Solvency II. Technical Provisions Submission template INstructions

Transcription

1 Slvency II Technical Prvisins Submissin template INstructins Half-year 2011 technical Prvisins and prjected year-end 2011 Technical Prvisins June 2011

2 Intrductin As set ut in the Guidance Ntes fr the 2011 Dry Run Review Prcess, calculatin f Technical Prvisins n a Slvency II basis is required at varius pints during The first cllectin in 2011 was the calculatin f Technical Prvisins as at 31 st December 2010 submitted t Llyd s n 27 th May The secnd cllectin is due t be submitted t Llyd s by 30 th September 2011 and cver Technical Prvisins as at half-year 2011 and prjected year-end This dcument sets ut further details n the requirements fr the secnd exercise and instructins fr the use f the Technical Prvisins submissin template. Agents shuld nte that there are still many areas f uncertainty arund the calculatin f Technical Prvisins fr Slvency II. As requirements frm the EC, EIOPA and the FSA becme clearer, and as current interpretatin develps, Llyd s will aim t issue additinal guidance. Agents shuld refer t the previus guidance n Technical Prvisins issued by Llyd s which was updated in March There have been few changes since the July 2010 dcument, and interpretatins f the areas f majr uncertainty have nt develped significantly. Hwever, agents shuld nte the pssibility that sme f these areas (such as interpretatin f cntract bundaries fr business written n binding authrities) may change ver the cming mnths. In additin, agents shuld als refer t the May submissin template instructins and assciated FAQs. The abve guidance can be fund in the Technical Prvisins sectin f the Slvency II guidance area n llyds.cm. Purpse The purpse f the exercise is t cnfirm that all syndicates are able t prvide Technical Prvisins n a Slvency II basis at a pint ther than the year end and anticipated future amunts. As these calculatins build n thse perfrmed fr the submissin made t Llyd s in May, Llyd s wuld expect the quality f submissins t naturally imprve and the appraches and methdlgies used t be further develped and becme mre rbust. In additin, the Technical Prvisin element f the qualitative Dry Run, which started in 2010, shuld be develping further t give mre detail and dcumentatin arund the calculatin prcess. Fllwing submissin f syndicate results, Llyd s will perfrm a number f high-level validatins and sense checks t cnfirm results appear reasnable. Llyd s will then analyse the results and prvide feedback as per the May submissin. Participatin in Technical Prvisin exercise All syndicates participating in the Slvency II dry run will be required t cmplete this exercise. This includes life, RITC syndicates and thse syndicates with business written during Basis f calculatin Slvency II Technical Prvisins as at tw different valuatin dates will be required t be submitted n the 30 th September 2011: Half-year 2011 Technical Prvisins as at 30 th June 2011, and Prjected year-end 2011 Technical Prvisins as at 31 st December 2011 Bth bases are cntained within the same template available n llyds.cm. 1

3 All figures shuld be reprted in thusands and in cnverted Sterling. The exchange rates used shuld be cnsistent with the Llyd s Q exchange rates as per the Q QMR majr lsses, exchange rates and ther infrmatin Market Bulletin. The Slvency II Technical Prvisin best estimate must take accunt f the impact f discunting using the relevant risk-free interest rate term structure. Llyd s will prvide these risk-free interest rate term structures fr each f the six significant currencies by the end f July Agents wh require any additinal currencies shuld request these via Slvency2@llyds.cm. Scpe f data cllectin General Thugh the calculatins and prcesses required fr this submissin shuld be similar t thse perfrmed by agents fr the submissin in May, the level f granularity in the template has increased. The Technical Prvisin Data (TPD) submissin in Nvember will cllect the full detail required by Llyd s ging frwards. Details f the TPD specificatin and instructins are available in the Technical Prvisins sectin f the Slvency II guidance area n llyds.cm. Changes since May 2011 submissin The main changes t the template since the May submissin are as fllws: Segmentatin by currency is nw als required by the six plus ne majr currencies (GBP, USD, CAD, EUR. AUD, JPY, OTHER). Expense prvisins are nw als required at a line f business level by year f accunt. The number f categries has been reduced t fur: ULAE, nn-ulae, grss acquisitin csts, and reinsurance acquisitin csts. Discunting credit is nw als required at a year f accunt level (by line f business). Reinsurance bad debt prvisins are nw als required at a year f accunt level (by line f business). The risk margin is nw required at a line f business level. Cntact fr queries and supprt Any generic r syndicate specific issues shuld be raised via Slvency2@llyds.cm r thrugh Slvency II accunt managers. In additin, Llyd s will set up FAQs fr this exercise which will be updated with answers f use t ther agents. We wuld als advise agents t check the FAQs regularly fr any updates and prir t sending any queries t Slvency2@llyds.cm as yur questin may have already been cvered. Naming cnventin One submissin template excel file shuld be submitted fr each syndicate using the standard naming cnventin S2TPs_Q2Q42011_SYND.xls, where SYND represents an individual syndicate number (4 digits). There will be 3 sheets within the excel file: Slvency II , Slvency II and Cmments. The sheet naming cnventins must nt be amended. 2

4 Signs f figures reprted All standard data shuld be entered with psitive values. This includes, fr example, claims amunts, future premiums, discunting credit, reinsurance bad debt and expenses. The exceptin t this wuld be in situatins where future premiums are s large that premium prvisins are actually negative r where future premiums represent slely prfit cmmissins which are due t be paid ut. Please ensure that discunting credit is cnsistent with the items being discunted. Fr example, unless clearly reasned, negative Technical Prvisins with a psitive discunting credit in the template is incnsistent as this will result in technical prvisins becming mre negative. Clur cding The cells within the template have been clur cded t aid cmpletin: Yellw cells require input agents (where applicable). These values are then used within the template fr varius calculatins. Turquise cells als require input by agents (where applicable). These values are fr infrmatin purpses nly and are nt used within the template fr calculatins. Grey cells d nt need t be cmpleted by agents. White cells are frmula driven and must nt be amended. Submissin f results General Cmpleted submissin templates shuld be submitted electrnically by 30 th September 2011 t Slvency2@llyds.cm. The results f the Technical Prvisin calculatins must be submitted t Llyd s using the Q2 and Q Technical Prvisin submissin template, available with these instructins n llyds.cm. This template is set ut in a standard frmat t enable all data t be exprted fr the analysis perfrmed by Llyd s. The template has been left unprtected t allw agents t grup unused lines f business using the gruping buttns n the rws in the spreadsheet. Hwever, the submitted template must nt have rws r clumns inserted, remved r mved. In additin, please d nt amend r remve the frmulae. Sense checks Befre submitting the template, we wuld advise agents t carry ut a number f high level sense checks and be able t explain anmalies in the Cmments tab. This will avid the need fr Llyd s t cntact agents with queries. Llyd s wuld suggest the fllwing sense checks: Are the net TPs in line with expectatins? Fr example, cmpared t current held reserves and the May submissin. Are all standard data items entered with psitive values (including future premiums, discunting credit and reinsurance bad debt)? Are all future premiums grss f acquisitin csts? Are grss TPs greater than net TPs? An exceptin t this may be n the unincepted year fr the premium prvisin. Have future premiums been cmpleted? 3

5 Have binary events been cmpleted? Have all expense categries been cmpleted? D allcatins seem reasnable? Fr example, allcatin f reinsurance recveries and allcatin t currency. In additin, Llyd s will be checking the validity f the template t ensure n amendments have been made t the template structure. Agents must ensure that the template is submitted in the same frmat as the ne published n llyds.cm. Agents wh fail t meet these requirements may be required t prvide explanatins and ptentially a resubmissin. Technical Prvisin Submissin Template Segmentatin Slvency II lines f business Figures must be reprted fr each f the Slvency II line f business. The required lines f business have nt changed since the May submissin. Please refer t previus Llyd s guidance fr further details. Currency Calculated cashflws need t be allcated by currency t ensure that they are discunted using an apprpriate risk-free interest rate term structure. Fr this exercise, Llyd s requires reprting f all significant currencies (GBP, USD, CAD, EUR, AUD, JPY and OTHER). All figures shuld be reprted in thusands and in cnverted Sterling. The exchange rates used shuld be cnsistent with the Llyd s Q exchange rates as per the Q QMR majr lsses, exchange rates and ther infrmatin Market Bulletin. Claims and premium prvisins Nn-life best estimates shuld be calculated separately fr claims and premium prvisins. These will be reprted separately n the Technical Prvisin submissin template. Life syndicates As set ut abve, life syndicates are required t cmplete the Technical Prvisin submissin template. Fr cnsistency, life syndicates shuld reprt all business within the claims prvisin sectin, with the exceptin f unincepted business relating t the 2011 and 2012 underwriting years which shuld be reprted in the premium prvisin sectin. Data items cllected at a whle accunt level General The syndicate number and managing agent name shuld be entered at the tp f the Technical Prvisin submissin template. 4

6 Data items cllected at a line f business level Risk Margin The risk margin must be prvided at a line f business level but there is currently n requirement t split by currency. The risk margin shall be such as t ensure that the value f the Technical Prvisins is equivalent t the amunt insurance and reinsurance undertakings wuld be expected t require in rder t take ver and meet the insurance and reinsurance bligatins ver and abve the pure best estimate. Technical Prvisins fr nn-life business written at Llyd s shuld be calculated as the sum f an explicit best estimate and an explicit risk margin. Risk margins shuld be calculated using a cst f capital apprach. Fr further guidance n hw t calculate the risk margin please refer t the detailed Llyd s Technical Prvisins guidance and June wrkshp slides n llyds.cm. Data items cllected by underwriting year and currency (all excluding the Risk Margin) The fllwing sectin sets ut details f the data items cllected by the Technical Prvisin submissin template. Claims Prvisins Prvisins fr claims utstanding relate t the cashflws in respect f claims events ccurring befre r at the valuatin date (i.e. earned business). Grss best estimate claims prvisins Undiscunted Grss Best Estimate excl Expenses - This shuld exclude discunting and all expenses, but shuld incrprate all ther elements including future premiums and binary event ladings. Further detail n amunts fr these included within the best estimate are captured separately, as nted belw. Undiscunted Grss Grss Future Premiums included in Grss Best Estimate - This is the allwance fr future premiums included within the best estimate. This shuld incrprate future premiums expected n this (earned) business excluding discunting. Future premiums shuld be entered grss f acquisitin csts t avid any duble cunting f acquisitin csts. These values are fr infrmatin purpses nly and are nt used within the template fr calculatins. Undiscunted Binary Event included in Grss Best Estimate excl Expenses - This is the allwance fr binary events within the best estimate, excluding expenses and discunting. These values are fr infrmatin purpses nly and are nt used within the template fr calculatins. Reinsurance best estimate claims prvisins Undiscunted RI Best Estimate excl Bad Debt Prvisin excl Expenses - This shuld exclude discunting and all expenses. This shuld als exclude the adjustment made fr reinsurance cunterparty default, which is captured separately. It shuld incrprate all ther elements including future premiums and binary event ladings. Further detail n amunts fr these included within the best estimate are captured separately, as nted belw. 5

7 Undiscunted RI Grss Future Premiums included in RI Best Estimate - This is the allwance fr future premiums included within the best estimate. This shuld incrprate future premiums expected n this (earned) business excluding discunting. Future premiums shuld be entered grss f acquisitin csts t avid any duble cunting f acquisitin csts. These values are fr infrmatin purpses nly and are nt used within the template fr calculatins. Undiscunted Binary Event included in RI Best Estimate excl Expenses - This is the allwance fr binary events within the best estimate, excluding expenses and discunting. These values are fr infrmatin purpses nly and are nt used within the template fr calculatins. Net best estimate claims prvisins Undiscunted Net Best Estimate excl Bad Debt Prvisin excl Expenses - This is a calculated field, which excludes discunting, expenses and the allwance fr reinsurance cunterparty default. Premiums prvisins Premium prvisins relate t cashflws in respect f claims events ccurring after the valuatin date and during the remaining in-frce cverage perid f plicies (i.e. unearned business). Unearned expsure amunts shuld als include unincepted cntracts relating t the 2011 and 2012 underwriting years which are cntractual bligatins as at the relevant valuatin date. The expected claims, future premiums and ther elements f the best estimate shuld be reprted within the respective rws fr the 2011 and 2012 years. Nte that there may als be unincepted cntracts that relate t earlier underwriting years (via binding authrities) which will be included within the premium prvisin amunts fr these years. Fr the calculatin f half-year 2011 technical prvisins Llyd s wuld nt expect there t be any cntractual bligatins relating t the 2012 underwriting year as syndicate business plans will have nt yet been apprved fr the 2012 year f accunt. This rw in the half-year 2011 sheet in the template has therefre been greyed ut. Grss best estimate premium prvisins Undiscunted Grss Best Estimate excl Expenses - This shuld exclude discunting and all expenses, but shuld incrprate all ther elements including future premiums and binary event ladings. Further detail n amunts fr these included within the best estimate are captured separately, as nted belw. Undiscunted Grss Grss Future Premiums included in Grss Best Estimate - This is the allwance fr future premiums included within the best estimate. This shuld incrprate future premiums expected n this (unearned) business excluding discunting. Future premiums shuld be entered grss f acquisitin csts t avid any duble cunting f acquisitin csts. These values are fr infrmatin purpses nly and are nt used within the template fr calculatins. Undiscunted Binary Event included in Grss Best Estimate excl Expenses - This is the allwance fr binary events within the best estimate, excluding expenses and discunting. These values are fr infrmatin purpses nly and are nt used within the template fr calculatins. 6

8 Reinsurance best estimate premium prvisins Undiscunted RI Best Estimate excl Expenses - This shuld exclude discunting and all expenses. This shuld als exclude the adjustment made fr reinsurance cunterparty default, which is captured separately. It shuld incrprate all ther elements including future premiums and binary event ladings. Further detail n amunts fr these included within the best estimate are captured separately, as nted belw. Undiscunted RI Grss Future Premiums included in RI Best Estimate - This is the allwance fr future premiums included within the best estimate. This shuld incrprate future premiums expected n this (unearned) business excluding discunting. Future premiums shuld be entered grss f acquisitin csts t avid any duble cunting f acquisitin csts. These values are fr infrmatin purpses nly and are nt used within the template fr calculatins. Undiscunted Binary Event included in RI Best Estimate excl Expenses - This is the allwance fr binary events within the best estimate, excluding expenses and discunting. These values are fr infrmatin purpses nly and are nt used within the template fr calculatins. Net best estimate premium prvisins Undiscunted Net Best Estimate excl Bad Debt Prvisin excl Expenses - This is a calculated field, which excludes discunting, expenses and the allwance fr reinsurance cunterparty default. Expenses Thugh allcated lss adjustment expenses may be incrprated within the claims best estimates, ther expenses shuld be reprted separately. The split f expenses is less granular than the May submissin (Undiscunted ULAE Prvisin, Undiscunted nn-ulae Prvisin, Undiscunted Grss Acquisitin Csts Prvisin, Undiscunted RI Acquisitin Csts Prvisin) but is required at a line f business level, n an undiscunted basis. Please nte that we have defined reinsurance acquisitin csts t be the sum f: (1) Acquisitin csts paid t brkers fr acquiring reinsurance n the agent s behalf; and (2) Reinsurer's share f acquisitin csts paid t the agent. Where bth f these csts arise the summatin wuld be expected t ffset each ther as (1) is generally utg and (2) is incme. Reinsurance acquisitin csts are fr infrmatin purpses nly and are nt used within the template fr calculatins t avid duble cunting. Adjustment fr discunting Discunting credit - The adjustment made fr discunting shuld be reprted fr each line f business at a year f accunt level fr the claims and premium prvisins separately. This is required fr the grss and reinsurance best estimates (all including expenses). A reductin in prvisins due t discunting shuld be entered as a psitive amunt. Adjustment t reinsurance fr cunterparty default Undiscunted RI Bad Debt Prvisin - The adjustment made t the reinsurance best estimate fr cunterparty default shuld be reprted fr each line f business at a year f accunt level and fr the claims and premium prvisins separately. The reductin in best estimate reinsurance recveries 7

9 due t the allwance fr cunterparty default shuld be entered as a psitive amunt. The effect n the net best estimate is a calculated field. Calculated fields The remaining fields are frmula driven: Ttal Undiscunted Grss Best Estimate TPs (excl Risk Margin) Ttal Discunted Grss Best Estimate TPs (excl Risk Margin) Ttal Undiscunted RI Best Estimate TPs (excl Risk Margin) Ttal Discunted RI Best Estimate TPs (excl Risk Margin) Ttal Undiscunted Net Best Estimate TPs (excl Risk Margin) Ttal Net Discunting Credit Ttal Discunted Net Best Estimate TPs (excl Risk Margin) Cmments The Submissin Template file includes a sheet where cmments r ntes can be made. Agents can use this t prvide cmments n methdlgy and t pint ut any peculiarities which Llyd s wuld therwise query. 8

10 Uncertainties There are still areas f uncertainty relating t the calculatin f Technical Prvisins n a Slvency II basis. When there is additinal guidance available fr these areas, Llyd s will ensure that this is cmmunicated t the market. Hwever, in the absence f such guidance, Llyd s suggests that agents take a reasnable apprach which they can justify. Agents shuld ensure they regularly check the FAQ site fr ther infrmatin that may be f use. Cntract bundaries There cntinues t be uncertainty arund the inclusin f unincepted business relating binding authrities. Current discussin in the market cnsiders including either all expected attachments t the binder, nly thse cntractually bliged by the valuatin date, r the cntracts which wuld be expected t attach t the binder befre it culd be cancelled. As per the May submissin and Llyd s guidance, Agents shuld use a flexible apprach and be able t cme in t line with the requirements nce these are finalised. Reinsurance allcatin Similar t the issue f cntract bundaries, uncertainty als exists fr the treatment f reinsurance that wuld cver bth existing (n a cntractual bligatin basis) business and als future (nncntractually bliged) business. Llyd s recmmends that a crrespndence apprach is taken, whereby the valuatin nly makes allwance fr the prtin f reinsurance recveries and csts that relate t existing business included within the Technical Prvisin calculatin. Llyd s als recmmends that a best estimate crrespndence apprach is used t deal with reinsurance that wuld be purchased in the future (but which is nt cntractually certain by the date f the valuatin) t cver existing business included within the Technical Prvisin calculatin. The assumptins made here wuld need t be cnsidered alngside the requirements fr assumed future management actins. Future calculatins Technical Prvisins Data By the end f Nvember, full cmpletin f the mre granular Technical Prvisins Data (TPD) return will be required. This submissin will be based n data as at 31 st December Details f the TPD specificatin and instructins are available in the Technical Prvisins sectin f the Slvency II guidance area n llyds.cm. Althugh the TPD (frms 599 and 699) will frm the basis f the year-end Slvency II Technical Prvisin reprting ging frward, Llyd s may require additinal calculatins in the future. 9