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European Insurance and Occupational Pensions Authority
 

3099

Q&A

Question ID: 3099

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: Consultation Paper on EIOPA’s second set of advice to the European Commission on specific items in the Solvency II Delegated Regulation(6.5.3.3. EIOPA’s advice 425)(425 -1))

Template: S.27.01

Status: Final

Date of submission: 03 Jun 2024

Question

1. Regarding the sum insured (i.e., SI(peril, r,i) in the formula of 6.5.3.3. EIOPA’s advice- 425 -1) πΊπ‘Ÿπ‘œπ‘ π‘ πΏπ‘œπ‘ π‘ (π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖) = 𝑄(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ) Γ— π‘Š(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖) Γ— 𝑆𝐼(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖), 

1.1 Is it correct that the SI include buildings, business interruption and contents? 

1.2 Is the sum insured (i.e., 𝑆𝐼(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖)) the full amount of SI without taking into account any deductibles or contractual limits? In other words, it is SI before any reductions are applied due to the terms of the policy. 

1.3 If 1.2 is correct, should the 𝑆𝐼(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖)) in the formula 425 1)consider coinsurance shares? 

2. Regarding the suggested ex-post adjustment in 6.5.3.3. EIOPA’s advice- 425 - 2), which of the following understandings is correct for this additional unit (π‘€π‘Žπ‘₯πΊπ‘Ÿπ‘œπ‘ π‘ πΈπ‘₯π‘π‘œπ‘ π‘’π‘Ÿπ‘’(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖)) 

2.1.1 π‘€π‘Žπ‘₯πΊπ‘Ÿπ‘œπ‘ π‘ πΈπ‘₯π‘π‘œπ‘ π‘’π‘Ÿπ‘’(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖)= Sum insured taking account of any deductibles and contractual limits based on the conditions in the underlying contracts(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖) 

2.1.2 π‘€π‘Žπ‘₯πΊπ‘Ÿπ‘œπ‘ π‘ πΈπ‘₯π‘π‘œπ‘ π‘’π‘Ÿπ‘’(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖)= 𝑄(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ) Γ— π‘Š(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖) Γ— β€œSum insured taking account of any deductibles and contractual limits based on the conditions in the underlying contracts(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖)” 

2.1.3 π‘€π‘Žπ‘₯πΊπ‘Ÿπ‘œπ‘ π‘ πΈπ‘₯π‘π‘œπ‘ π‘’π‘Ÿπ‘’(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖)= Sum insured taking account of any deductibles and contractual limits based on the conditions in the underlying contracts, and including risk evaluation from other vendor model that suggest a much lower vulnerability of the underlying portfolio compared to average country-peril level 

2.1.4 π‘€π‘Žπ‘₯πΊπ‘Ÿπ‘œπ‘ π‘ πΈπ‘₯π‘π‘œπ‘ π‘’π‘Ÿπ‘’(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖)= 𝑄(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ) Γ— π‘Š(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖) Γ— β€œSum insured taking account of any deductibles and contractual limits based on the conditions in the underlying contracts, and including risk evaluation from other vendor model that suggest a much lower vulnerability of the underlying portfolio compared to average country-peril level”

Background of the question

Aim to calculate the Nat Cat SCR using the correct sum insured as input into the Nat Cat model, in accordance with regulations.

EIOPA answer

1.Regarding the sum insured (i.e., SI(peril, r,i) in the formula of 6.5.3.3. EIOPA's advice- 425 -1) πΊπ‘Ÿπ‘œπ‘ π‘ πΏπ‘œπ‘ π‘ (π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖) = π‘„(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ) Γ— π‘Š(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖) Γ— π‘†πΌ(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖),
1.1 Is it correct that the SI include buildings, business interruption and contents?
1.2 Is the sum insured (i.e., π‘†πΌ(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖)) the full amount of SI without taking into account any deductibles or contractual limits? In other words, it is SI before any reductions are applied due to the terms of the policy.
1.3 If 1.2 is correct, should the π‘†πΌ(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖)) in the formula 425 1)consider coinsurance shares?

 

The sum insured should include buildings, BI ad contents.

The sum insured should not take into accounts deductibles or limits.

The sum insured should correspond to the exposure impacting a specific company portfolio. So yes coinsurance shares needs to be taken into account.

 

2. Regarding the suggested ex-post adjustment in 6.5.3.3. EIOPA's advice- 425 - 2), which of the following understandings is correct for this additional unit (π‘€π‘Žπ‘₯πΊπ‘Ÿπ‘œπ‘ π‘ πΈπ‘₯π‘π‘œπ‘ π‘’π‘Ÿπ‘’(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖))
2.1.1 π‘€π‘Žπ‘₯πΊπ‘Ÿπ‘œπ‘ π‘ πΈπ‘₯π‘π‘œπ‘ π‘’π‘Ÿπ‘’(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖)= Sum insured taking account of any deductibles and contractual limits based on the conditions in the underlying contracts(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖)
2.1.2 π‘€π‘Žπ‘₯πΊπ‘Ÿπ‘œπ‘ π‘ πΈπ‘₯π‘π‘œπ‘ π‘’π‘Ÿπ‘’(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖)= π‘„(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ) Γ— π‘Š(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖) Γ— β€œSum insured taking account of any deductibles and contractual limits based on the conditions in the underlying contracts(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖)"
2.1.3 π‘€π‘Žπ‘₯πΊπ‘Ÿπ‘œπ‘ π‘ πΈπ‘₯π‘π‘œπ‘ π‘’π‘Ÿπ‘’(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖)= Sum insured taking account of any deductibles and contractual limits based on the conditions in the underlying contracts, and including risk evaluation from other vendor model that suggest a much lower vulnerability of the underlying portfolio compared to average country-peril level
2.1.4 π‘€π‘Žπ‘₯πΊπ‘Ÿπ‘œπ‘ π‘ πΈπ‘₯π‘π‘œπ‘ π‘’π‘Ÿπ‘’(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖)= π‘„(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ) Γ— π‘Š(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖) Γ— β€œSum insured taking account of any deductibles and contractual limits based on the conditions in the underlying contracts, and including risk evaluation from other vendor model that suggest a much lower vulnerability of the underlying portfolio compared to average country-peril level"

 

This adjustment allows taking into account the specific exposure of undertakings that sell contract with policy conditions different than the average undertaking. In the case where the written policy of the undertaking limits more greatly the sum insured than the average undertaking in case of catastrophic event, the β€œex-post adjustment" avoids that the SCR of this specific undertaking becomes unrealistically large. π‘€π‘Žπ‘₯πΊπ‘Ÿπ‘œπ‘ π‘ πΈπ‘₯π‘π‘œπ‘ π‘’π‘Ÿπ‘’(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖) should correspond to the sum insured taking account of any deductibles and contractual limits based on the conditions in the underlying contracts(π‘π‘’π‘Ÿπ‘–π‘™,π‘Ÿ,𝑖).​