This relates to a clarification around “Article 38 Risk Margin – Reference Undertaking” focused on the premium volume measure for historic business. Per Article 38 (d) - the reference undertaking does not have any insurance or reinsurance obligations or own funds before the transfer takes place; Is it appropriate to make the assumption that the premium volume measure should only include existing business that it actually transferred to the “reference undertaking” and earned within it and also that this could be different to the volume measure within the transferring entity?
Background of the questionThere is uncertainty based on the guidance around the volume measure to be taken into account in the Risk Margin calculation and we are seeking clarification.
According to article 38 1. (d) of the Delegated Regulation 2015/35 on the assumptions related to the reference undertaking for the calculation of the risk margin, "the reference undertaking does not have any insurance or reinsurance obligations or own funds before the transfer takes place". For the purpose of the calculation of the risk margin, the derivation of the volume measures for premium risk should therefore be based on the assumption that the reference undertaking does not earn any premium stemming from existing (at the transfer date) insurance or reinsurance obligations before the transfer of these obligations takes place. The premium risk volume measures of the reference undertaking may therefore differ from the premium risk volume measures of the original undertaking.