Q&A

Question

In Guideline 31 of the “guidelines on the valuation of technical provisions” the following is stated:

“1.67. Insurance and reinsurance undertakings should allocate overhead expenses to existing and future business on a consistent basis over time, and should only change the basis of allocation if a new approach better reflects the current situation.”



In Article 31 of the delegated acts, no reference is made to the split between "existing and future business". Instead in article 31 of the delegated acts the following is stated "Overhead expenses shall be allocated in a realistic and objective manner and on a consistent basis over time to the parts of the best estimate to which they relate."



Can you confirm that guideline 31 of the “guidelines on the valuation of technical provisions” and  article 31 of the delegated acts have the same intention and meaning, that is that expenses should be allocated to the existing and future business in a consistent fashion?

If they have not the same intention or meaning, what is meant by guideline 31 in respect to “existing and future business”?

If they do have the same intention and meaning: Does this mean that all expenses  (fixed and variable) which are allocated to future business should not be included in the valuation of the existing business?

If the answer is “no”: how should expenses which are allocated to future business be valued within the technical provisions?



Further we assume that the definition of future business is new business that will be written in the future (and which is not within the contract boundary of the business as at valuation date). Existing business is the complement: all business within the contract boundary as at the valuation date. Can you confirm that this is the definition which is used in guideline 31?

If the answer is “no”: what is the definition of future business?

EIOPA answer

Guideline 31 is about the allocation of overhead expenses between existing and new business, while Article 31(2) of the Commission Delegated Regulation is about the allocation of overhead expenses to the parts of the best estimate.

The best estimate relates only to the existing business. No expenses (fixed or variable) that are allocated to future business should be included in the best estimate. Future business is new business that will be written in the future and that is not within the contract boundary of the business as at valuation date.