Question ID: 2688
Regulation Reference: (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII), Guidelines on valuation of technical provisions
Topic: Solvency Capital Requirement (SCR)
Article: 116(6); 306
Status: Final
Date of submission: 12 Jun 2023
Question
A non-life insurer with one segment of business has a provision for claims outstanding of -2 mn. The provision is negative because the value of unpaid but not overdue premiums is 12 mn and the value of claims payments is 10 mn.
- What is the appropriate volume measure for reserve risk of the SCR standard formula?
- Should the counterparty default risk of the unpaid premium be considered in the counterparty default risk module of the SCR standard formula?
- If the volume measure for reserve risk be set to 0 in the SCR calculation, should additional ORSA capital be held for the way that this does not appropriately capture the risk of the undertaking?
EIOPA answer
1. According to Article 116(6) of the Commission Delegated Regulation (EU) 2015/35 (DR), the volume measure for reserve risk of a particular segment shall be equal to the best estimate of provisions for claims outstanding for the segment. The volume measure shall not be negative. In the example, the volume measure should therefore be 0.
2. As explained in Q&A 1683, unpaid premiums should be considered within insurance receivables only after their due date and should then be treated as type 2 exposures in the counterparty default risk module
3. In accordance with Article 306 DR, the ORSA supervisory report shall present information on the extent to which quantifiable risks of the undertakings are not reflected in the SCR. In accordance with Article 37 of Directive 2009/138/EC supervisory authorities may exceptionally set a capital add-on for an insurance undertaking in case the risk profile of the insurance undertaking deviates significantly from the assumptions underlying the SCR.