Solvency II - QIS5 Workshop

Transcription

1 Solvency II - QIS5 Workshop 15/9/2010 Presentation: QIS5 timelines and procedures & general overview of the QIS5 Files and Spreadsheets Speaker: Nicos Koullapis Senior Officer Insurance Companies Control Service

2 2 1. QIS5 timelines July EC/EIOPC provide the final technical specifications to CEIOPS August Nov - Perform QIS5 exercise End of October for solo entities Mid November for Groups Dec 2010 Jan Preparation of National QIS5 Reports Febr - April Preparation of CEIOPS QIS5 Report 2. QIS5 process Technical Specifications document: On 5/7/2010, the final version of the Technical Specifications document has been released from CEIOPS and made available to companies for study. Q & A process: The QIS5 process started on 2/8/2010 with the Q & A process. Questions, based on the July 2010 QIS5 technical specifications document, are sent to the national supervisor, and when the national supervisor can not answer a question the question is redirected to the QIS5 task-force in CEIOPS, which is bound to provide an answer within a period of 5 working days. Every 10 days, the Q & As document is updated and posted in CEIOPS website (in the QIS5 area). During the first week of August the Insurance Companies Control Service (ICCS) has collected the first set of questions, from companies operating and supervised in Cyprus, and delivered it to the

3 3 CEIOPS QIS5 task-force on 10/8/2010. As at 10/9/2010, 4 sets of questions, with a total of 29 questions, have been delivered from ICCS. Relevant answers have already been received for the first 3 sets. QIS5 spreadsheets and documents: During the last week of August CEIOPS published in its website (Solvency II QIS5 section) the set of spreadsheets and documents, with which the companies could start the study. The whole set of files has been circulated by the Insurance Companies Control Service to all the insurance companies in Cyprus on 30/8/2010. Updates of files: When updates of any of the files are available, CEIOPS informs accordingly the QIS5 participants (directly through its website and through the contact points of each national supervisory authority). Updates should be downloaded and should replace existing files each time such updates are published. In case a company has already inserted a number of values in an older version of a spreadsheet, it should use the respective transfer of data files, which are also published in CEIOPS QIS5 website, in order to transfer those values into the new updated spreadsheet. Submission of spreadsheets and questionnaires: By the end of October for Solo companies and middle of November for Group Companies, the companies will have to submit to the Supervisor their work and results. Insurers are encouraged to submit not only the completed QIS5 spreadsheet, but also any Helper tabs and similar programmes used to complete the main spreadsheet. These data greatly assist an assessment of the submission by the supervisor, and also, importantly, a productive feedback of the findings to the individual insurers. Companies are also reminded to submit the qualitative questionnaires.

4 4 Remember: For the European Commission, the main target of this exercise is to see the effects on SCR and own funds from a newrevised set of parameters and assumptions, which are applied on the exposures relating to the risks included in the SCR tree and on the 3 tiers relating to own funds. Therefore: These parameters and assumptions are not final, and the results should be used by the companies as a good, but not final, indication on which of their risks have the most significant SCR needs and for which risks there is a need for more attention and for possible reduction or mitigation. Feedback: The feedback we will get from the companies through the relevant questionnaires, is also important in the effort to finalize the standard approach parameters. Thus, any important issues and or difficulties and also any suggestions that you may have should be incorporated therein.

5 5 3. The Technical Specifications file - QIS5TS --date--. Doc This is a very important 300 pages document, which explains the methods and formulas and the rules and assumptions used for the calculation of the technical provisions (best estimate of future cash-flows plus risk margin), the valuation of assets and other liabilities, the classification of own funds and the calculation of the SCRs and the MCRs. Important Note: This file must be stored in the same directory with the QIS5 Solo --date--.xls file with which it is linked, and you must not change its name when you download it from the website.

6 6 4. The QIS5 Main Spreadsheet - QIS5 v--date--.xls This is the most important file. It is used for the input of information from the company and of values derived from all other ancillary programs, and for the presentation of the balance sheet and the solvency position of the company under QIS5. A comparison with the respective Solvency I figures is also provided therein. a. Important facilities of the QIS5 Main Spreadsheet It is accompanied by a comprehensive user manual. It contains hyperlinks with the Technical Specifications file, so that the user can easily find the paragraphs relating to the subject cell he/she is working on. It allows the user to choose the language with which he wishes to work with, in the Sheets «O. Language (cell H3)» and «Qis5.Lang.En (cella3)». It provides control cells, with which the user is notified whether an input or a result has an error. Through the Index sheet, which shows the structure of the spreadsheet, i.e. which sheets are included in it, and the color codes relating to the types of these sheets, the user is able to move faster and easier between the sheets by use of relevant buttons. Several colors are used for the various cells, in order for the user to know which cells are: Input cells (color: light blue), Intermediate calculations cells (color: terracotta light brown), Final result of a series of calculations cells (color: purple), and Final outcome of simple formulas calculations cells (color: yellow). It allows the user to delete any sheets he is not going to use, e.g. the Internal Models (IM..) sheets and/or the Groups (G..) sheets. It is accompanied by a word file with the name MAPS, in which the user can find all the abbreviations for the input and output items used in the

7 7 study and the full description/name of these items. This file is also connected with the Technical Specs file for the same reason. It is accompanied by a number of ancillary programs/spreadsheets, which allow the user to perform several calculations and approximations for a number of values he will need to input in the main spreadsheet. b. General Overview of the sheets included in the QIS5 Main Spreadsheet The purpose of this overview is to give the user a short tour amongst the sheets included in the QIS5 main spreadsheet. In the absence of lead insurance group undertakings, and due to time constraints, the overview focuses to solo companies, which are going to use the standard approach, and is in line with the manual for completion for solo companies. The user is allowed to delete any sheets which are not going to be used, e.g. sheets for insurance group undertakings and sheets for internal models. The Index sheet-tab This sheet shows the structure of the spreadsheet, i.e. which sheets are included in it, and also the color codes relating to the types of these sheets, and allows the user to move faster and easier between the sheets. The input sheets-tabs (Color: Light Blue) I. Participant In this tab general information is requested about the insurer. Note: The reporting year has already been set therein at 2009.

8 8 I. Valuation (5 sections) Section 1: Balance sheet - Assets In this section information is required on the value of the assets, on three bases: Current accounting bases (these should correspond to the information in the company s financial statements) Solvency I valuation principles (these should correspond to the information in the company s annual statutory accounts) QIS5 valuation principles (market consistent valuations) Section 2: Balance sheet Liabilities The liabilities are to be reported under the same three valuation bases indicated above for the assets. Section 3: Information on own funds Insurance companies are strongly advised to study for themselves the section in the Technical Specifications on Own funds, including transitional provisions to be used in QIS5, before inserting relevant information here. Section 4: Information on valuation methods applied to determine the Solvency II balance sheet This section requests information on the valuation methods used. Please note that all values are to be reported as a percentage of the total QIS5/Solvency II balance sheet. Section 5: Intragroup asset and liabilities, for undertakings belonging to a group Solo companies (not part of a group) may ignore this section. I. Assets (5 sections) Section 1: Information on bonds This section asks for a detailed breakdown of investments in borrowings by or demonstrably guaranteed by a national government, exposures to multilateral organisations and to the European Central Bank. Section 2: Information on currency risk exposures (in the currency used to fill the QIS5 spreadsheet)

9 9 This section asks for more detailed information on currency risk exposures. Section 3: Information on spreads - aggregates This section asks for more detailed information on spread products, broken down into various types and rating classes. (Helper tab is available). Section 4: Information on the concentration of assets used for market risk concentration calculation (Helper tab is available) Section 5: Information on the counterparty default risk (Helper tab is available) I. Participations This section asks for a detailed breakdown of the nature and value of any participations held by the insurer. I. Own funds items details (3 sections) Section 1: Info given on the Valuation tab on other capital elements No input cells. The information in this tab has already been supplied in the Valuation tab. Section 2: Calculation based on the detailed list of capital elements No input cells. This section provides a summary overview, based on the information to be provided in section 3 of this tab. Section 3: Detailed list of other capital elements. Some input is required. This section asks for detailed information on any other capital elements, which could be used under certain conditions and for a transitional period as Tier 1 elements. Please refer to the Technical Specifications when completing this section. I. Current situation (3 sections) Section 1: Current Solvency I position Here the user inserts the current solvency I amounts.

10 10 Note: The value for the minimum guarantee fund should be the one third of the required solvency margin, and not the absolute minimum amount. Section 2: Provisions calculated according to the current accounting bases (Solvency I valuation basis) - totals No input here. The totals in this section are calculated by the spreadsheet, based on the more detailed information to be provided in section 3. Section 3: Detailed information on the technical provisions valuated according to current bases (Solvency I valuation basis) This section asks for the amount of technical provisions, per line of business and per products category. The upper half of this section concern the gross technical provisions and the lower half the net technical provisions. For non-life obligations a distinction is also made between proportional and non-proportional reinsurance. Note: Insurers are requested to ensure consistency between the numbers provided here (and summarised in section 2) and the amounts reported in the balance sheet in the tab Valuation. I. Premiums (2 sections) Section 1: Premiums by lines of business and volume measures for underwriting risk This tab requests information about written and earned premiums, per line of business, for the year under consideration and for the year that follows, and the information are used later on in the calculation of the capital requirements. Note: The term P pp in column M is defined as the present value of net premiums of existing contracts which are expected to be earned after the year following the study year (i.e. for QIS5 this means from 2011 onwards) for each LoB. This term is only relevant for contracts with a coverage period that exceeds the year that follows the study year, thus for contacts with more than one year duration. For annual contracts without renewal options this value should be set to zero. Section 2: Premiums and expenses information needed for SCR and MCR calculations

11 11 Here the user should only input the annual expenses in respect of unitlinked business, and the premiums amounts for the year before the study year, i.e. the year Note: The expenses amount concerns the actual expenses incurred by the insurer, and not the expense loadings charged to the policyholders. I. QIS5 Insurance Obligations (5 sections) Section 1: Allocation of Health to the QIS5 segmentation This section asks for information on how the business currently regarded as Health insurance will be allocated to the QIS5 segmentation. The amounts requested are the technical provisions on a Solvency I basis, both gross and net. Note: In separate rows insurers must report the business amounts that in QIS5 will be allocated to Health SLT (similar to life type) and the amounts which relate to business with a non-slt character, and which will be allocated to non-life business. Section 2: Segmented calculations of the best estimate and recoverables (before risk margin) This section asks for detailed information on the gross best estimate, and on the reinsurance recoverables. Note: Any different from QIS4 technical provisions established for annuities stemming from non-life contracts, which are estimated using actuarial life techniques, should be reported under life insurance obligations and for non-life business, separate best estimates are required for the premium and the claims provisions. Section 3: (a) Risk margin, (b) technical provisions, (c) underwriting risks volume measures, (d) expected profits in future premiums (EPIFP) In this section the user should input the calculated risk margin (Helper tab is available), the gross and the net technical provisions, the underwriting risks volume measures and the expected profits in future premiums, for each of the identified in the sheet segments. Note: The Technical Specifications allow for a number of approaches to the calculation of the risk margin. Insurers who meet the conditions to use the simplifications, are nevertheless encouraged to try, if possible, to

12 12 carry out the standard calculations, so that the practicality of these is sufficiently tested. Section 4: (a) expected profits in future premiums (EPIFP) and (b) illiquidity premium information Here the user should report the allocation of the insurance obligations to the different illiquidity buckets, in terms of the amount of (best estimate) technical provisions in each bucket, for each line of business. Section 5: Other information needed for the SCR and MCR In this section the user should report some additional information on the best estimate amounts of certain categories of technical provisions. I. Geographical Diversification (2 sections) Section 1: Total and calculation of diversified volume measures for the non-life and Health non-slt underwriting risks modeling The information reported in this tab is used to calculate a possible diversification benefit reduction in the capital requirement due to geographical diversification, for the premium and reserve risk. Section 2: Net written premium and forthcoming premiums, net claims outstanding by geographical areas This section requests information on the amounts of premiums and claims provisions per line of business and per geographical area. Note: The net premiums and the net best estimate provisions for claims outstanding (net PCO) should be reported here. The results sheets-tabs (Color: Dark Blue) SF.SCR (9 sections) This sheet is a very important sheet (tab), as this is where the Solvency capital Requirements are calculated. The structure of this tab follows the structure of risks shown in the, well known by now, SCR risks tree (see Appendix). Sections 1-3 contain the amounts relating to the top end of

13 13 the SCR tree risks, while Sections 4-9 contain the amounts relating to the lower end of the SCR tree, with each section containing a further subdivision. Section 1: SCR and BSCR values, with the inclusion of the operational risk value and the possible adjustments due to profit sharing and deferred taxes. No input here. Section 2: Adjustment to SCR amounts for the risk absorbing effect of technical provisions and deferred taxes. Some input is required here in order to derive the adjustment amounts. Section 3: Operational risk amount. Some very little input here. Section 4: Intangible asset risk. No input here. Section 5: Market risk. Some input here. Sub-risks: Interest rate risk, Equity risk, Property risk, Spread risk, Currency risk, Concentration risk and Illiquidity premium risk. Section 6: Counterparty default risk. No input here. Section 7: Life underwriting risk. Some input here. Sub-risks: Mortality risk, Longevity risk, Life disability-morbidity risk, Life lapse risk, Expense risk and Revision risk. Life CAT risk. Section 8: Health underwriting risk. Some input here. SLT Health underwriting risk (similar to life sub-risks and techniques) Sub-risks: Mortality risk, Longevity risk, Disability-morbidity risk, Disability-morbidity risk for medical expense, Disability-morbidity risk for income protection,

14 14 Life lapse risk, Expense risk and Revision risk. Non-SLT Health underwriting risk (similar to non-life techniques) Sub-risks: Premium and reserve risk and Health non- SLT lapse risk. Note: Reserve risk relates to the risk that the BE for claims provisions may turn out to be insufficient, and it relates to a past risks period. Health CAT risk (for both SLT and Non-SLT Health) Section 9: Non-life underwriting risk. Some input here. Sub-risks: Non-life premium and reserve risk and Nonlife lapse risk Non-life CAT risk. SF.RFF (new) This tab is used to calculate own funds when ring-fenced funds exist and an adjustment to own funds is relevant. Note: Companies which are not using this sheet can delete it. SF.MCR (2 sections) Section 1: MCR Top level calculation Section 2: MCR Detailed calculation O. Overview sheet In this tab, the user can see a very good summary of the QIS5 results. No input required. Datasets sheets (Color: Grey) D. Datasets sheet This sheet stores all the input values and results in one long data column, and is very useful for checking purposes.

15 15 5. QIS5 Ancillary programs/spreadsheet tools The Non-life Simplifications tool The user can use this tool for the calculation, based on simplified approaches, of the technical provisions of non-life business (TP to TP.2.163, TP.7.59 to TP.7.63, TP.7.70 to TP.7.73, TP.7.83 to TP.7.88), i.e. the best estimate of the premiums provision, the best estimate for the outstanding claims and IBNR, and the best estimate for recoverables, which are required as input in the QIS5 Insurance Obligations sheet in the main spreadsheet. The Non-life best estimate (section V.2.2) tool along with a user guide With this tool, the user can calculate the best estimate for the outstanding claims provision (using the chain ladder method), for non-life business, which are required as input in the QIS5 Insurance Obligations sheet in the main spreadsheet. Discounting tool (TP.3.1 to TP.3.11) This tool could be useful for the discounting of cash-flows, when these are derived by use of a cash-flows model, to get the present values of these cash-flows under the risk free rate conditions (for best estimate purposes) and under the stress conditions (for interest rate risk and liquidity premium risk purposes). Risk margin tool (TP.5.1 to TP.5.74) This tool allows the user to calculate the risk margin values, and then insert them in the SF.SCR sheet of the main spreadsheet. The Non-life Undertaking specific parameters tool (SCR.10.1 to SCR.10.61) This tool allows the user to calculate its own (specific) standard deviation parameters, which are required as input in the non-life premium and reserve risk section in the SF.SCR sheet of the main spreadsheet.

16 16 Spread risk tool (SCR.5.67 to SCR.5.103) This tool allows the user to calculate the spread risk values, which are required as input in the I.Assets sheet in the main spreadsheet. Counterparty default risk tool (SCR.6.1 to SCR.6.58) This tool allows the user to calculate the counterparty default exposures values, which are required as input in the I.Assets sheet in the main spreadsheet. The Concentration risk tool (SCR to SCR 5.127) This tool allows the user to calculate the concentration amounts, which are required as input in the I.Assets sheet in the main spreadsheet. Adjustment for non proportional reinsurance tool (SCR.9.25 to SCR.9.28, Annex N) This tool allows the user to calculate an adjustment factor to be applied on the SCR for premium risk, for those lines of business that are affected by a non-proportional reinsurance, and input it in the SF.SCR sheet in the main spreadsheet. The Natural Catastrophes risk (SCR.9.62 to SCR.9.92) and the Man made cat risk (SCR.9.93 to SCR.9.166) tools These tools allow user to calculate the values required for the Cat Risk SCR for life and non-life business based on specific scenarios and parameters, and input them in the SF.SCR sheet in the main spreadsheet. Health Cat risk tool (SCR.8.95 to SCR.8.138) With this tool, the user can calculate the values required for the Cat Risk SCR for health SLT & Non-SLT business (accident & sickness classes) based on specific scenarios and parameters, and input them in the Health Cat Risk section of the SF.SCR sheet in the main spreadsheet.

17 17 Tool for extrapolation of the risk free rates This tool can be used for the extrapolation of the set of the risk free interest rates, which the user is going to use for the discounting of cash-flows (in combination with the Discounting tool mentioned above). A number of options for the illiquidity premium-loading are also available in this tool.

18 18 6. The QIS5 Questionnaires Qualitative questionnaire - solo Qualitative questionnaire - groups Qualitative questionnaire - internal models Qualitative questionnaire - Excel Very important tips: You must submit to us the latest version released by CEIOPS for each file. Thus it is imperative that you make use of every new version that is released during the process, and use the relevant transfer of data files to transfer your input in previous versions into the new ones. The main spreadsheet must be correctly and fully completed and submitted on time in order for ICCS to be able to take it in account for the National Report. Do not leave any parts from the input cells empty and do not enter any data in cells which are not designated for data entry. Where there are drop down menus you must select one of the options provided. Do not leave empty. Do not leave any of the spreadsheet s internal checks, on a False status. Make sure all internal checks are in True status. Delete any sheets you will not be using, e.g. sheets for insurance group undertakings and internal models information sheets.

19 19 Do not change the names of the spreadsheets-files, especially those that have links with others and/or use macros to transfer data between files. Give complete answers in the questionnaires. Write down all the information that will allow us to understand the methods and approaches you used and the problems you encountered. Also, if a certain approach and set of parameters is affecting your results dramatically and you think a different approach and/or set of parameters should be used, write this down, substantiate it, disclose the financial effects and give your suggestion. 7.?? QIS6?? It is possible. If there is going to be a QIS6 it will be targeted for specific issues, either current issues for which the QIS5 result may not give enough light or any new issues that may come up in the way, and for retesting specific parameters.

20 20 Appendix: SCR Tree SCR Adj BSCR Op Market Health Default Life Non-life Intang Interest rate SLT Health CAT Non-SLT Health Mortality Premium Reserve Equity Property Spread Mortality Longevity Disability Morbidity Premium Reserve Lapse Longevity Disability Morbidity Lapse Lapse CAT Currency Concentration Illiquidity Lapse Expenses Revision Expenses Revision CAT = included in the adjustment for the lossabsorbing capacity of technical provisions under the modular approach