Non-life Technical Provisions Templates September 2013 QRT... · Non-life Technical Provisions...

SAM QRT Workshop Non-life Technical Provisions Templates

September 2013 SAM

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Agenda

• Welcome and introduction

• Background and guiding principles to the development of QRT’s

• Segmentation (Non-Life Insurance)

• Non-Life Technical Provisions QRT’s

• General

• Questions and closure

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“Renewed market confidence requires accurate valuation and the prompt disclosure of relevant risk information.”

Source: CRO Forum – Insurance Risk Management Response to the Financial Crisis

Background and guiding principles to the development of the QRT’s

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DISCUSSION POINTS

• Reporting Task Group (RTG) Initiatives

• Formation of FIRe Working Group

• Guiding principles used by FIRe

• Output of FIRe

• Consultation with industry experts

• Interaction with RTG

• Questions

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RTG INITIATIVES

• RTG Terms of reference:

“……..To deliberate and advise on the implementation of reporting requirements and standards based on Pillar III of the Solvency II Directive …….”

• RTG “feeds” into Pillar III sub committee as part of the

SAM structures

• RTG membership: representatives from Industry,

Consultants & FSB SAM

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RTG INITIATIVES (Cont)

• Used Solvency II templates as a starting point (terms of

reference)

• Working Groups made excellent progress

• But then, decisions were required to progress further

• FSB input and guidance became critical

• FIRe was formed

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FIRe • FSB and Industry Reporting Working Group

• Smaller group; Industry and Consultants from across the sector

• FSB – HoD’s, Pillar chairs, and others

• Guiding principles when FIRe commenced:

• Separate and Combined FIRe meetings

• What information the FSB would require and why

• What is the best format in which to receive info

• To use output of RTG as much as possible

• Output of FIRe back to RTG

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FIRe (Cont)

• Commenced by grouping required information into sections:

Solvency, Liquidity, Volume, etc.

• Discussed and agreed in FIRe (Combined) meeting

• Then scanned various jurisdictions for format of reporting (Sol

II, APRA, SARB, QIS II, etc.)

• For the Life Technical Provisions templates, the best fit was SA

QIS II

• Then we mapped RTG output into QIS II format and feel and

debated fit against FSB requirements

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FIRe (Cont)

• Guiding principles in refining templates:

• Risk based supervision

• What to do with information

• How to sort or filter information

• Standardisation: closed lists, drop down boxes, segmentation

• One return for life and non-life

• Attempt to link with Pillar I stresses & calculations

• Comparatives – only Balance Sheet at this stage

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FIRe (Cont)

• Reconciliation – Balance Sheet format, valuation differences only

• Standardised vs. Customised sheets; Company information will

customise to some extent

• Log files; possibly to be augmented at later stage

• Mindful of software package functionality

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FIRe (Cont)

• Work in progress

• Segmentation of classes of business for reporting purposes

• Definition for foreign business

• Findings of the SAM Reinsurance Project

• Actual thresholds still to be defined

• Numbering of columns; Sequence of templates

• Formulae

• Public comment following Steerco will be channelled back to

RTG / FIRe as appropriate

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Segmentation

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Segmentation

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• Discussion Document 29 (v5) defines Non-Life insurance and section 7.2 sets out the proposed authorisation classes and sub-classes for non-life insurance

• Proportional reinsurance may be written under the same authorisation classes as apply to direct insurance

• Re(insurers) wanting to accept non-proportional reinsurance will have to be specifically authorised for the non-proportional reinsurance class, as well as the classes of business from which the non-proportional reinsurance originates

Definition of Non-Life Insurance

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Non-life insurance - means any arrangement under which a person against direct or indirect, or partially or fully subsidised, payment of any consideration, accepts a risk from another person;

(a) by undertaking to -

(i) restore that other person or that person’s estate or another identified person to the actual financial position (or a part thereof) that person would have been in if not for the happening of a specific uncertain future event; or

(ii) make good the actual financial loss or liability for actual financial loss (or a part thereof) of that other person or that person’s estate or another identified person;

(b) on the happening of a specific uncertain future event, excluding events relating to disability, life or death, in which that other person or that person’s estate or another identified person at the start of the arrangement and at any time thereafter has an insurable interest in respect of the non-occurrence of that event;

and includes a renewal or variation of that arrangement.

(DD29)

Segmentation

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Main Class Sub Class

1) Accident and Health

2) Motor a) Personal b) Commercial

3) Aircraft

4) Marine

5) Rail

6) Transport

7) Agriculture

8) Engineering

9) Property a) Personal b) Commercial

Segmentation

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Main Class Sub Class

10) Liability a) Motor b) Aircraft c) Marine d) Rail e) Transport f) Engineering g) Other

11) Trade credit, suretyship and guarantees

12) Consumer credit

13) Legal

14) Travel

15) Miscellaneous

16) Non-proportional reinsurance

SAM Balance Sheet

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Overview and key elements

Pillar 1

Assets

Liabilities

Technical Provisions

MCR

SCR

Own Funds

Pillar 2

Governance Framework

Control Functions

Risk Management

System

ORSA

Stress testing

Pillar 3

Private Reporting

Public Disclosure

Qualitative reporting

Quantitative reporting

Quarterly and annual

Insurance Groups

Definition

Scope

Supervision

Methods of calculation S

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SAM Balance Sheet

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C D

B

A

Free assets

Assets Covering Technical

Provisions, MCR & SCR (including

financial instruments)

SCR

Technical Provisions (including financial

instruments)

A - MCR

B - Risk Margin

C - Market consistent valuation for hedgeable risk components

D - Best Estimate

B & D are for non-hedgeable risk components

SCR reflects risk of the Total Balance Sheet • Market Risk • Counterparty Default

Risk • Life Underwriting Risk • Non-life Underwriting

Risk • Health Underwriting

Risk • Operational Risk

Other liabilities

Assets include • Goodwill • Intangibles • PPE • Owner occupied

property • Participations • Asset holding

intermediaries • Investments • Derivatives • Deferred and current

tax • Current and other

assets

Other Liabilities • Deferred and current

tax • Contingent liabilities • Employee benefits

Non-Life Technical Provisions QRTs

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Analysis of the gross technical provisions and reinsurance recoveries distinguish between direct business and inwards reinsurance by type of reinsurance.

Overview

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1. Technical provisions & Reinsurance and SPV recoveries

Details of the best estimate assumptions used in the valuation of Other Technical, Premium and Claims provisions and Risk margin.

2. Assumptions

Claims information in the form of run-off triangles by accident/underwriting and development quarter.

3. Triangles

Analysis of the actual and expected best estimate assumptions used in the previous valuation.

4. Sufficiency

Movements in the number of policies/contracts, premiums, claims volumes over the reporting year.

5. Movements

TP1S – Non-Life Technical Provisions

Non- Life Technical Provisions QRTs

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TP1.1S – Non-Life Technical Provisions – Reinsurance and SPV Recoveries

TP1.11S – Non-Life Technical Provisions – Reinsurance and SPV Recoveries (Treaty Proportional)

TP1S_F – Non-Life Technical Provisions (Foreign Only)

TP1.12S – Non-Life Technical Provisions – Reinsurance and SPV Recoveries (Treaty Non-Proportional)

TP1.13S – Non-Life Technical Provisions – Reinsurance and SPV Recoveries (Treaty Non-Traditional and SPV)

TP1.14S – Non-Life Technical Provisions – Reinsurance and SPV Recoveries (Facultative Proportional)

TP1.15S – Non-Life Technical Provisions – Reinsurance and SPV Recoveries (Facultative Non-Proportional)

TP1.16S – Non-Life Technical Provisions – Reinsurance and SPV Recoveries (Facultative Non-Traditional and SPV)

TP1.1S_F – Non-Life Technical Provisions – Reinsurance and SPV Recoveries (Foreign Only)

TP1.11S_F – Non-Life Technical Provisions – Reinsurance and SPV Recoveries (Treaty Proportional, Foreign Only)

TP1.12S_F – Non-Life Technical Provisions – Reinsurance and SPV Recoveries (Treaty Non-Proportional, Foreign Only)

TP1.13S_F – Non-Life Technical Provisions – Reinsurance and SPV Recoveries (Treaty Non-Traditional and SPV, Foreign Only)

TP1.14S_F – Non-Life Technical Provisions – Reinsurance and SPV Recoveries (Facultative Proportional, Foreign Only)

TP1.15S_F – Non-Life Technical Provisions – Reinsurance and SPV Recoveries (Facultative Non-Proportional, Foreign Only)

TP1.16S_F – Non-Life Technical Provisions – Reinsurance and SPV Recoveries (Facultative Non-Traditional and SPV, Foreign Only)

TP2.1S – Non-Life Technical Provisions – Other Technical Provisions Assumptions


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TP2.2S – Non-Life Technical Provisions – Premium Provision Assumptions

TP2.3S – Non-Life Technical Provisions – Claims Provision Assumptions

TP2.4S – Non-Life Technical Provisions – Risk Margin Assumptions

TP3.1S – Gross of Reinsurance and SPV Recoveries Claims Triangles

TP3.2S – Net of Reinsurance and SPV Recoveries Claims Triangles

TP3.3S –Claims Number Triangles

TP4.1S – Non-Life Technical Provisions – Other Technical Provision Sufficiency


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TP4.2S – Non-Life Technical Provisions – Premium Provision Sufficiency

TP4.3S – Non-Life Technical Provisions – Claims Provision Sufficiency


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TP5.1S – Policy and Premium Movement - Direct Business

TP5.1S_F – Policy and Premium Movement - Direct Business (Foreign Only)

TP5.2S – Contract and Premium Movement - Inwards Reinsurance Business

TP5.3S – Claims Movement

TP5.2S_F – Contract and Premium Movement - Inwards Reinsurance Business (Foreign Only)

TP5.3S_F – Claims Movement (Foreign Only)

Technical Provisions Purpose

• TP1S and TP1S_F provides a breakdown of the components of technical provisions calculated in the valuation

• Enable the FSB to assess the risk profile of the business and an analysis of sufficiency of claims provisions

• Split loss adjustment expenses (LAE) to ensure adequate provision is made for all expense cash flow items

• Undiscounted amounts are disclosed to assess the impact of discounting

Data fields

• Direct business and inwards reinsurance business by segment and sub-segment

• Reinsurance inwards is analysed further as follows:

• Treaty (proportional, non-proportional and non-traditional &SPV)

• Facultative (proportional, non-proportional and non-traditional &SPV)

• Contracts should be unbundled into the appropriate lines of business, where risk covers across different classes of business

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TP1S and TP1S_F

Technical Provisions Data fields (continued)

• Best estimate liabilities (BEL)

• Other technical provisions (Cash back/loyalty, contingent commissions, other contingent payments)

• Premium provisions

• Claims provisions (OCR & IBNR) split between claims amounts and allocated and unallocated loss adjustment expenses

• Reinsurance and SPV recoveries

• Risk margin (RM)

• Technical provisions as whole

• Gross and net of reinsurance

• Total provisions undiscounted

• Disclose foreign only and if certain threshold TP1S_F needs to be completed

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TP1S and TP1S_F

Reinsurance and SPV recoveries Purpose

• TP1.1S to TP 1.16S_F provides a breakdown of the components of reinsurance and SPV recoveries associated with the gross technical provisions by segment and sub-segment

• Recoveries from reinsurers and SPV’s should be stated after adjustment for expected losses due the possibility of default of the reinsurer

• Enable the FSB to to understand the impact of reinsurance and counterparty risk from reinsurance

• Undiscounted amounts are disclosed to assess the impact of discounting

Data fields

• Reinsurance recoveries on direct business and inwards reinsurance business by segment and sub-segment

• TP 1.1 S and TP 1.1S_F summarises the results for TP1.11S to TP1.16S_F respectively

• Disclose foreign only and if certain threshold TP1S_F needs to be completed

• Contracts should be unbundled into the appropriate lines of business, where risk covers across different classes of business.

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TP1.1S to TP1.16S_F

Reinsurance and SPV recoveries Data fields (continued)

• Reinsurance and SPV recoveries are analysed separately as follows:



• Best estimate for reinsurance and SPV recoveries

• Other technical provisions (Cash back/loyalty, contingent commissions, other contingent payments)

• Premium provisions

• Claims provisions (OCR & IBNR) split between claims amounts and allocated and unallocated loss adjustment expenses

• Technical provisions as whole

• Total reinsurance and SPV recoveries

• Total reinsurance and SPV recoveries undiscounted

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TP1.1S to TP1.16S_F

Other Technical Provisions Assumptions Purpose

• The template splits the assumptions into three sections:

• Cash-Back and Other Loyalty Provisions

• Contingent Commission Provisions

• Other Contingent Payment Provisions

• No prescribed basis under SAM to value these provisions

• Need to analyse homogenous risk groups (HRGs) according to nature of the risks underlying the contract

• Enable the FSB to better understand the valuation, give an overall indication of the duration of liabilities used in the calculation and monitoring of risks and actuarial judgement applied

• Due to non-standard nature of the Contingent Commission and Other Contingent Payment structures key assumptions need to be provided

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TP2.1S

Other Technical Provisions Assumptions Data fields





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TP2.1S

∙HRGs ∙How many HRGs ∙Pay out depending on claim status ∙Vesting period ∙Ave duration to payout ∙Ave benefit as % of premium ∙ Lapse rates ∙Claims frequency ∙Actuarial judgement

Cas

h b

ack

& lo

yalt

y ∙HRGs ∙Profit commission structures ∙Sliding scale commission structures ∙Other ∙Actuarial judgement

Co

nti

nge

nt

com

mis

sio

ns ∙HRGs

∙Other commission payment structures ∙Actuarial judgement

Oth

er c

on

tin

gen

t p

aym

ent

Premium Provision Assumptions Purpose

• The template provides details of the best estimate assumptions




Data fields





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TP2.2S

Premium Provision Assumptions Data fields

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TP2.2S

∙HRGs ∙How many HRGs ∙Ave contract boundary ∙Ave policy term ∙Discounted mean term ∙Assumed lapse rates ∙Ave RI commission ∙Ave inflation rate ∙Actuarial judgement

∙Ave annualised premium per policy ∙Other cash flows as a % or premium

Gro

ss c

ash

infl

ow

s ∙Ultimate LR net of non-RI recoveries ∙Ultimate expense ratio ∙Ave initial expenses per contract ∙Ave commission rate ∙Other cash flows as a % of premium G

ross

cas

h o

utf

low

s

Claims Provision Assumptions

Purpose

• The template provides details of the best estimate assumptions as follows:

• Best Estimate Claims Provision

• Best Estimate ALAE

• Best Estimate ULAE



• Assumptions used should be representative of grouping as a whole


Data fields


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TP2.3S


Data fields




1. Best estimate claims provisions – Ranking of methods used

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TP2.3S

∙HRGs ∙How many HRGs ∙Discounted mean term ∙Allowance for RI explicitly

∙DFM ∙BF ∙ LR ∙ACPC ∙% Premium ∙Simplifications ∙Other ∙Description

Paid

cla

ims

Incu

rred

cla

ims ∙DFM

∙BF ∙ LR ∙ACPC ∙% Premium ∙Simplifications ∙Other ∙Description


1. Best estimate claims provisions – Gross assumptions

1. Best estimate claims provisions – Cumulative development factors

• Paid, Incurred or Numbers triangles

• Provide information for 10 development years

• Tail factor if > 10 years

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TP2.3S

∙Ave claim amount ∙ Initial expected loss ratio ∙% Premium ∙Key assumptions for other methods ∙Actuarial judgement

OCR & IBNR ∙Assumed annual frequency ∙Assumed severity

First simplification

∙OCR – Ave case estimate ∙ IBNR - Factor

Second simplification


2. Best estimate ALAE assumptions

• Implicit/explicit

• Method used (i.e. triangle, % premiums, % claims, other)

• Description if other

• Actuarial judgement used

3. Best estimate ULAE assumptions

• Items allowed for (e.g. rent, salaries)

• Portion of total ULAE

• Actuarial judgement used

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TP2.3S

Risk Margin Assumptions

Purpose

• This template provides details of the projected SCR run-off used in the risk margin calculation

• Will give the FSB an understanding of the drivers of the risk margin and how it will run-off over time

Data fields

• Method for calculating (i.e. full or partial internal model or standard formula)

• Method for allocating to line of business (i.e. premiums, BEL, SCR or Other)

• Full Calculation or Risks Approximation (SCR Runoff in years) and allocated by driver

• SCR Approximation (Runoff years)

• Duration approach – complete the total projected SCR run-off and duration

• Other method plus a description

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TP2.4S

Claims triangles

Purpose

• The template provides information in the form of run-off triangles by accident/underwriting and development quarter and split as follows:

• Gross of reinsurance and SPV recoveries

• Net of reinsurance and SPV recoveries

• Claims numbers

• Will provide the FSB with granular data to assess whether the provisioning is sufficient and for other supervisory purposes (e.g. monitor claims management and collation of industry data)

• Enable comparison between the BEL and development of claims experience

• To monitor and recalibrate, if necessary, the non-life premium and reserve risk sub-modules of the standard formula S

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TP3.1S to TP3.3S

Claims triangles Data fields

• Direct business and inwards reinsurance business by sub-segment




• Data per quarter for 10 prior years

• Exclude:

• Natural catastrophe claims resulting from events with an estimated return period of longer than 10 years

• Claims relating to events allowed for under the man-made catastrophe section of the SAM standard formula

• Non-RI recoveries such as salvages

• ULAE

• Include:

• ALAE

• Claims from foreign business

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TP3.1S to TP3.3S

Claims triangles

Data fields

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TP3.1S to TP3.3S

Gross cumulative paid claims

Gross projected ultimate claims

TP3

.1S

Gross cumulative incurred claims

Net cumulative paid claims

Net projected ultimate claims

TP3

.2S

Net cumulative incurred claims

Cumulative number of claims paid

Projected ultimate claim numbers

TP3

.3S

Cumulative number of claims incurred

Other Technical Provisions Sufficiency Purpose

• The template analysis of the actual and expected best estimate assumptions used in the previous valuation into three sections:

• Cash-Back and Other Loyalty Provisions

• Contingent Commission Provisions

• Other Contingent Payment Provisions

• Provide the FSB with an indication of the suitability of the assumptions used in the valuation


Data fields





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TP4.1S

Other Technical Provisions Sufficiency Data fields

1. Cash back & loyalty

2. Contingent commission provisions

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TP4.1S

Ave benefit as a % of premium

Ave duration to pay-out (months)

Assumed Annual Lapse Rate

Assumed Annual claims frequency

PY Expected, PY Actual and Actual/Expected

Sliding scale commissions

Profit commission Other contingent commissions

Key assumptions (up to 5)


Other Technical Provisions Sufficiency Data fields

3. Other contingent payment provisions

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TP4.1S

Other contingent payment provisions

Key assumptions (up to 5)


Premium Provisions Sufficiency Purpose

• The template analysis of the actual and expected best estimate assumptions used in the previous valuation



Data fields





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TP4.2S

Premium Provisions Sufficiency Data fields

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TP4.2S

Previous year actual/ previous year expected

Lap

ses Previous year

actual

Previous year expected O

ther

cas

h in

flo

ws

as %

of

pre

miu

ms

Ult

imat

e LR

net

of

reco

vera

ble

s

Ult

imat

e ex

pen

se r

atio

Ave

init

ial e

xpen

ses

Ave

an

nu

al in

flat

ion

rat

e

Oth

er c

ash

ou

tflo

ws

as %

of

pre

miu

ms

Gross cash outflows

Claims Provisions Sufficiency

Purpose

• The template provide an analysis to assess claims provision sufficiency for the previous financial year


Data fields





• Requires gross and net of reinsurance and SPV recoverables information as well as for the past 10 accident/underwriting years

• Gross and net

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TP4.3S

Claims Provision Sufficiency

Data fields

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TP4.3S

∙Earned premiums where claims triangles are provided ∙Earned premiums for all business ∙% of business where triangles exist ∙Current estimate of ultimate loss ratio

∙Claims paid until previous FY ∙ULAE paid until previous FY ∙Previous FY best estimate ∙ OCR incl. ALAE ∙ IBNR incl. ALAE ∙ ULAE ∙ Total ∙PY projected ultimate claims at the end of each year

Pre

vio

us

fin

anci

al y

ear

dat

a ∙Claims paid during current FY ∙ULAE paid during current FY ∙Best estimate at the end of current FY ∙ OCR incl. ALAE ∙ IBNR incl. ALAE ∙ ULAE ∙ Total ∙Projected ultimate claims at the end of current FY ∙Sufficiency of total claims provision

Cu

rren

t fi

nan

cial

yea

r d

ata

Pre

miu

m d

ata

Premium movements – Direct business Purpose

• The template provide an analysis of movements in the number of policies and premium volumes over the reporting year per

• Provide the FSB insight into the activities during the period and the changes in the insurer’s mix of business and risk profile

• Will help to assess the appropriateness of the estimates used in the premium risk sub-module of the standard formula

Data fields

• Requires information per segment and sub-segment for direct insurance business only

• Split between Monthly, Annual and Term (using the SAM contract boundary definition)

• TP5.1S_F requests the same information as TP5.1S in respect of foreign business provided that it exceeds a threshold to be determined by the FSB

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TP5.1S & TP 5.1S_F

Premium movements – Direct business Data fields

1. Number of policies

2. Premiums

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TP5.1S & TP 5.1S_F

Split between Annual, Monthly and Term

In force at start of

year

New Cancelled by P/H

Portfolio transfer in

Renewed Cancelled by insurer

Portfolio transfers

out

In force at end of year

Split between Annual, Monthly and Term

Written Earned Written Earned Written Earned Written Earned

Current Year Previous Year Current Year Previous Year

Gross Net

Premium movements – Inwards reinsurance business Purpose

• The template provide an analysis of movements in the number of policies and premium volumes over the reporting year

• Indicate percentage Lead reinsurer or a Follow reinsurer

• Required to gain an understanding of the systemic significance to the industry amongst other factors

• Provide the FSB insight into the activities during the period and the changes in the insurer’s mix of business and risk profile

• Will help to assess the appropriateness of the estimates used in the premium risk sub-module of the standard formula

Data fields

• Requires information per segment and sub-segment for inwards reinsurance business only


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TP5.2S & TP 5.2S_F

Premium movements – Inwards reinsurance business Data fields

1. Weighted average percentage share

2. Number of contracts

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TP5.2S & TP 5.2S_F

Split between Lead or Follow

In force at start of

year

New Cancelled by cedant


Renewed Cancelled by

reinsurer

Portfolio transfers

out

In force at end of year

Lead Follow Lead Follow

End of current Year End of previous Year

Premium movements – Inwards reinsurance business Data fields

3. Premiums

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TP5.2S & TP 5.2S_F

Split between Lead or Follow

Written Earned Written Earned Written Earned Written Earned

Current Year Previous Year Current Year Previous Year

Gross Net

Claims movement

Purpose

• The template provide an analysis of movement in the number and amount of open claims over the reporting year

• Provide insight into the claims management activities during the period and the changes in the insurer’s claims settlement patterns

• Will help to assess the appropriateness of the outcome of the reserve risk sub-module of the standard formula

Data fields

• Requires information per segment and sub-segment for direct insurance and reinsurance business

• Split between Monthly, Annual and Term (using the SAM contract boundary definition)


SAM

Pill

ar

3 -

Non-life T

P Q

RTs

54

TP5.3S & TP 5.3S_F

Claims movements

Data fields

1. Number of claims

2. Claim amounts

• Provide information for claims amounts in the same level of detail as number of claims above

• Split between Gross and Net

SAM

Pill

ar

3 -

Non-life T

P Q

RTs

55

TP5.3S & TP 5.3S_F

Open at start of

year

Reported during the

year

Settled without payment


Reopen during the

year

Settled Portfolio transfers

out

Open at end of year

Request for industry comment

• Comments due by XX September 2013.

• Self containing formulas still to be finalised as the templates are still under construction.

• QRT, item, cell and log file references or general comment.

SAM

Pill

ar

3 -

Non-life T

P Q

RTs

56

THANK YOU

SAM

Pill

ar

3 -

Non-life T

P Q

RTs

57

http://www.freeppt.net/download/3d-business-question-helps-838.html

Non-life Technical Provisions Templates September 2013 QRT... · Non-life Technical Provisions...

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