertakings and PHRSS national supervisory authority contact points.
The information request is intended to use a (single) reference date as of year-end 2022.
Insurance and reinsurance undertakings should submit the completed reporting template to the respective national supervisory authority by 15 December 2023.
The template should be filled according to the instructions in the technical specifications and taking into account the technical information.
Scope of information request
In view of the aim of the PHRSS framework, the scope of the TP information sought under the information request is limited to life insurance obligations that include options and guarantees, and comprises the lines of businesses “insurance with profit participation” and “index-linked and unit-linked insurance”.
As set out above, please note that this second PHRSS information request includes both undertakings that use deterministic valuations of their technical provisions, as well as undertakings using full stochastic valuations for their TP (for currencies other than Euro).
The scenarios on the EIOPA website were updated on 24 October 2023 to correct some inaccuracies. We do not expect any material impact on the results of the companies from the update. Therefore, if an undertaking has already started or completed the calculation, there is no need to recalculate based on the updated scenarios. Please also see the Q&A on this matter.
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