Question ID: 818
Regulation Reference: Guidelines on application of outwards reinsurance
Status: Final
Date of submission: 26 Oct 2016
Question
• Is it correct that we (Belgium) have to apply the method of applying reinsurance after diversification for Pillar 1 calculations ?
• What about the other countries : Bulgaria, Hungary, the Czech Republic, Slovakia, Luxemburg ? Can you confirm that they all have to work with the method after diversification for Pillar 1 calculations?
• What do we do on group level if there is a difference in method between Belgium and the other countries ?
EIOPA answer
Guidelines on application of outwards reinsurance’s Introduction 1.15 clarify among others the definitions of the “Gross loss” (=> indication/hint of the treatment of inuring diversifications):
i. “For risk mitigation being applied in a sub-module which has no dependency on other sub-modules, the loss calculated according to the formula in this sub-module;
ii. For risk mitigation being applied in a sub-module which does have a dependency on other sub-module(s), the loss calculated according to the formula in this sub-module but using, as inputs to the formula, the results from each sub-module net of risk mitigation applied (if any) in the sub-modules on which this sub-module depends.”
(Source: https://eiopa.europa.eu/Publications/Guidelines/Outwards_Re_GLs_EN.pdf)
Identifying the “inuring” diversifications is complex. Nevertheless the materiality of these “inuring” diversifications has to be identified. If material, the undertaken has to model after diversification; If non-material, the undertaken doesn’t have to model the diversification and it has to document this simplification accordingly.