Instructions regarding reporting templates for the
Non-Life underwriting risk Comparative Study (NLCS) on Internal Models (IMs)
Last update: 02/03/2018
General comments:
This document contains instructions that each selected solo undertaking participating in the NLCSis expected to follow when completing the questionnaire (put in an Excel workbook) related to this study.
For the purpose of these instructions:
-Scope:
- Undertakings: Only selected soloundertakings with IMscomprising a non-life underwriting risk module are considered.
- Risks: All requested figures are understood to exclude catastrophe risks.
-Definition of undertaking: The term ‘undertaking’ means full IMundertaking, partial IMundertaking, and IM group in relation to solo results strictly.
-Time horizons:
- ‘One-year time horizon’ is the basis on which the solvency capital requirement (SCR) is calculated under article 101(3) of the Solvency 2 (S2)Directive.
- ‘Ultimate time horizon’ refers to the non-life model outputs that relate to risk over the time horizon of the run-off of the undertaking’s obligations to its policyholders, including obligations relating to business planned to be written in the 12 months following the reference date.
-Premium provisions: Premium provisions changes are to be treated as part of premium risk for this questionnaire unless stated differently.
-Currency and display:All monetary amounts are to be reported in EUR. If the original values are based on a foreign currency, please use the daily foreign exchange rate at the reference date as published by the ECB[1] and convert it to EUR.Unless otherwise explicitly stateddo NOT display monetary figures as multiples of EUR (like kEUR or MEUR) and NOT as percentages but as absolute amounts.
-Discounting: Where relevant, every amount should be discounted at the applicable risk-free rate.The market risk is out of scope of this study, i.e. the discount rates used should be deterministic and the ones prevailing at t=0.If another type of discount curve is used please provide explanations in the comments and describe your approach.
-Reinsurance: unless stated otherwise, all requested figures are gross of reinsurance.
-Quantiles: High quantiles represent adverse results for the undertakings: the underlying implicit distribution is indeed a loss distribution (i.e. claims - [some positive amounts]).
-Risk margin: No requested figure pertains to the risk margin.
-Reconciliation: Where relevant, please make sure the given figures reconcile with the national IM QRTs.All the reported figures should also be consistent with the EIOPA QRTs S.17.01 and S.26.05.
-Unavailability of figures: In general it is expected that the requested figures in this questionnaire are available at at least one of the requested granularities (internal or Solvency 2 LoBs) and consistently reported to the extent possible (means add up, etc.). The figures should also be consistent with your national regulatory reporting. Any deviation from these assumptions should be explicitly mentioned and justified.If adjustments are needed, they should be described and justified in the relevant cells (e.g. comments). When no figure atall is available(even with adjustments), please let the related cells empty and provide the reasons of this unavailabilityin the comments cells.
For the sake of parsimony and readability, only the cells deemed not self-explanatory are further explained in this document with e.g. the intention and some necessary references. This document is intended to evolve over time to reflect the outcome of the Q&A process.
From the template “3.1 QUAL Prem risk - Int LoBs” onwards, the data requests only pertain to the following 4 S2 Lines of Business (LoBs):
-Motor vehicle liability;
-Other motor;
-General liability;
-Fire and other damage to property.
Overview / Overview on the questionnaires content, logic and legend
1 ID information / Each submission should include this information in order to unambiguously identify the submitting undertaking and the submission date.
2 Segmentations / The segmentations apply to all internal LoBs[2] modelled for premium and reserve risks. It aims to understand the composition of internal LoBs and to map out their relation to the S2 LoBs.
3.1 QUAL Prem risk - Int LoBs / Qualitative questions on premium risk at the level of the internal LoBs.
These qualitative questions collect information on premium risk at the level of the internal LoBs to complement the quantitative questions.
They pertain to the internal LoBs mapped to the subset of S2 LoBs.
3.2 QUAL Res risk - Int LoBs / Qualitative questions on reserve risk at the level of the internal LoBs.
These qualitative questions collect information on reserve risk at the level of the internal LoBs to complement the quantitative questions.
They pertain to the internal LoBs mapped to the subset of S2 LoBs.
3.3 QUANT Prem risk - Int LoBs / Quantitative questions on premium risk at the level of the internal LoBs.
These quantitative questions collect information on premium risk at the level of the internal LoBs to complement the qualitative questionnaire.
They pertain to the internal LoBs mapped to the subset of S2 LoBs.
3.4 QUANT Prem risk - S2 LoBs / Quantitative questions on premium risk at the level of the S2 LoBs.
These quantitative questions collect information on premium risk at the level of the selected S2 LoBs in order to compare undertakings’ IMs’ outputs on a common basis.
3.5 QUANT Res risk - Int LoBs / Quantitative questions on reserve risk at the level of the internal LoBs.
These quantitative questions collect information on reserve risk at the level of the internal LoBs to complement the qualitative questionnaire.
They pertain to the internal LoBs mapped to the subset of S2 LoBs.
3.6 QUANT Res risk - S2 LoBs / Quantitative questions on reserve risk at the level of the S2 LoBs.
These quantitative questions collect information on reserve risk at the level of the S2 LoBs in order to compare undertakings’ IMs’ outputs on a common basis.
4. Comments / The undertaking’s comments related to the completion of the above templates.
In the first column theundertaking should select from the drop-down list the template name to which the comment in question relates and enter their comment.
Comments are especially needed if simplifications were necessary to arrive at some results, to avoid misinterpretations, etc.
Each participating undertakingis expected to submit all of the above templates completed in accordance with the outputs available fromits IM. If the undertakingis not able to submit a template partly or in full, it should provideexplanations in the “4. Comments”template.
For each templatethe undertakingshould enter the information required in each green-shaded cell, select information required from a drop-down list in each blue-shaded cell, and make no amendments to any other (protected) cell in the template.
Instructions:
The instructions for each of the above templates are set out in the following tables. The column ‘ITEM’ identifies the item to be reported by reference to the columns and rows (if applicable) as shown in the template.
Table of Contents
1. ID information
2. Segmentations
3.1 QUAL Prem risk - Int LoBs
3.2 QUAL Res risk - Int LoBs
3.3 QUANT Prem risk - Int LoBs
3.4 QUANT Prem risk - S2 LoBs
3.5 QUANT Res risk - Int LoBs
3.6 QUANT Res risk - S2 LoBs
4. Comments
5. Appendix – Notations and risks’ breakdown for premium & reserve risks
1.1.1. Solvency Capital Requirement and Net Asset Value
1.1.2. Stylized Solvency 2 balance sheets
1. ID information
General comments:
This section relates to the identification of each undertaking.
ITEM / INSTRUCTIONSID01 / Undertaking name / Legal name of the undertaking. Needs to be consistent over different submissions.
This should be the same as the undertaking name reported in Solvency2 reporting template S.01.02.01.
ID02 / Undertaking identification code (preferably Legal Entity Identifier – LEI) / This should be the same as the undertaking identification code reported in Solvency 2 reporting template S.01.02.01
ID04 / Reporting submission date / Expected format: DD/MM/YYYY.
2. Segmentations
General comments:
This section relates to the segmentations used to model the premium and reserve risks for all internal LoBs.
An internal LoB should be understood as the calibration granularity level, the level at which the parametrization of the risks is performed.
Information on what every internal LoB contains should be given. Furthermore the internal LoBs should be mapped to the S2 ones and necessary adjustments mentioned.S2 LoBs in the drop-down list refer to the non-life LoBsas defined in the Annex I of the Solvency 2 delegated regulation (the so-called level 2).
The list of internal LoBs should be complete in contrast to the other templates which focus on a subset of S2 LoBs.
This mapping between internal and Solvency 2 LoBs is requested for all internal LoBs in order to check the materiality of the Solvency 2 LoBs left out of this edition of the study and to pave the way towards a more comprehensive analysis of the aggregation.
As mentioned in the introductory comments, premium provisions changes are to be treated as part of premium risk for this questionnaire unless stated differently. This remark applies in particular to the segmentations template: no dedicated premium provisions risk module appears in this template. In case the risk of changes in premium provisions is modelled separately from premium risk, the internal LoBs concerned should be reported with the prefix “Premium_Provisions_LoB_(NLCS)” in the premium risk table.
For the sake of parsimony and readability, below are listed the items pertaining to both premium and reserve risks simply separated by a slash (‘/’).
ITEM / INSTRUCTIONSC01/06 / Premium/Reserve risk –
Internal LoB
Name of the internal LoB / This column lists the names of all internal LoBs that are used to calculate the premium/reserve risk.
C02/07 / Premium/Reserve risk –
Description of the internal LoB
Please be as descriptive as possible so it is clear what the LoB entered contains. For example, include whether the business is personal or commercial, its selling channel and where it is located. / Premium risk: In case the risk of changes in premium provisions is modelled separately from premium risk, please report that internal LoB with the prefix “Premium_Provisions_LoB_(NLCS)”.
If applicable, these prefixed internal LoBs will then be filled in in the premium risk-related templates where it makes sense to do so.
Premium / Reserve risk: The description of each internal LoB should include the distribution channel as well as any information which was relevant for the chosen segmentation.
You can also mention these information in the relevant comment cells.
C03/08 / Premium / Reserve risk –
Closest Solvency 2 LoB chosen
Choose from the drop-down list / Please select the S2 LoB that best fits into each internal LoB.
C04/09 / Premium / Reserve risk –
Description of any adjustments performed to go from the internal LoB to the S2 one (especially on the SCR) / If the S2 LoB is composed of more than one internal LoB or an internal LoB has to be decomposed in order to be represented in several S2 LoBs, please explain the methods used, especially how the SCR at S2 LoB level was derived from the SCR at the internal LoB level.
C05/10 / Premium / Reserve risk –
Expected earned gross premiumsover the 12 months after the reference date/ Gross BE of outstanding claimsas at the reference date / Measure (weight) to estimate the importance of each internal LoB.
Gross BE of outstanding claims should be understood as including IBNR.
3.1 QUAL Prem risk - Int LoBs
General comments:
This template should be filled in before the template “3.3 QUANT Prem risk - Int LoBs” as the internal LoB selection of the former will populate the later.
With respect to these internal LoBs, the questions below concerning premium risk should be answered.
Questions related to the prefixed premium risk internal LoBs (“Premium_Provision_LoB_(NLCS)”) may be filled in where needed and where it makes sense to do so.
In order to facilitate the work of supervisors in charge of analyzing and interpreting your answers to these qualitative questions, please use as much as possible the notations of regulatory texts on Solvency 2.For the same reasons, regarding the definition of premium risk and its related SCR, please use the notations defined in appendix and refer to theexposedrisks’ breakdownthereof as much as possible when explaining your approach.
ITEM / INSTRUCTIONS
QUALPRER0101
QUALPRER0102 / Risk profile
Country- and undertaking-specific (from the same country) features / If your undertaking belongs to a group, your group may have this knowledge and you are free to discuss this topic within your group. The ultimate responsibility lies however with you.
One aim of this study is to learn about the self-awareness of undertakings with respect to other markets.
QUALPRER0103 / Risk profile
What is the main type of business written?
Please explain if "Other" was chosen. / Entries in the drop-down list:
-Retail
-Commercial
-Industrial
-Other
Undertakings have to choose one among the possible choices: (generally speaking “main” means the business with the highest premiums).
QUALPRER0201 / Consistencybetween the IM and the Solvency 2 balance sheet
Please explain how the consistency requirement between premium risk and the Solvency 2 balance sheet has been implemented. / The consistency requirement can be found in article 121 of the Directive.
QUALPRER0301 / Risk and SCR definition
Please give the definition chosen for premium risk and its SCR. / Please use the notations defined in appendix and refer to the exposed risks’ breakdown thereof as much as possible when explaining your approach.
QUALPRER0402 Odd column / Risk horizon
If premium risk is modelled on an ultimate view first, what method is used to arrive at the one-year view?
Please explain if "Other" was chosen.
Please provide a brief explanation of the method used. (How is the emergence pattern computed? On what is the emergence pattern applied?) and the reason this modelling approach was chosen. / For emergence pattern it is intended a methodology used to get the one year view from the ultimate view. Please add all comments and description needed about the method used.
3.2 QUAL Res risk - Int LoBs
General comments:
This template should be filled in before the template “3.5 QUANT Res risk - Int LoBs” as the internal LoB selection of the former will populate the later.
With respect to these internal LoBs, the questions below concerning reserve riskshould be answered.
In order to facilitate the work of supervisors in charge of analyzing and interpreting your answers to these qualitative questions, please use as much as possible the notations of regulatory texts on Solvency 2.For the same reasons, regarding the definition of reserve risk and its related SCR, please use the notations defined in appendix and refer to the exposed risks’ breakdown thereof as much as possible when explaining your approach.
CELL IDENTIFIER / ITEM / INSTRUCTIONS
QUALRESR0101
QUALRESR0102 / Risk profile
Country- and undertaking-specific (from the same country) features / If your undertaking belongs to a group, your group may have this knowledge and you are free to discuss this topic within your group. The ultimate responsibility lies however with you.
One aim of this study is to learn about the self-awareness of undertakings with respect to other markets.
QUALRESR0103
Odd column / Risk profile
What is the main type of business you have been underwriting?
Please explain if "Other" was chosen. / Entries in the drop-down list:
-Retail
-Commercial
-Industrial
-Other
Undertakings have to choose one among the possible choices: (generally speaking “main” means the business with the highest reserves).
QUALRESR0301
Odd column / Consistency between the IM and the Solvency 2 balance sheet
Please explain how the consistency requirement between reserve risk and the Solvency 2 balance sheet has been implemented. / The consistency requirement can be found in article 121 of the Directive.
QUALPRER0201 / Risk and SCR definition
Please give the definition chosen for reserve risk and its SCR. / Please use the notations defined in appendix and refer to the exposed risks’ breakdown thereof as much as possible when explaining your approach.
QUALRESR0302
Odd column / Risk Horizon
If reserve risk is modelled on an ultimate view first, what method is used to arrive at the one-year view?
Please explain if "Other" was chosen.
Please provide a brief explanation of the method used. (How is the emergence pattern computed? On what is the emergence pattern applied?) and the reason this modelling approach was chosen. / For emergence pattern it is intended a methodology used to get the one year view from the ultimate view. Please add all comments and description needed about the method used.
QUALRESR0701
Odd column / Computations of volatilities
If an ultimate view is modelled first, what methodology is used to model it?
Please provide a brief description of the approach and explain if "Other" was chosen. / Entries in the drop-down list:
-Closed-formula approach (e.g. Mack)
-Simulation-based approach (e.g. “bootstrap” variants)
-Internal benchmark (e.g. parameters from an internal LoBs are used on another internal LoB)
-External benchmark (e.g. parameters from an external source are used on an internal LoB)
-Other
QUALRESR0901 / Reinsurance
How do you take into account the risk mitigation effects of reinsurance for this internal LoB? / To our knowledge the reinsurance effects in reserve risk are usually modelled in a much less granular way than in premium risk (e.g. gross-to-net ratio).
Please describe your approach in the free-text cell.
3.3 QUANT Prem risk - Int LoBs
General comments: