The 1200 shock factor should therefore be adjusted downwards This could for

The 1200 shock factor should therefore be adjusted

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The (1/200) shock factor should therefore be adjusted downwards. This could for example be done by using a much lower parameter for those premiums earned after the first 12 months, to assure alignment with the basic principle of SII of the 1 year time horizon. See response to Q5.2. Other Impacts of the Volume Definition for One Year Business [The discussion below provides a summary of a number of issues relating to the definition of Premium Volume. If Template comments 11/66
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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 EIOPA would find it useful, we can provide a paper setting out the discussion in greater detail.] a) Renewals which are concentrated at a point in the year – Capital charge stability throughout the year It is important that the final formulation should ensure that the volume measure should be stable over the year and the difference between insurance companies having slightly different renewal dates should be small. Changing the formula as suggested would increase not only the volume measure for multi-year contracts but also for one year contracts. This has negative side effects. For example, this would lead to an up and down movement of the volume measure (and thus also movements of premium risk) from one quarter to the other for one year insurance contracts that are renewed at a single point during the year, e.g. 1st of January. In that case according to the definition gives the following volume measure for a contract with annual premium 100 (which are recognized prior the 1st of January): • at end Q4: Volume measure = 100 or 200 (interpretation differ between national supervisory authorities and thus between countries ) • at end Q1: V = 175 (it includes contracts that are renewed the 1st of January the year after) • at end Q2: V = 150 • at end Q3: V= 125 This is not a desirable situation and is not the situation using the current definition. It is not clear how to avoid this cyclicality in the volume measure using the new definition, although it would be lessened by applying a lower risk lower parameter for those premiums earned after the first 12 months. b) Definition of Initial Recognition Date We think that one part of the definition could be clarified. The premiums to be included covers the contracts whose “initial recognition date” falls within the next twelve months. This notion of “initial recognition date” has been interpreted in different ways, for example: It could refer to the date where the contract is certain, i.e. the beginning of the frontier Template comments 12/66
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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 It could refer to the beginning of the coverage period The difference between the two interpretations can be highly material, so a consistent approach is required, to avoid market inconsistencies using the new definition.
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