Commission Delegated Regulation (EU) 2015/35Show full title

C. Reserve risk method 1

Input data and method-specific data requirements

(1) The data for estimating the undertaking-specific standard deviation for non-life reserve risk or NSLT health reserve risk of segment s shall consist of the following:

(a)

the sum of the best estimate provision at the end of the financial year for claims that were outstanding in segment s at the beginning of the financial year and the payments made during the financial year for claims that were outstanding in segment s at the beginning of the financial year;

(b)

the best estimate of the provision for claims outstanding in segment s at the beginning of the financial year.

The amounts referred to in points (a) and (b) shall be available separately for different financial years.

(2) The following method-specific data requirements shall apply:

(a)

the data are representative for the reserve risk that the insurance or reinsurance undertaking is exposed to during the following twelve months

(b)

data are available for at least five consecutive financial years;

(c)

the data are adjusted for amounts recoverable from reinsurance contracts and special purpose vehicles which are consistent with the reinsurance contracts and special purpose vehicles that are in place to provide cover for the following twelve months;

(d)

the data include the expenses incurred in servicing the insurance and reinsurance obligations.

(e)

the data fit the following assumptions:

i.

the amount referred to paragraph 1(a) in that particular segment and financial year is linear proportional in the best estimate of the provision for claims outstanding in that particular segment and financial year;

ii.

the variance of the amount referred to paragraph 1(a) in a particular segment and financial year is quadratic in the provision for claims outstanding in a particular segment and financial year;

iii.

the amount referred to paragraph 1(a) follows a lognormal distribution;

iv.

maximum likelihood estimation is appropriate.

Method specification

(3) For the purpose of paragraphs 4-6, the following notation shall apply:

(a)

the financial years are denoted by consecutive numbers starting with 1 for the first financial year for which data are available;

(b)

T denotes the latest financial year for which data are available;

(c)

for all financial years, the amount referred to paragraph 1(a) in segment s in a particular financial year t is denoted by y_t ;

(d)

for all financial years, the best estimate of the provision for claims outstanding in segment s in a particular financial year t are denoted by x_t .

(4) The undertaking-specific standard deviation for non-life reserve risk or NSLT health reserve risk of segment s shall be equal to the following:

where:

(a)

c denotes the credibility factor set out in section G;

(b)

denotes the standard deviation function set out in paragraph 5;

(c)

denotes the mixing parameter set out in paragraph 6;

(d)

denotes the logarithmic variation coefficient set out in paragraph 6.

(e)

σ_(prem,s) denotes the standard parameter that should be replaced by the undertaking-specific parameter.

(5) The standard deviation function shall be equal to the following function of two variables:

where:

(a)

and are defined in point (c) and (d) of paragraph 4;

(b)

exp denotes the exponential function;

(c)

ln denotes the natural logarithm;

(d)

π_t denotes the following function of two variables:

where:

i.

and are defined in point (c) and (d) of paragraph 4;

ii.

denotes the following amount:

(6) The mixing parameter and the logarithmic variation coefficient shall be the values and respectively for which the following amount becomes minimal:

where:

(a)

ln denotes the natural logarithm;

(b)

π_t denotes the function set out in point (c) of paragraph 5;

(c)

denotes the standard deviation function set out in paragraph 5;

(d)

denotes the following amount:

For the determination of the minimal amount, no values for the mixing parameter less than zero or exceeding 1 shall be considered.