Solvency II pillar 3
ASR227: Excess of Assets over Liabilities - explained by technical provisions
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3.10 ASR227: Excess of Assets over Liabilities - explained by technical provisions (EIOPA ref: S.29.03.01) Purpose of form: This form provides a detailed understanding of the changes in the Excess of Assets over Liabilities related to technical provisions. This form is only required from December 2017 year-end onwards. This form is required for all reporting years combined. The information will be required on an underwriting year basis. The form focuses on changes in the excess of assets over liabilities due to technical provisions, considering: - Changes to technical provisions captions - Changes to technical flows of the period. Technical flows describe a subset of items that could cause movement to technical provisions – which includes some cashflow items and others such as premiums written – essentially to separate movements in experience from other movements. - A detailed breakdown of the variation of Best Estimate – gross of reinsurance by sources of changes (such as new business, changes in assumptions, experience, etc.) The scope of technical provisions includes risks captured through Best Estimate and Risk Margin and those captured through Technical Provisions calculated as a whole. The information shall be split between Life and Non-Life. Line 1 – Opening Best Estimate – gross of reinsurance: Amount of Best Estimate – gross of reinsurance - as stated in the Balance Sheet at closing year N-1. 30 Line 2 - Exceptional elements triggering restating of opening Best Estimate: Amount of adjustment to opening Best Estimate due to elements, other than changes in perimeter that led to restate the opening Best Estimate. We would not expect anything to be reported on this line. This shall essentially concern changes in models (where models are used) for correction of the model and other modifications. It shall not concern changes in assumptions. Line 3 – Changes in perimeter: Amount of adjustment to opening Best Estimate related to changes in perimeter of the portfolio like sales of (part of) portfolio and purchases. This could also concern changes of perimeter due to liabilities evolving to annuities stemming from Non-Life contracts (triggering some changes from Non-Life to Life). Line 4 – Foreign exchange variation: Amount of adjustment to opening Best Estimate related to foreign exchange variation during the period. In this case the foreign exchange variation is meant to be applied to contracts which are taken out in currencies different from the balance sheet currency. For the calculation, the cash-flows of these contracts contained in the opening Best Estimate are simply converted due to the exchange variation. This item does not address the impact on the cash-flows of the insurance portfolio induced by re-valuation of year N-1 assets due to foreign exchange variation during year N. Line 5 - Best Estimate on risks accepted during the period: It represents present expected future cash flows (gross of reinsurance) included in Best Estimate and related to risks accepted during the period. This shall be considered at the closing date (and not at the actual date of inception of the risks), i.e. this shall form part of the Best Estimate at closing date. The scope of cash flows refers to Article 77 of Directive 2009/138/EC. This line should agree with ASR228, line A4 total for all LoBs. Line 6 - Variation of Best Estimate due to unwinding of discount rate - risks accepted prior to period: The variation of Best Estimate captured here shall only relate to the unwinding of discount rates, and does not take into account other parameters such as changes in assumptions or discount rates, experience adjustment, etc. The concept of unwinding may be illustrated as follows: Calculate the Best Estimate of year N-1 again but using the shifted interest rate term structure In order to isolate this strict scope of variation, the calculation may be as follows: - Consider Opening Best Estimate including the adjustment to opening Best Estimate (A1 to A4); - Based on this figure, run the calculation of the unwinding of discount rates. Line 7 - Variation of Best Estimate due to year N projected in and out flows - risks accepted prior to period: Premiums, claims, and surrenders that were forecasted on the Opening Best Estimate as to be paid during the year, will not be in the closing Best Estimate anymore as they would have been paid / received during the year. A neutralisation adjustment shall be performed. In order to isolate this adjustment, the calculation may be as follows: - Consider Opening Best Estimate (A1) including the adjustment to opening Best Estimate (A2 to A4) - Isolate the amount of cash flows (cash in minus cash out) that were projected within this opening Best Estimate for the period considered - This isolated amount of cash flow shall come in addition to Opening Best Estimate (for neutralisation effect) – and be filled in cell A7 and B7. This line should agree with ASR228, line B4 total for all LoBs. 31 Line 8 - Variation of Best Estimate due to experience - risks accepted prior to period: The variation of Best Estimate captured here shall strictly relate to the realisation of cash flows when compared to the cash flows that were projected. For calculation purposes, and in case of non-availability of information of realised cash flows, the variation due to experience may be calculated as the difference between realised technical flows and projected cash- flow. Realised technical flows refer to those reported under Solvency II principles i.e. premiums effectively written, claims effectively paid and expenses effectively recorded. Line 9 – Variation of Best Estimate due to changes in non-economic assumptions - risks accepted prior to period: It mainly refers to changes in Reported But Not Settled (RBNS) claims not driven by realised technical flows (e.g. revision on a case by case basis of the amount of IBNR) and changes assumptions directly linked to insurance risks (i.e. lapse rates), which can be referred to as non-economic assumptions. In order to isolate the strict scope of variation due to changes in assumptions, the calculation may be as follows: - Consider the opening Best Estimate (A1) including the adjustment to opening Best Estimate (A1 to A4) and the impact of unwinding, of year N projected cash-flows and the impact of unwinding, of year N projected cash-flows (A6 to A8 and B6 to B8 respectively); - Based on this figure, run calculations with new assumptions not related to discount rates that applied at year end N (if any) This will provide the variation of Best Estimate strictly related to changes in these assumptions. This may not capture the variation due to case-by-case revision of RBNS, which would thus have to be added. For Non-Life, cases can be expected where these changes cannot be discerned separately from changes due to experience (B8). In such cases, please report the total figure under B8. Line 10 – Variation of Best Estimate due to changes in economic environment - risks accepted prior to period: It mainly refers to assumptions not directly linked to insurance risks, i.e. mainly the impact of the changes in economic environment on the cash flows (taking management actions into account, e.g. reduction of future discretionary benefits (FDB) and changes in discount rates. For non-life (B10), in case variation due to inflation cannot be discerned from changes due to experience, the whole amount would be reported under B8. In order to isolate this strict scope of variation, the calculation may be as follows: - Consider the opening Best Estimate including the adjustment to opening Best Estimate (A1 to A4) and the impact of unwinding, of year N projected cash-flows and experience (A6 to A8 and B6 to B8 respectively, or alternatively, A6 to A9 and B6 to B9 respectively) - Based on this figure, run calculations with new discount rates that applied during year N, together with related financial assumptions (if any). This will provide the variation of Best Estimate strictly related to changes in discount rates and related financial assumptions. Line 11 – Other changes not elsewhere explained: Corresponds to other variations in Best Estimate, not captured in cells A1 to A10 (for Life) or B1 to B10 (Non-Life). Line 12 – Closing Best Estimate – gross of reinsurance: Amount of Best Estimate as stated in the Balance Sheet at closing year N. 32 This line should total the closing Best Estimate figure in the Balance Sheet if no technical flows are reported during the period. Line 13 – Opening Best Estimate – reinsurance recoverables: Amount of Best Estimate of reinsurance recoverable as stated in the Balance Sheet at closing year N-1. Line 14 – Closing Best Estimate – reinsurance recoverables: Amount of Best Estimate of reinsurance recoverable as stated in the Balance Sheet at closing year N. Line 15 – Variation in Investments in unit-linked: Not applicable for syndicates. Line 16 – Premiums written during the period: Amount of written premiums under Solvency II principles and not included in Best Estimate, respectively for Life and Non-life. This line should agree with ASR228, line 1 total for all LoBs. Line 17 – Claims and Benefits during the period, net of salvages and subrogations: Amount of claims and benefits during the period, net of salvages and subrogations, respectively for Life and Non-life. If amounts are already captured in the best estimate, they should not be part of this item. This line should agree with ASR228, line 2 total for all LoBs. Line 18 – Expenses (excluding Investment expenses): Amount of expenses (excluding investment expenses – which are reported under ASR226), respectively for Life and Non-life. If amounts are already captured in the best estimate, they should not be part of this item. This line should agree with ASR228, line 3 total for all LoBs. Line 19 – Total technical flows on gross technical provisions: Total amount of technical flows affecting gross Technical Provisions. Line 20 – Technical flows related to reinsurance during the period (recoverables received net of premiums paid): Total amount of technical flows related to reinsurance recoverable during the period, i.e. recoverable received net of premiums, respectively for Life and Non-life. Line 21 – Variation in Excess of Assets over Liabilities explained by Technical provisions management – Gross Technical Provisions: This calculation corresponds to the following principle: - Consider the variation in Best Estimate, Risk Margin and Technical Provisions calculated as a whole; - Deduct the variation in unit-linked (A15); - Add total amount of net technical flows, i.e.: inflows minus outflows (A19 for Life and B19 for Non-Life). If the amount has a negative impact on Excess of Assets over Liabilities, this shall be a negative amount. Line 22 – Variation in Excess of Assets over Liabilities explained by Technical provisions management – Reinsurance recoverables: This calculation corresponds to the following principle: - Consider the variation in Reinsurance recoverables; - Add total amount of net technical flows, i.e.: inflows minus outflows, related to reinsurance during the period. If the amount has a positive impact on Excess of Assets over Liabilities, this shall be a positive amount. 33 3.11 ASR228: Detailed analysis per period: Technical flows versus Technical provisions (EIOPA ref: S.29.04.01) Purpose of form: This form provides a detailed understanding of the changes in the Excess of Assets over Liabilities related to technical provisions. This form is only required from December 2017 year-end onwards. This form is required for all reporting years combined. The information will be required on an underwriting year basis. The form shall be completed on the basis of Solvency II valuation principles, i.e. written premiums are defined as the premiums due to be received by the undertaking in the period. Applying this definition means that written premiums in the given year are the premiums actually due to be received in that year, regardless of the coverage period. The definition of written premiums is consistent with the definition of “premium receivables”. The above definition is not GAAP but rather on the basis of Solvency II valuation (cash flow basis). Hence if bound but not incepted contracts (BBNI) are due during the period under consideration, then these should be considered as written premium, for example: Total Premium (£m) Due before 2016 (£m) Due in by 2016 Year End (£m) Due after 2016 Year End (£m) 2016 YoA (Incepted by 2016 year- end) 3 5 10 20 5 2016 YoA (Unincepted by 2016 year-end) 75 - 50 25 2017 YoA (Unincepted by 2016 year-end) 15 - 10 5 Total 1 2 5 10 80 35 In this example, the written premium for the year ended 31 December 2016 on a UK GAAP basis would be £ 3 5m (the top left most cell) ; this would include £10m of premium for 2016 YoA (Unincepted by 2015 year- end) but due in 2015. The written premium on a Solvency II basis for the same period is only the amounts due to be received (whether received or not) in the 2016 calendar year and this would be £80m. The form shall be completed by Solvency II lines of business as per the following closed list: 1 - Medical expense insurance including proportional reinsurance 2 - Income protection insurance including proportional reinsurance 3 - Workers' compensation insurance including proportional reinsurance 4 - Motor vehicle liability insurance including proportional reinsurance 5 - Other motor insurance including proportional reinsurance 6 - Marine, aviation and transport insurance including proportional reinsurance 34 7 - Fire and other damage to property insurance including proportional reinsurance 8 - General liability insurance including proportional reinsurance 9 - Credit and suretyship insurance including proportional reinsurance 10 - Legal expenses insurance including proportional reinsurance 11 – Assistance including proportional reinsurance 12 - Miscellaneous financial loss including proportional reinsurance 25 - Non-proportional health reinsurance 26 - Non-proportional casualty reinsurance 27 - Non-proportional marine, aviation and transport reinsurance 28 - Non-proportional property reinsurance 37 – Life 38 - Health SLT Line 1 – Written premiums underwritten during period: Solvency II written premiums split between premiums that correspond to contracts underwritten during the year versus contracts underwritten prior to the period. This line should reconcile with ASR227, line 16. Line 2 – Claims and benefits - net of salvages and subrogations recovered: Claims and benefits paid, net of salvages and subrogations during the period split into those that correspond to risks accepted during the period versus risks accepted prior to the period. This line should reconcile with ASR227, line 17. Line 3 – Expenses (related to insurance and reinsurance obligations): Expenses during the period split into those that correspond to risks accepted during the period versus risks accepted prior to the period. This line should reconcile with ASR227, line 18. Line 4 – Variation of Best Estimate: Variation of Best Estimate technical provisions split into that which relates to risks accepted during the period and risks accepted prior to the period (gross of reinsurance). Cell A4 should reconcile to ASR227, line 5. Cell B4 should reconcile to ASR227, line 7. Line 5 – Variation of Technical Provisions calculated as a whole: Only for technical provisions calculated as a whole, corresponds to risks either accepted during the period versus risks accepted prior to the period. Line 6 – Adjustment of valuation of Assets held for unit-linked funds: Not applicable to syndicates. 3.12 ASR240: Non-life Technical Provisions (By line of business – Part A) (EIOPA ref: S17.01.01) Purpose of form: This form reports an overview of the non-life technical provisions by Solvency II line of business and split into main components; best estimate (gross and net), reinsurance recoverable, claims/premiums provisions and risk margin. This form is required for all reporting years combined. 35 The technical provisions should be valued in accordance with Lloyd’s Solvency II guidance titled “Technical Provisions under Solvency II Detailed Guidance (July 2015 update)”. These instructions can be accessed through the following link: Link to Technical Provisions Guidance. Technical provisions calculated as whole: This is the amount of technical provisions in the case of replicable or hedgeable (re)insurance obligations, as defined in Article 77.4 of the Framework Directive. The best estimate and risk margin are calculated together where future cash flows associated with the (re)insurance obligations can be replicated reliably using financial instruments for which a reliable market value is observable. In this case, the value of technical provisions should be determined on the basis of the market value of those financial instruments. Lloyd’s does not expect syn dicates to calculate technical provisions as a whole, however, where a syndicate has transferred its liabilities to another syndicate through RITC and the technical provisions transferred cannot be split into best estimate and risk margin, the price payable can be considered to be the market price of the technical provisions and hence should be reported within “technical provisions calculated as a whole”. Technical provisions calculated as a sum of Best Estimate and Risk Margin: The valuation of the best estimate should be calculated separately in respect of premium provisions and claims provisions. Furthermore, gross business needs to be split between Direct, Accepted Proportional and Accepted Non- Proportional Reinsurance business. Classification of business as direct business should be based on the insured i.e. insurance contracts issued to policyholder either directly by the syndicate or through an intermediary should be classified as “direct” business. Additional disclosures of recoverables before the adjustment for expected losses due to counterparty default are required. This form requires reporting of technical provisions by Solvency II lines of business. Agents also submit similar information by risk codes, via the Technical Provisions Data return (TPD). To assist in the completion of this form, there is already an existing mapping between risk codes and Solvency II lines of business that was provided as part of the TPD reporting. This may be accessed via the following link: Risk code mapping to Solvency II class of business . Amount of the transitional on Technical Provisions: Lloyd’s does not expect this section to be relevant to syndicates. The amounts reported in this form should agree to the amount reported in the balance sheet as follows: (i) Total technical provisions calculated as a whole (Q1) should be equal to ASR002 (A53+A57) (ii) Total gross best estimate (Q25) should be equal to ASR002 (A54+A58) (iii) Total Risk margin (Q27) should be equal to ASR002 (A55+A59) (iv) Total recoverable from RI (Q33) should be equal to ASR002, A38 3.13 ASR241: Non-life Technical Provisions (By line of business – Part B) (EIOPA ref: 17.01.01) Purpose of form: This form reports an overview of the premium and claims provisions cash out-flows and in- flows and details of the number of homogeneous risk groups, by Solvency II line of business. This form is required for all reporting years combined. Article 80 of the Solvency II Directive requires that “(re)insurance undertakings shall segment their insurance and reinsurance obligations into homogeneous risk groups and as a minimum by lines of business, when 36 calculating their technical provisions”. Hence, where syndicates have segmented their business in homogeneous risks groups other than Solvency II lines of business, they are required to report on this form, the number of homogeneous risk groups per Solvency II line of business. The form also requires a split of cash flows (discounted) used in the calculation of claims and premium provision. The cash in-flows should include future premiums (gross of acquisition costs) and receivables for salvage and subrogation while the cash out-flows should include claims, benefits and expenses. The net cash flows for each Solvency line of business should agree to the gross best estimate reported in ASR240 (i.e. ASR241 line 7 and 12 should agree to ASR240, lines 6 and 16 respectively). 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