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European Insurance and Occupational Pensions Authority

2293

Q&A

Question ID: 2293

Regulation Reference: (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII)

Topic: Solvency Capital Requirement (SCR)

Article: Articles 130 and 262 (1) of the Delegated Regulation; Art 102(2) of SII Directive

Status: Final

Date of submission: 17 May 2021

Question

Please confirm if the inputs (gross and net) for the Catastrophe charges are forward looking or point in time for the SCR calculation?

Background of the question

E.g. if client is calculating the YE 2021 SCR and in 2021 had $10m exposure for marine platform and in 2022 had $20m exposure. Which amount should be used for the YE2021 SCR? Alternatively if client makes signficant changes to their 2021 reinsurance structure should the 2020 or 2021 structure be used?

EIOPA answer

The following does not cover the case where a reinsurer covers the future business of an insurer. 

As all scenarios used for the standard formula calculation the scenarios in the catastrophe sub-modules are instantaneous stresses, and should be applied to the existing exposures and reinsurance coverage at the point in time of the SCR calculation. 

The calculation in accordance with Art. 130 of Commission Delegated Regulation (EU) 2015/35 should be based on the exposures covered and the reinsurance taken out at the point in time of the SCR calculation. 

In accordance with the fourth subparagraph of Article 102(2) of (EU) Directive 2009/138/EC, an expansion in business or a change in the reinsurance structure may trigger the need to recalculate the SCR provided the resulting new risk profile deviates significantly from the assumptions underlying the last reported SCR.  

In addition to the need to comply with the SCR there is also the requirement as set out in Article 262 (1) of Commission Delegated Regulation (EU) 2015/35 to assess the overall solvency needs of the insurance undertaking on a forward-looking basis taking into account potential future changes in its risk profile due to the undertaking's business strategy etc.