Q&A

Question

My questions relate to the reinsurance premium disclosures in S.30.03.01 and S.30.04.01 (C0160), where the October 2015 QRT Logs appear to offer inconsistent guidance, with the S.30.03 Log implying the premium is for the contract period, but the S.30.04 Log implies it is the premium for the reporting year (i.e. “according to the next reporting year”).  In addition, your response to Q&A 14-052 Q867 on 20/10/2016 states that this Gross Estimated Treaty Premium Income disclosure relates to the entire contract term.

Questions as follows:

1.    Is this reinsurance premium disclosure required for Life reinsurance treaties (where the treaty term can be for 20+ years and longer)?

2.    If this reinsurance disclosure is required for the “entire contract term”, how is this term defined?  Do you require that this premium disclosure captures both historic premiums (paid from the treaty start date) and estimated future premiums?

3.    Sourcing these premium disclosures will be extremely onerous (if not impossible) for Life reinsurance treaties, due to gaps in historic data and difficulties in estimating future premiums (e.g. policy run-off, new business). Therefore, if this disclosure is required for Life reinsurance treaties, we propose a high-level approach for these reinsurance premiums as follows:
a.    For treaties paying ongoing premiums, multiply the current reinsurance premium (for the current reporting year) by the estimated in-force duration (to estimate past premiums) and by the estimated outstanding duration until maturity of the in-force business (to estimate future premiums).
b.    For treaties paying a one-off initial reinsurance premium only, report the initial reinsurance premium.
c.    Disclose rounded estimates of these reinsurance premiums, given the approximations involved.
This approach ignores policies which have already gone off the books and ignores new premiums (e.g. unexpected future premiums and future new business).
Are you happy with this proposed approach for deriving this reinsurance disclosure in C0160?

4.    Finally, External Fund Links are a form of reinsurance, where these agreements grant access to external insurance funds which would otherwise not be available to the ceding office policyholders.  The concept of reinsurance premium is less obvious here than for more traditional reinsurance.  As such, we propose estimating the reinsurance premium for these External Fund Link reinsurance arrangements as follows:
a.    For historic premiums, estimate these using the current EFL unit-fund value.  This ignores policies which have since gone off the books, and this includes past investment growth.
b.    For future premiums, use the regular and single policy premiums invested in the current reporting period to estimate future reinsurance premiums (until the maturity date of the current in-force business).  This ignores future policy decrements, future investment returns, and future unexpected policy premiums.
c.    Disclose rounded estimates of these reinsurance premiums, given the approximations involved.
Are you happy with this proposed approach for deriving this reinsurance disclosure in C0160, for External Fund Links reinsurance?

EIOPA answer

1. S.30.03 and S.30.04 templates are to be filled If the outgoing reinsurance program includes or overlaps the next reporting year. Our initial understanding will be to report the Life reinsurance treaties where the treaty term can be for 20+years and longer in the template. However, as mentioned by the enquirer in the question itself there seems to be some inconsistent guidance at the Log files. More specifically, the Log for S.30.04.C0160 refers to the estimated gross reinsurance premium of the treaty, to be paid by the undertaking, according to the next reporting year (N+1) for the share of each reinsurer calculated according to the examples provided and multiplying either S.30.03.C0150 (The amount of the estimated subject premiums income relating to the contract period) or S.30.03.C0160 (The amount of premium for 100% of the treaty relating to the contract period.)  

2. We confirm that the amount to be reported in S.30.03.01.C0160 is the estimated amount of premium for the entire contract period and it covers both historic premiums and estimated future premiums.

The amount to be reported in S.30.04.01.C0160 is calculated according to the examples provided in the LOG file.  

3. Please discuss with your NCA the approach taken to report in S.30.03.01.C0160 the estimated amount of premium for the entire contract period.

The amount to be reported in S.30.04.01.C0160 is calculated according to the examples provided in the LOG file.  

4. In relation to non-traditional reinsurance where doubts arise when filling the template, please contact your NSA.