User Guide for Input Spreadsheet QIS on IORPs

Transcription

1 Updated 15 November 2012 User Guide for Input Spreadsheet QIS on IORPs Contents 1. Introduction Overview of spreadsheet Participant information Current regime Holistic balance sheet information Common part of the holistic balance sheet Scenario sheets Overview Qualitative questions Updates This user guide is not part of the formal QIS on IORPs documentation as issued by the European Commission. It is not intended to, and does not, replace the QIS on IORPs technical specifications. The European Commission technical specifications take precedence. EIOPA Westhafen Tower, Westhafenplatz Frankfurt Germany Tel Fax , Website:

2 1. Introduction 1.1. IORPs are requested to complete the Quantitative Impact Study (QIS) on Institutions for Occupational Retirement Provision (IORPs) based on the European Commission s technical specifications of 8 October and the addendum containing the matching adjustment specifications of 12 November In addition, participants in the QIS exercise are asked to complete the qualitative questionnaire that was prepared by EIOPA in agreement with the Commission 3 and the additional qualitative questions on the application of the matching adjustment contained in the addendum to the technical specifications An essential item of the QIS package published on the EIOPA website is the input spreadsheet. The main objective of the spreadsheet is to collect the output from the calculations and the answers to part of the qualitative questions. After completing the QIS exercise, participants are expected to return the spreadsheet to their national supervisory authority together with the two word document containing the responses to the open questions in the questionnaire and the addendum The input spreadsheet also serves some other purposes: It provides structure to the different steps IORPs have to undertake in doing the QIS. It performs some simple calculations such as aggregating individual capital charges and establishing the SCR for lower confidence levels. It provides an overview of the outcomes after completing the QIS This user guide is intended to assist participants in going through the input spreadsheet. 2. Overview of spreadsheet 2.1. The first sheet [P.Index] provides an overview of the contents of the spreadsheet. The various sheets in the spreadsheet can be easily reached 1 European Commission, Quantitative Impact Study (QIS) on Institutions for Occupational Retirement Provisions (IORPs) Technical Specifications, Ares(2012) /10/ European Commission, Quantitative Impact Study (QIS) on Institutions for Occupational Retirement Provisions (IORPs) Technical Specifications Addendum, Ares(2012) /11/ QIS on IORPs Qualitative Questionnaire, 9 October /16

3 by clicking the relevant [GoTo] link. Other sheets in the spreadsheet contain a [goto index] link to return to the index sheet This guide can also be accessed from the index sheet by following the [GoTo] link behind Explanations on the structure and content of this spreadsheet in the table of contents. Sections 2.3. The input spreadsheet contains five sections as will be clear from the index sheet: 1. Participant information This sheet not only requests participant information and contact details, but also the reporting currency, unit and year used in completing the spreadsheet. 2. Current regime information This sheet asks participants to provide balance sheet information and capital requirements in line with the existing national prudential regime. 3. Holistic balance sheet information In this section IORPs are requested to report the outcomes of evaluating the 18 scenarios of options to be tested in the QIS. 4. Overview of results This sheet provides an automatic summary of the results by comparing the prudential balance sheet and capital requirements in the 18 scenarios with those under the current regime. 5. Excel based parts of qualitative questionnaire In this section participants are asked to provide their responses to parts of the qualitative questionnaire and the matching adjustment addendum. The open questions in the questionnaire and the addendum should be answered in the two separate word documents. Colour codes 2.4. Throughout the input spreadsheet the following colour codes are employed to denote the different types of cells: Input cell to be filled in by the participant. Cell using a formula. Cell with important result using a formula. Empty cell, because it is not relevant for the scenario under consideration. 3/16

4 Empty cell All cell types except for one are unlocked, which means that participants can override the formulas if necessary. Only the grey cells cannot be changed and error message will appear if the participant tries to do so. Links to technical specifications 2.6. Throughout the input spreadsheet references to the technical specifications are included next to the input cell. It refers to the section of the technical specifications where that output variable is defined. This section can be accessed from the input spreadsheet by following the [Open] link next to the reference The references and links to the technical specifications in the first two columns can be shown by clicking the plus button in the top left corner of the spreadsheet and hidden by clicking the minus button The hyperlink only works if the correct location of the word version of the technical specifications is specified at the bottom of the [P.Index] sheet. Links to the matching adjustment addendum are only included in the [Qualit.MA] sheet and its location should be specified at the bottom of that sheet. The links should work correctly by default if the provided word versions of the technical specifications and the addendum are placed in the same folder as the spreadsheet. 3. Participant information 3.1 Participants should start with filling in the [Participant] sheet. The sheet requests information on: The IORP or Article 4 insurance undertaking for which the spreadsheet is being completed. 4/16

5 The institution responsible for conducting the QIS, which does not necessarily have be the same as the institution being evaluated. The reporting currency, unit and year used to complete the input spreadsheet. 3.2 The first cells requesting participant information correspond to questions 16 in the qualitative questionnaire. 3.3 The name of the participant, type of institution (IORP / Art. 4 insurer) and the reporting currency, unit and year will be displayed in the header of the sheets in the input spreadsheet. 3.4 The date of submission can of course not be completed until then end of the exercise. Please do not forget to complete the contact information in order for the national supervisor to be able to ask followup questions. 4. Current regime 4.1. The outcomes for the different scenarios will be compared with the balance sheet and capital requirement(s) under the current prudential regime. Therefore, participants are requested to provide this information regarding the existing regime in the [Current regime] sheet IORPs are asked to provide the value of some aggregates on their current balance sheet established for the purpose of national prudential regulation. Participants should only fill in positive values for items that are currently recognised. So, if sponsor support and pension protection schemes are currently not in the balance sheet then these should be assigned a value of zero. IORPs that currently put a value for (re)insurance and SPV recoverables on their balance sheet should indicate whether it is currently recognised as an asset or a liability, i.e. subtracted from gross technical provisions Next participants should specify the total funding requirement including any capital requirement on top of the liabilities currently imposed by national prudential regulation. If IORPs are subject to more than one requirement then participants should also specify the minimum funding requirement. The spreadsheet will establish the current surplus as total assets minus the funding requirement. 5/16

6 4.4. Finally, participants are requested to provide the value of two specific own fund items: subordinated loans and surplus funds. 5. Holistic balance sheet information 5.1 IORPs are asked to evaluate eighteen scenarios containing different options for the valuation of the holistic balance sheet and the calculation of the solvency capital requirement. The outcomes for the holistic balance sheet and the SCR should be entered in the eighteen scenario sheets, i.e. three main scenario sheets ( upper bound, lower bound and benchmark ) and fifteen specific scenario sheets. 5.1 Common part of the holistic balance sheet 5.2 However, many items on the holistic balance sheet will remain constant in the various scenarios. This is the case for the investments of the IORP and items in the other asset and other liabilities categories. 5.3 Participants should include the value of these items in the first sheet in the section on holistic balance sheet information: the [SET0Common] sheet. This sheet should be completed first as the assigned values for investments, other assets and other liabilities will be used in the eighteen scenario sheets. 5.4 If applicable, IORPs should first split their investment portfolio in investments held for pure DC schemes and investments other than held for pure DC. Only the total value of investments held for pure DC has to be reported. The reason is that assets and liabilities of pure DC schemes do not have to be considered in the calculation of the SCR, the operational risk charge being the notable exception. 5.5 A breakdown should be given of investments not held for pure DC schemes, which is similar to the categorisation required in the SCR standard formula. When reporting the value of the different asset classes, IORPs should apply the lookthrough approach to the largest extent possible in order to minimise the value of residual investment funds. Note that the residual investment funds should according to SCR.5.13 be treated as equity investment for the purpose of calculating the SCR. 5.6 The value of government bonds from noneea countries, covered bonds, other bonds and loans and tradable securities based on repackaged loans should be entered through the second panel under additional information. Participants should provide a breakdown with regard to the credit quality 6/16

7 steps for the four bond and loan categories distinguished. This information is also needed to assess the capital charges in the spread risk submodule. Additional information 5.7 In addition to the detailed information on bonds an loans mentioned above, participants are also asked to provide additional information relating to the Level B expected return on assets, foreign currency exposure, operational risk and health risk: Participants should provide the portfolio values of the five fixed income classes and the nonfixed income category. The spreadsheet will then calculate the expected return on assets depending on the national currency. The resulting expected return on assets should be used as the discount rate to establish the Level B best estimate of technical provisions in the eighteen scenarios. Participants should provide information on their exposure to foreign currencies. This information is also needed to assess the capital charges in the currency risk submodule. The currency exposure of liabilities will not remain constant in the different scenarios as the value of the best estimate of technical provisions will vary. Participants are requested to report the foreign currency exposure of liabilities in the benchmark scenario after having completed set 3. Participants should provide information on the value of contributions and expenses and premiums written with respect to health coverage. These values will be used for the calculation of the operational risk charge and health risk charge in the scenario sheets. Again, this underlines that it is important that participants complete the [Current regime] sheet before moving on to the holistic balance sheet section. 5.2 Scenario sheets 5.8 After completing the [SET0Common] sheet, the time has come to start filling the scenario sheets. Participants are recommended to start with the three main scenarios or at least the Benchmark scenario before moving on to the specific scenarios. The specific scenarios differ from the benchmark scenario with respect to only one option. This implies that many of the calculations performed for the benchmark scenario can be used for the specific sets. 5.9 Not all sets of options will be relevant for all participants. For example, set 10 and 11 respectively including pure discretionary benefits and excluding mixed benefits will be irrelevant for IORPs not disposing of such types of 7/16

8 benefits. Similarly, set 13 that excludes pension protection schemes will not be relevant for IORPs that are not covered by such a scheme If a specific scenario is not applicable, participants can indicate this in the topleft corner of the scenario sheets. This makes it clear that an option included in a specific scenario does not lead to any changes compared to the benchmark scenario. The same dropdown menu should also be used to assign the filled status to the sheet if all cells are completed. A scenario sheet with a filled status will automatically appear in the [Overview] sheet. Holistic balance sheet 5.11 As a first step in completing a scenario sheet, participants should value the moving parts of the holistic balance sheet. These are the best estimate of technical provisions, risk margin, deferred tax liabilities, deferred tax assets, sponsor support, pension protection schemes and amounts recoverable from (re)insurance and SPVs The (adjusted) basic riskfree interest rate curves and inflation curves that participants will need for the valuation of the holistic balance sheet in the different scenarios are provided in a separate excelsheet included in the QIS package. A helper tab is made available that may be used to calculate the matching adjustments to the basic riskfree interest rate in sets 6 and The QIS package also contains helper tabs that may assist IORPs in establishing the maximum amount of sponsor support using the standard method provided in the technical specifications, the market value of sponsor support using simplification 1 & 2 and the market value of the pension protection scheme using the simplification These simplifications can also be used to value the reduction of benefits in case of sponsor default, if applicable. This value equals the difference between the value of sponsor support with and without default risk in the absence of a pension protection scheme (see HBS.4.50(b)) and the difference between the value of the pension protection scheme covering 100% of benefits and its actual coverage rate in the presence of a pension protection scheme (see HBS.4.50(b)). In addition, the helper tabs for sponsor support can be used to establish the value of the pension protection scheme under the option where it reduces the credit risk of the sponsor (see HBS6.90) in scenario 12. 8/16

9 5.15 Pension obligations should be segmented into pure DC, health benefits and other obligations. The value of any pure DC pension obligations is automatically set equal to the value of pure DC assets by the spreadsheet. 0 Risk margin 0 Best estimate - Total (without pure DC) - health benefit obligations 0 total other benefits - Unconditional other obligations - (-) benefit reductions in case of sponsor default - (-) BE of ex-post reduction - Total pure conditional benefits ====> - pure discretionary benefits - mixed benefits 0 Pure defined contributions liabilities 5.16 Participants should separately report the value of unconditional benefits, pure conditional benefits, pure discretionary benefits and mixed benefits. If benefit reductions in case of sponsor support and ex post benefit reductions are included in the valuation, there impact (with a negative sign) should be reported separately If possible, participants should split the value of pure conditional benefits into the value of pure conditional benefits before ex ante reductions and the impact (with a negative sign) of ex ante reductions. The latter value should be reported as ex ante mechanism reduction in the margin of the balance sheet. - Total pure conditional benefits ====> of which - Ex-ante mechanism reduction 5.18 The spreadsheet will automatically establish the risk margin if applicable as 8% of the best estimate of health benefits and other obligations Participant should report on the value of recoverables from (re)insurance and SPVs by using the same breakdown as for the best estimate of technical provisions. The reason is that the total value of benefits that can be adjusted in the calculation of the SCR (DCL) is determined net of (re)insurance effects. Additional information 5.20 Directly to the right of the holistic balance sheet, participants are requested to provide some additional information: 9/16

10 IORPs may provide on a voluntary basis the value of sponsor support using simplifications 1 & 2 implemented in the two helper tabs. The information allows EIOPA to enhance the simplifications by comparing the outcomes of the various methods, including an own method that may have been used in the valuation of the holistic balance sheet. The modified duration of the pension liabilities. The level B best estimate of technical provisions using the expected return on assets derived in the [SET0Common] sheet as the discount rate. Only in the benchmark scenario should participants analyse the sensitivity of the best estimate of technical provisions to an upward shift in the riskfree interest rate curve of 100 bps and a downward shift of 100 bps. Only in scenarios 67 should participants provide additional information on the application of the matching adjustment: the part of the best estimate that was valued without the matching adjustment, the derived fundamental spread in basis points and the size of the matching adjustment in basis points Below the holistic balance sheet, participants are asked to provide some more additional information: The value of sponsor support as an ancillary own fund for scenarios where sponsor support is not treated as an asset. The maximum value of (1) benefit reductions in case of sponsor default and ex post benefit reductions, (2) sponsor support, and (3) the pension protection scheme, will be used in the SCR calculation. The methods used to value unconditional benefits, nonunconditional benefits, ex post benefit reductions, sponsor support, pension protection scheme, maximum sponsor support and the adjustment for default in the calculation of amounts recoverable from (re)insurers. The information requested corresponds to questions 32, 33, 34, 48, 49, 52 and 63 in the qualitative questionnaire. Solvency capital requirement 5.22 After completing the holistic balance sheet for a given scenario, it is time to move to the SCR part of the scenario sheet. Participants should start 10/16

11 with III Details of formula followed by IV Market risk details and V Pension liability risk details and finish with II Capital requirements. Details of formula 5.23 This part of the sheet gives an overview of the 6 SCR risk modules distinguished in the SCR standard formula. 1. The capital requirement for intangible asset risk will be calculated automatically using the value of intangible assets provided in the [SET0.Common] sheet. 2. IORPs providing health benefits should provide a breakdown of the value of health obligations for the scenario in: medical, income protection and workers compensation insurance. Based on the breakdown of technical provisions and premiums (provided in the SET0Common] sheet), the capital charge for health risk will be automatically calculated by the spreadsheet. 3. The capital requirement for operational risk will be automatically generated using the information provided on contribution and expenses in the [SET0Common] sheet and the value of technical provisions in the current scenario. 4. Participants should fill in the gross and net SCRs for counterparty default risk of type 1 and type 2. The overall capital requirements for counterparty default risk are generated by the spreadsheet. The overall risk charge is decomposed in a total exposure and a diversification effect for information purposes. Participants are also requested to specify the method used to assess the SCR for counterparty default risk, in line with question 67 of the qualitative questionnaire. The QIS package contains a helper tab to assist participants in determining the gross SCR for type 1 and 2 counterparty default risk. 5. The capital requirements for market risk and pension liability risk are aggregated here using the output for their respective submodules provided by participants in part IV Market risk details and part V Pension liability risk details. The parameter A in the correlation matrix is automatically determined based on the type of interest rate shock used. Market risk details 5.24 In this part of the sheet IORPs should provide the results of the scenario based calculations for the various market risk submodules. This involves 11/16

12 the valuation of a poststress balance sheet with and without allowing for the lossabsorbing capacity of technical provisions and security mechanisms The QIS package includes helper tabs to assist IORPs in calculating the impact on the balance sheet of the following market risk submodules: Interest rate risk; Interest rate risk (with matching adjustment for sets 6 & 7); Interest rate risk with inflation module; Interest rate risk with inflation module (and with matching adjustment for sets 6 & 7); Spread risk on bonds and repackaged loans; Concentration risk; 5.26 Participants should first specify the prestress net value of assets and liabilities for those parts of the holistic balance sheet that are sensitive to the stress being applied. The spreadsheet generates by default the pre stress NAV based on all assets and liabilities in the holistic balance sheet. So, if the participant only assesses a subset of assets and liabilities with respect to the stress being applied for example, assets and liabilities sensitive to interest rate risk then the default value should be overwritten with the relevant prestress NAV Next participants should report the poststress value of assets and liabilities without and with lossabsorbency. The spreadsheet will subsequently calculate the gross and net capital charges based on the change in the net asset value ( NAV). Note that the spreadsheet contains cells allowing to differentiate the effect of loss absorbency on assets (e.g. sponsor support value) and liabilities (e.g. conditional benefits reductions). If a participant cannot provide this breakdown between asset effect and liability effect, the net risk level can be entered directly in the spreadsheet, overwriting the existing default formula The spreadsheet also aggregates capital charges in submodules that are made up of multiple stresses, as with interest rate risk using the inflation module, equity risk with the exception of the durationbased approach and spread risk. In addition, the spreadsheet will select the right shock when the capital charge is the higher of an upward and downward shock, as with interest rate risk, spread risk on credit derivatives and currency risk Participants should specify using the dropdown menu in the column on the far right the methodology used to assess the stress: risk not applicable, scenario based, simplification provided, omitted (not material), 12/16

13 omitted (no time) or other (own method). The information requested corresponds to question 67 in the qualitative questionnaire In most scenarios participants have the possibility to use the inflation module when assets and/or liabilities are directly linked to inflation. The inflation module separates the nominal interest rate stress into a real interest rate shock and an inflation shock. IORPs using the regular interest rate module should report two lines with poststress values for assets and liabilities with and without loss absorbency (upward and downward). In this case the cells for the poststress values for Inflation curves altered upward and Inflation curves altered downward do not have to be filled. IORPs using the inflation module should report all four rows with post stress values for assets and liabilities with and without loss absorbency. The poststress values of assets and liabilities after the real interest rate shocks should be reported behind nominal term structure altered upward and downwards. The poststress values after the inflation shocks impacting through the discount rate as well as any linkage of assets and liabilities to inflation should be reported behind inflation term structure altered downward and upward In most scenarios IORPs should use the durationbased dampener in the equity risk module. If the average duration of the liabilities does not exceed 12 years, participants should report the stressed values using the standard symmetric adjustments and enter the symbol in the pre stress column behind duration approach. That way it will be indicated by the spreadsheet that the symmetric adjustment is used The concentration risk submodule is not scenariobased, which means that participants should report the (gross and net) value of the capital requirements directly. Pension risk details 5.33 In this part of the sheet IORPs should provide the results of the scenario based calculations for the various pension liability risk submodules. The same procedure should be followed as for the market risk submodules described above: 13/16

14 Complete the prestress net value of assets and liabilities of those parts of the holistic balance sheet that are sensitive to the risk under consideration. Report the poststress values for assets and liabilities without and with lossabsorbency of technical provisions and security mechanisms. Specify the methodology used to assess the different stresses using the dropdown menu on the far right The pension liability risk module contains many simplifications that are not scenariobased, but that calculate the capital requirements in a direct manner. Participants using such a simplification should report on the risk charges directly by overriding the formula cells for gross risk and net risk The QIS package contains a helper tab that assists participants in calculating the simplifications for mortality risk, longevity risk, disability morbidity risk, benefit option risk, expense risk and catastrophe risk. Capital requirements 5.36 The part II Capital requirements provides an overview of the capital requirements in the scenario. In the lower panel the gross and net capital requirements for the six SCR risk modules are aggregated to derive the Basic Solvency Capital Requirement (BSCR) and the overall Solvency Capital Requirement (SCR). The SCRs for the 97.5% and 95% confidence levels are automatically approximated by the spreadsheet The panel also gives an overview of the maximum sponsor support available, maximum value of pension protection scheme available and the value of adjustable liabilities available (DCL). These values are used to put a ceiling on the total lossabsorbency for technical provisions and security mechanisms (Adj1 + Adj2) Two more inputs have to be provided in this panel: 1. If applicable, participants have to provide the adjustment for the loss absorbing effect of technical provisions and security mechanisms with regard to health risk, intangible asset risk and operational risk. Participants should report this overall adjustment (Adj2) as well as the breakdown of the adjustment. The overall adjustment should not exceed the remaining maximum loss absorbing capacity of technical provisions and security mechanisms. 14/16

15 2. If applicable, participants have to fill in the poststress value of net deferred taxes. The magnitude of the shock is already provided by the spreadsheet. After having filled in the poststress value, the spreadsheet will automatically generate the adjustment for the loss absorbency of deferred taxes (AdjDT) as well The top panel shows the total value of own funds and compares this value with the SCR and MCR under the three confidence levels. The MCR is automatically calculated by the spreadsheet as 35% of the SCR. 6. Overview 6.1 The [Overview] sheet gives an overview of the main outcomes in the eighteen scenarios: a condensed version of the holistic balance sheet and the Solvency Capital Requirement (SCR) and Minimum Capital Requirement (MCR) under the three confidence levels. 6.2 Two measures are provided for the impact of the scenario in comparison with the current situation are provided: The change in the excess of assets over liabilities. The change in the surplus, defined as the value of own funds (including ancillary own funds) minus the SCR. 6.3 The last table provides a decomposition of the impact measured by these two definitions. Overall impact (= surplus (SCR) minus current surplus) at the 99.5% level Overall impact (= surplus (SCR) minus current surplus) at the 97.5% level Overall impact (= surplus (SCR) minus current surplus) at the 95% level - change in value investments - change in value sponsor support - change in value pension protection schemes - change in value (re-)insurance recoverables - change in value other assets - change in value best estimate technical provisions - change in value risk margin - change in value other liabilities Change in excess of asset over liabilities (= HBS minus current) - change in solvency capital requirement at the 99.5% level - change in solvency capital requirement at the 97.5% level - change in solvency capital requirement at the 95% level - change in sponsor support as ancillary own funds 15/16

16 7. Qualitative questions 7.1. Participants should provide their responses to the spreadsheet part of qualitative questionnaire i.e. the nonopen questions in the [Qualit] sheet Some questions should already have been answered in previous sheets: Questions 16 on the identification of the respondent in the [Participant] sheet. Questions 32, 33, 34, 48, 49, 52 and 63 on the methods used to value various items of the best estimate of technical provisions, sponsor support, pension protection schemes, maximum sponsor support and (re)insurance recoverables in the scenario sheets. Question 67 on the methods used to calculate the market risk sub modules, counterparty default risk module and pension liability risk submodules in the scenario sheets IORPs should provide their responses to the spreadsheet part of the qualitative questions in the matching adjustment addendum in the [Qualit.MA] sheet. 8. Updates 8.1. In the update of 25 October 2012 the following changes were made: Clarification on completing foreign currency exposure of liabilities in 5.7. Clarification on not applicable status of a specific scenario in Clarification on prestress NAV with regard to default net asset value in In the update of 15 November 2012 the following changes were made: Updating the user guide after the publication of the matching adjustment addendum by the European Commission on 12 November 2012 in 1.13, 2.3, 2.8, 5.12, 5.20, 5.25 and 7.3. Clarification on the two cells added for the value of sponsor support using the two simplifications in /16