Furthermore for a more accurate estimate of the risk risk mitigating schemes in

Furthermore for a more accurate estimate of the risk

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Furthermore, for a more accurate estimate of the risk, risk mitigating schemes in addition to reinsurance should also be recognized. For example, acquisition costs are often variable and based on the performance of the underwritten portfolio. We would support adjustments to the premium volume measure which were designed to capture such methods of risk mitigation. Detailed Discussion [The discussion below provides a summary of how the premium volume measure could be adapted to allow for premium adequacy / pricing strategy. If EIOPA would find it useful, we can provide a paper setting out the discussion in greater detail.] Although the current definition of volume of premiums allows for a relatively simple assessment, it does not take into account the ability of undertakings to price their risks in a precise or prudent manner, and worse, by requiring them to hold more capital, this definition of the volume disadvantages prudent undertakings. A review to correct this inconsistency seems necessary. A way to decrease dependency on pricing strategies might be to adjust the premium volume downwards or upwards depending on the expected result E(R). E(R) here refers to expected profit component of premium. Several approaches are possible, for example: One approach might be to modify the premium volume formula to add an expectation of result, the formula would then be the following ( where E(R) would be calculated by each company and each LoB from a formulation to be defined. Template comments 16/66
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Comments Template on Discussion Paper on the review of specific items in the Solvency II Delegated Regulation Deadline 3 March 2017 23:59 CET Another option would be to set the estimate of the volume measure not on the expected premiums to be earned but on the expected premium to be earned corrected to the 100% Combined Operating Ratio (COR) level. This can be done since for the BE premium provision an estimate on the COR for the existing business needs to be done anyway. A third option would be to base the calculation on premiums net of commissions . This has the advantage of ease of calculation and application but would not fully address the issue. A fourth option would be to replace premium indicators by corresponding expected claims and claims expenses cash-out flows. This definition would make a direct link between Best Estimate Liability and the SCR. Q5.5 Please note that the issues discussed here relate to both Non-Life and Health NSLT business See Q5.1 for our observation and suggestion regarding the definition of the “initial recognition date”. The ambiguity in this definition become more material if the premium volume definition is changed. Premium Risk: Calibration for Miscellaneous Financial Loss We question the volatility applied in this class for Premium Risk, as it appears to be too high relative to the actual risk.
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