Question ID: 90
Regulation Reference: Guidelines on submission of information to NCAs (Preparatory phase)
Article: 35
Status: Final
Date of submission: 08 Aug 2014
Question
a) Regarding Man made catastrophe risk - Credit & Suretyship - Large Credit Default
The LOG file for this QRT, regarding this specific risk, states:
- Cells LA1-LB1: Two largest gross credit insurance exposures of the insurance or reinsurance undertaking based on a comparison of the net loss-given-default of the credit insurance exposures, being the loss-given-default after deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles. Exposures for the two largest exposures have to be reported.
- Cells LA2-LB2: Percentage representing the loss given default of the gross credit exposure without deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles, for each of the two largest gross credit insurance exposures of the insurance or reinsurance undertaking.
- Cells LA3-LB3: Gross Cat Risk Charge Credit & Surety - Large Credit Default
LA3=LA1xLA2 and LB3=LB1xLB2
The Revised Technical Specifications, under section SCR.9.136 state: "Assumption that the loss-given-default, without deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles, of each credit insurance exposure is 10% of the sum insured in relation to the exposure".
Does this mean that companies have to fill in cells LA2-LB2 with 10%? My understanding is that Gross Cat Risk Charge Credit & Surety - Large Credit Default for Largest exposure 1 would be Sum Assured of exposure 1 (LA1)x 10% (LA2)]
If my understanding is correct, what is the purpose of filling these cells in with an input value (same value for all undertakings)?
b) In relation with Estimated Reinstatement Premiums:
The Revised Technical Specifications (RTS) refer to Reinstatement Premiums only for the following natural catastrophe risks: windstorm (SCR.9.52), hail (SCR.9.91) and flood (SCR.9.76) as follows:
"Where current reinsurance contracts allow for reinstatements, insurance and reinsurance undertakings shall take into account future management actions in relation to the reinstatements between the first and the second event. The assumptions about future management actions should be realistic, objective and verifiable".
I encounter inconsistency between the reporting requirements of the QRTs and the RTS.
RTS require the reporting of reinstatement premiums only for the above mentioned natural catastrophe risks. However, it is not mentioned for Earthquake risk, subsidence risk, man-made catastrophe risks, catastrophe risk of non-proportional property reinsurance, other non-life catastrophe risks and health catastrophe risks.
QRTs allow for the reporting of reinstatement premiums for ALL the risks included in Health catastrophe risk sub-modules and Non-life CAT risk sub-modules.
Which approach is correct? Reinstatement premiums should be considered for ALL risks or only those 3 natural catastrophe risks?
EIOPA answer
Regarding the first question, it is correct that undertakings will have to report 10%. The template include this information for completeness purposes, to allow for a proper modelling of the data in the databases and also because it might change in the future.
As for the Reinstatements, the Technical Specifications only refer to Windstorm, Flood and Hail respectively as the scenarios for Windstorm, Flood and Hail reflect 2 events. For the other risks, the scenario only reflect one event. However the Reinstatement premiums, if applicable, should also be considered in the calculation as a cost of the risk mitigation, as this is to be included in the expenses of the next 12 months of the outwards reinsurance.
For future Solvency II application please consider also the “Guidelines on Application of outwards reinsurance arrangements to the non-life underwriting risk sub-module” under public consultation, in particular Guideline 16 and 17.