Question ID: 65
Regulation Reference: Guidelines on submission of information to NCAs (Preparatory phase)
Article: 35
Status: Final
Date of submission: 04 Sep 2014
Question
In the final report to the guidelines on Submission of Information to NCAs (Final report on CP10), there is list of comments (and answers to them) received during the consulattion period.
Let me refer to one of the questions as I believe answer is incorrect.
Question nb. 1219 (related to CAS59) states:
"Given the LOG (MCR-B4A-L) defines B2 as “the technical provisions for medical expense insurance, without risk margin after deduction of the amounts recoverable from reinsurance contracts and SPVs”, we believe the cross-check “>=” ought to be replaced by “=”."
EIOPA´s answer is as follows:
"The adjustment for expected losses due to counterparty default is not taken into account in MCR template. That's why you may not get any equality."
I have a question regarding the answer and related to CAS59 (and others) in the final guidelines.
First of all, nowhere in the implementing measures (or delegated acts if you please) is mentioned, that adjustment for expected losses is not taken into account in the calculation of MCR. I know, that legislation is in the form of draft and not completed, but I belive approach of calculating MCR wont change significantly.
Second of all, if the EIOPA answer is in fact true, not including adjustent should change sing from ">=" to "<=" and the correct wording would be:
CAS59: S.28.01.b.B2 <= S.17.01.b.A24. Don´t you think?
Can you please clarify this for me?
EIOPA answer
The issue raised is in fact complex as it involves 3 templates and different impacts in the relevant amounts. The answer is linked to the interpretation of several articles of the delegated act.
EIOPA is discussing this issue and will present a consolidated solution in the package of the Reporting Technical Standard.
For the purposes of preparatory phase the following validations should not be considered:
- CAS 16 to 20, 34, 36, 38, 40 to 77
- CQS 20, 22, 24, 26 to 41, 43 to 60, 62, 63
This is due to the current discussion on the consideration (and reporting) of the “Recoverables from reinsurance/SPV and Finite Re” in the Balance-Sheet, Technical provisions and MCR templates and also due to the discussion if the input of the MCR calculation should be done using the Recoverables before the adjustment for expected losses due to counterparty default (as the validations imply) or after the adjustment for expected losses due to counterparty default.