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Document Sample
Topic Date Question Answer
ASL Sep-10 Will Lloyd’s be providing the look through investment information required on Lloyd’s centrally held assets We are currently looking into how this information could be provided to the managing agents and we aim to respond soon.
such as ASL?
Asset classification Sep-10 Item 3, information on spreads aggregates - is this section for non-EEA governments, issued in their own The helper tab spread risk calculation spreadsheet is used for all non-EEA bonds. This should be completed as follows:
currency and then converted to the reporting currency? For example, we have a lot of US Gov’t Bonds, (i) Covered bonds, select "covered"
issued in USD but no US Bonds in GBP (the reporting currency) (ii) Sovereign bonds issued in domestic currency (in this case GBP), select "Non-EEA sovereign"
(iii) Everything else (i.e. government bonds issued in the country's own currency and sovereign bonds issued in currencies other than
domestic currency), select "No"
Asset classification Sep-10 We are entering on the helper tab for spread risk our exposures to US Government stock issue in it's You should select "No".
domestic currency of US$, we are entering this as "Non EEA Sovereign, which produces no capital
requirement. However reading the Lloyd's Q+A for September 2010 under Topics "asset classification" an
answer states that; "If the syndicate is reporting in GBP, then this section should be populated with bonds
that are issued in GBP by non EU country governments." Therefore under which section should we enter
US Government stock issue in US$, "No", "Covered Bond" or "Non EEA Sovereign".
Assets Sep-10 Are the balance in the CICR, CILF etc that are reported on line 1 of QMA form 002 “Listed” or “Unlisted”? CICR is unlisted while CILF is listed
Bonds Sep-10 Please will you clarify the following in relation to the detailed QIS5 guidance for provided by Lloyd's: These are forms of structured products, hence they should be included in columns J to AB.
Allocation of ABS, CMO and CMBS bonds. The ABS, CMO and CMBS bonds disclosed in line 2 of form
QMA2 should be used in the "spread" helper tab in the bond calculation (columns B to H) and not structured
credit calculation (columns J to AB) .
Bonds Sep-10 Having reviewed the Technical specification (TP 5.88 & 5.124), it appears that Agency bonds and Agency bonds issued by a US Government-sponsored agency are backed by the US government, but not guaranteed by the government
Government Guaranteed Corporate Bonds actually carry no capital requirement if they are demonstrably since the agencies are private entities. In the case of banks partly owned by the government, their bonds are not guaranteed by the
guaranteed by the national government of an EEA state, issued in its own currency, so shouldn’t be treated government. Only those bonds that are demonstrably guaranteed by a national government should be treated as government bonds. Hence
as Corporate bonds as you mention below. Would you be able to confirm this for me please? Also, why can agency bonds and those bonds issued by banks partly owned by the government should be treated as corporate bonds in the determination
the same not apply to those holdings guaranteed by governments such as the USA, given that their credit of capital charge.
rating is higher than some of the EEA state members? It appears counter-intuitive that a bond that yields far
less than a Corporate and carries far less risk than a Corporate, should carry the same capital requirement
as a Corporate bond. Essentially, if we are going to be penalised in this way, we may as well transfer all of
our holdings out of the “safe” investments and into “risky” Corporate investments. Is this something we can
address to CEIOPS?
CICR funds Sep-10 We have funds that are held in CICR, these are reported in QMA2 Line 1. According to the instructions CICR should not be reported under participations. CICR and CILF should be treated in the valuation tab as cash and cash equivalents.
under QIS5 they are to be reported under assets as participations. Are you expecting to see this in the
participations tab, if so how do we classify it?
Counterparty risk Sep-10 In the assets tab for Counterparty default risk are you expecting the values to be based on the helper tab from If you use the helper tab to complete this section, then yes.
CEIOPS ?
Counterparty risk Sep-10 This is section 5 on the Assets tab and there is a helper tab to help you complete. More guidance for the Section SCR.6 of the QIS5 technical specification contains further information about what should be included within this module, but
helper tab would be good e.g. What is the definition of recoverable, I assume RI on premiums and claims broadly speaking, the risk associated with defaults by all counterparties should be included within this risk module. Any amounts
provisions (but what about paid RI accruals)? (including reinsurance recoveries) that are yet to be received from a counterparty, even if agreed, must be captured. This risk module also
captures the effect on the underwriting and market risk SCRs of the loss of risk mitigation from each reinsurance contract. Believe that the
default risk charge calculated by the helper sheet does depend on how many reinsurers are listed. Grouping together does seem to
increase capital charges (presumably diversification effects). We are not aware of any simplifications available under QIS5, other than that
mentioned in Section SCR.6.54 which relates to splitting up the effect on the SCR by reinsurer.
Counterparty risk Sep-10 This is section 5 on the Assets tab and there is a helper tab to help you complete. More guidance for the For completeness, the recoverables from reinsurance arrangements for the purpose of the SCR calculation should include all amounts
helper tab would be good e.g. What is the definition of recoverable, I assume RI on premiums and claims due from counterparties and so, unlike the technical provisions, should include paid RI accruals. QIS5 does allow for simplifications on the
provisions (but what about paid RI accruals?). Also in QIS4 we were able to use a simplification putting counterparty default module and so banding by credit rating would be acceptable (assuming an equal probability of default within the rating.
reinsurers in the 6 banding groups rather than listing each one separately, are we allowed to do this again? Note SCR.6.57 - default probabilities used must be the highest of those within the group).
Currency Sep-10 On the Assets tab in section 2 (information on currency risk) what components of the balance sheet should This should be the whole trial balance.
be included here e.g. is all assets or just investments or is it the whole trial balance?
Currency Sep-10 Agents should enter, "in the currency of the spreadsheet (required to be Sterling), details of their assets All foreign currency assets/liabilities should be entered, in Sterling. The chosen treatment should allow for capturing all exposure to
and liabilities exposed to currency risk, split by currency shown.” I assume that effectively this is all assets currency risk, (with some allowance for materiality).
and liabilities to tie up to the assets and liabilities total on the valuation tab (but on a current basis or S2
basis) . And I also assume that materiality would apply to splitting assets and liabilities between currencies,
the normal 4 currencies but also what about non pure convertible £ as we have to disclose for technical
provisions? No obvious line for this so I assume not. Can you confirm treatment please?
Government securities Sep-10 How are regional / municipal government securities to be treated? As per CEIOPS' FAQ no. 56, page 44 ( https://www.ceiops.eu/fileadmin/tx_dam/files/consultations/QIS/QIS5/CEIOPS-Q-and-A-document-
20100923.pdf), " The capital requirement for local authority bonds is "0" in credit spread risk and market risk concentrations only when
local authority bonds are demonstrably guaranteed by national government of an EEA state and are issued in the currency of the
government. Otherwise, standard risk factors should be applied." This means that if the bonds do not meet the above requirement, then they
should be treated as corporate bonds.
Investments Sep-10 For all investments we have entered modified duration on the spread helper tab and we are now preparing The duration of assets to be used is the modified duration.
investment holding cashflows to process through the "discounting tool". For Corporate/Treasury bonds we
have no problem. However for mortgage backed securities with a given maturity date in say 20 years which
investment managers have advised a modified duration of say 4 years, should we be entering the cashflow
for this security going out for the
modified duration of four years or the full 20?
MM Funds Sep-10 Can you confirm that MM funds did not require look through and are to be treated as cash for QIS5 I can confirm that you should treat MM funds as cash for QIS5 purposes and look through is not required.
purposes?
Overseas deposits Sep-10 If we are applying a look-though basis to the underlying assets, should these be included in the Bonds and Agreed, look through procedures need to be applied on the overseas deposits. The proposal in the QIS 5 guidance to split these between
Cash lines in the Valuation tab, as opposed to the Long / Short Term Bank Deposits suggested in the short and long was meant only for any deposits included in the overseas deposits.
Lloyd’s Detailed Guidance QMA mapping suggests?
Basic own fund items Sep-10 Your instructions say pick up line 11 of form QMA205. What line in Basic own funds items would you expect Members' balance should included in the "Retained earnings including profits from the year net of foreseeable dividends" line
this to appear. It could be either ‘Retained earnings including profits from the year net of foreseeable
dividends’ or ‘Surplus funds’.
Cash deposits Sep-10 Do I treat the collective investment schemes e.g. deposit arrangements as the custodian defaulting or the This should be treated at underlying asset level. Information on overseas deposits was provided to the market 1 October.
underlying assets underneath them. Is there any split of investments available for overseas deposits yet.
Concentration risk helper Sep-10 Question relates to QIS5 tab SF.SCR.G point 5.104 - Concentration Risk Is the Initial Asset Value total and The concentration risk helper doesn't automatically feed into the QIS5 sheet. I understand that cell F410 of the SCR sheet (labelled
tab Net asset value after shock amount automatically populated from the concentration risk helptab or are these Mktconc) needs to show the value calculated within cell C2 on the concentration risk helper tab (also labelled as MKTconc). You will need
figures manually entered. If manual, what is the shock factor? to input figures to cells F412 and F413 accordingly.
Contingent liabilities Sep-10 Does the 3% callable New Central Fund contribution count as contingent liabilities? If so , do I need to This would not qualify as a contingent liability under IAS 37. Please see definition of contingent liability in the QIS5 Technical
include it in my QIS 5 Balance Sheet? Specifications, page 17
Counterparty simplification Sep-10 Can you confirm that once I run my SCR calc say 4 times for 4 bands of failed reinsurers and also calculate There are actually two simplifications in use here, the simplified calculation for non-life reinsurance, and the simplification for grouping
the capital cost of failure of banks , intermediaries etc I simply add these numbers together and put in cell counterparties together. It is worth investigating the impact of both, as the use of simplifications is subject to a few conditions about
C18? proportionality (see pgs93-94, SCR1.15-SCR1.23). SCR6.55 also states that the non-life reinsurance simplification cannot be used if it
were to significantly misestimates the risk mitigating effect, or if the result of a more sophisticated calculation is not easily available. From
a few test calcs I have done, the simplified method does significantly misestimate the result so would not be appropriate. Cell C18 (SCR nl)
is just for the impact of non-life RI mitigation on the non-life underwriting risk SCR. Other counterparty exposures sit elsewhere.
Regarding the second simplification, I would check the impact of diversification, as you could have significantly higher charges by
concentrating reinsurance into fewer buckets.
FAL/Overseas deposits Sep-10 Inclusion of FAL in Balance Sheets, Own Fund calculations and SCR calculations. For those Syndicates This information has now been provided to the market.
with a significant proportion of third party capital support, will Lloyd’s be providing us with the breakdown of
the third party capital, into individual stocks including maturity dates, credit ratings, valuation methodologies
etc in order to enable us to run the concentration risk, spread risk calculations etc?
FAL Sep-10 Is the Trust subject to the capital requirements outlined in the market risk module? Yes, in the case of FAL supported by form other than LOC and Bank Guarantee. The amount of FAL that is supported by LOC/Bank
Guarantee is included in the ancillary own fund items (outside the balance sheet) and does not have a corresponding entry in the assets
amount.
FAL Sep-10 How are excess funds taken into account in determining the capital requirements? As per our QIS 5 guidance, page 5, "For a syndicate where all of the capital is provided by a member or group of members participating
solely on that syndicate, please report the full value of FAL held as at 31 December 2009".
The full amount of FAL should be included as assets, however if there is an element of FAL that is supported by LOC/Bank Guarantee, this
should be ignored and it should be included in the ancillary own funds items (this is an off-balance sheet item).
FAL Sep-10 We hold corporate bonds, held in Lloyds trust as FAL. We assume these investments will be included as Corporate bonds held as FAL should be included as assets in the balance sheet and the corresponding entry should be included in the
assets on the balance sheet but are unclear as to where they should be included in own funds tab. Can you basic own funds items. The amount should be included in the "ordinary share capital (net of owns shares) - paid up" line.
please advise?
FAL Sep-10 How should FAL provided in form of cash/investments be treated in the QIS 5 balance sheet? This should be treated as Basic Own Fund items and should be included in the "ordinary share capital (net of own shares) - paid up
capital" line. The corresponding amount should be included in the respective assets lines.
FAL Sep-10 How should FAL provided in form of LOC be treated in the QIS 5 balance sheet? LOCs are treated as Tier 2 capital and should be accounted for in the QIS 5 spreadsheet as Ancillary Own Fund items. The ancillary own
fund amount is outside the balance sheet, hence no amount is included in the assets value. Also as stated in the QIS 5 Technical
Specifications, SCR. 6.45, page 144, "A letter of credit should not be taken into account in the calculation of the counterparty default risk
model if its approved as ancillary own funds".
FAL Sep-10 For FAL cash balances the double entry is presumably Dr Cash Cr Tier 1 own funds. Is this correct? Yes
FAL Sep-10 Is FAL cash allocated to "Initial fund" as opposed to share capital or "other reserves"? This is allocated to the "Ordinary share capital (net of own shares) paid up" line
FAL Sep-10 For the FAL cash balances, (which are a combination of USD and GBP balances), these are presumably Yes
valued at balance sheet rates rather than the exchange rate used in the November coming-into-
line valuation?
FAL Sep-10 For LOC, I think there has to be an associated debit or else the spreadsheet doesn't validate i.e. it doesn't LOC is included in the ancillary own fund items, an off-balance sheet item, and hence no debit entry in the spreadsheet.
balance. Am I mistaken?
FAL Sep-10 As for cash FAL balances, I presumably use the balance sheet exchange rate rather than the Nov CIL Yes
exchange rate?
Investment Funds Sep-10 Per page 23 and the additional note on page 24 Investment Funds such as mutuals, should be valued on a Agreed. However you also need to consider any funds that could be included in QMA 2, line 3
look through basis. For current accounting basis the cross reference on the QMA2 is to line 3. However as
at 31.12.09 I do not believe this is where mutuals were put (and the QMA 2 is auto generated). They were on
line 1 on the QMA2 but line 3 on the QMA 201.
Liquidity Sep-10 As at 31/12/09, we held c.€23m in a liquidity fund, which we treated as cash, as it dealt in very liquid paper, Liquidity funds that meet definition of cash and cash equivalent as per IAS 7 should be treated as such. The main factors to consider are:
Mapping to QMA Sep-10 I am completing I General This was included, along with all latest detailed guidance funds (e.g. LDTF
with a WAL of only 56 days.spreadsheet (Balance sheet). Yourour other cash in the truststates what lines to (i) They must bethe recent workshops,known amount of cash and be subject to an insignificant risk of changes in value. (ii) They must have
As confirmed at readily convertible to agents should use column C.
use from QMA2. For the Assets you say use column A and for Liabilities you say use column C. Is this
correct as we have in our assets items in column c?
Members balances Sep-10 We have a debtor at the year end as we made a loss. Should we include this as FAL as members would have Member debtors would be against syndicate assets rather than FAL and so would not need to be included in FAL. They would be expected
had to increase their funds to meet this loss. to appear in the balance sheet as per the year-end.
Overseas deposits Sep-10 Overseas Deposit treatment: It has been suggested in the detailed guidance to include the overseas The breakdown of overseas deposits was provided to the market on 1 October to allow for full inclusion.
deposits as long term bank deposits which would fall under counterparty risk. Bearing in mind the
spreadsheet available from the Lloyd's treasury team (as attached) showing the underlying securities; is this
factoring the risk associated at a "better than best efforts" basis? Or should we be including overseas
deposits in the spread and concentration risk helper tab calculations.
Own funds Sep-10 As the syndicate doesn’t have any preference shares, subordinated liabilities or Ancillary owns funds we are This should be left blank if no preference shares, subordinated liabilities or ancillary own funds (e.g. FAL provided in form of LOC/Bank
assuming that the own funds items details tab remaining blank, is this correct? Guarantee).
Reserves Sep-10 The QIS 5 technical specification provides the following guidance in respect of "reserves the use of which is Point discussed at one of the QIS5 workshops - we are currently discussing what this would mean for Lloyd's but do not have a definitive
restricted":, OF.2.3. Reserves the use of which is restricted OF.12., OF.13, OF.14. Does Lloyd's answer as yet.
anticipate that the funds held in trust in respect of Lloyd's syndicates fall within the scope of these
paragraphs? If so, our initial interpretation is that the amount of the adjustment to own funds will be; The net
value of the syndicate's trust fund assets and related portion of technical provisions, LESS; The element of
the SCR that the net value above could be used for. (The adjustment is nil if this gives a negative number.)
Our concern is that the calculation of the element of the SCR under the 2nd bullet point would be, at best,
complex.
Valuation Sep-10 My syndicate has a reinsurance arrangement with another group company. On the valuation tab in section Section 5 should be left blank given the approach we are taking to completion of QIS 5 i.e. Lloyd's is not a group.
5, can you confirm that I do not need to include this under inter-group balances?
Valuation Sep-10 On the valuation tab in sections 1 and 2 ,did i pick up from the workshop that pipeline premiums should be Future premium cash flows due in the future (e.g. on unincepted business or from future premium instalments) fall within the premium
taken out of reinsurance debtors/creditors and netted off reserves, and is this in the QIS5 presentation provisions under Solvency II. As such, they should not also be included within premium debtors under QIS5 to avoid double-counting. Non
column only or in the first 2 columns? received premium cashflows that are already due would form part of debtors and not premium provisions. If signed premiums are being
used as a proxy for received premiums, then the difference between the two would fall as premium due but not received, rather than future
premiums to be received.
Non-life CAT risk Sep-10 For the non-life CAT risk, the factors are based on gross written premiums during the forthcoming year per Gross of acquisition costs.
page 242 of the technical specifications. Are gross written premiums gross or net of acquisition costs?
Non-life CAT risk Sep-10 For the non-life CAT risk, the factors are based on gross written premiums during the forthcoming year per Yes, although the assumption that renewals (and therefore unincepted business) will be same at year-end 2010 as for year-end 2009 will
page 242 of the technical specifications. Should the premiums for the 2010 year include 1/1/2011 renewals only hold if premium volumes and mix of business are broadly the same.
which are legally binding at 31.12.2010, as it is on a Solvency II basis? If so, is it acceptable to assume the
business renews the same as for the 2010 renewals?
SCR interest rate Sep-10 On the SCR interest rate risk calculation, I have assumed that the only interest rate risk is to T-Bills and that The interest rate shock should include all assets exposed to interest rates that would include fixed income bonds. There are two reasons.
fixed income bonds do not need to be included in the calculation as they have a fixed income and so would not Firstly, the assets values are included in the balance sheet at market value and hence would move in the event of interest rate "shocks". The
be exposed to interest rate risk, is that assumption in line with Lloyds thinking? second is that the test is completed on Net Asset Value - this is the expected cashflows from assets exposed to interest rates minus
liabilities exposed to interest rates. As all the technical provisions are exposed to interest rates (since they are discounted under Solvency
II) these will be included in the calculation. Therefore by including less assets the interest rate shock may be overstated as the level of
matching could be significantly understated.
SCR interest rate Sep-10 On the SCR interest rate risk calculation, I am taking the asset figure of say £60m for the T-Bills and as The prescribed shocks are on the interest rates not the asset value. The interest risk is measuring an entities net exposure to interest rates
these are all within 1 year I am moving the figure by up 70% and down 75% per the CEIOPS guidance, this (assets exposed to interest rates minus liabilities exposed to interest rates) and the effect on the net present value. For example if the net
gives a large capital requirement. I feel this is not quite right, do Lloyd's have any other guidance for this exposure was 100 payable in 1 years time and interest rates were 1% then the discounted value is 99. If the interest rate shock was 100%
calculation? then the discount rate would be 2% (rather than 1%) and the NPV 98 - I.e. The interest rate risk would be 1 (and not 100).
Definition of PCO Sep-10 For the Geographical split schedule could you define claims outstanding (net PCO) is it the full TP Claims outstanding cash-flow projections relate to claim events having occurred before or at the valuation date – whether the claims
reserve, i.e. including Bad debt and claims handling elements? arising from these events have been reported or not (i.e. all
incurred but not settled claims). The cash-flow projections should comprise all future claim payments as well as claims administration
expenses arising from these events. As per heading in QIS5 spreadsheet, the columns for reinsurance should be net of adjustment for
default. This is the same for the "Net PCO" column in the geographical diversification sheet.
Expected earned Sep-10 Data Item 7 Ref: QIS5 Spreadsheet - Geographical diversification tab, "Next years expected earned written" This item should be your interpretation of next years earned premium relating to all underwriting years (i.e. mainly 2009 and 2010) gross of
Geographical Sep-10 We are starting to prepare our data to figure (when summed across all QIS5 classes of business and
column F As per Lloyds guidance thiscomplete the geographical diversification section of QIS5, does all acquisition costs. M of the CEIOPS QIS5 cannot bespecification for the required mapping.
Please see annex 2010 Earned Premium technical obtained from the SBF submission, agents may choose to derive an estimate of next
diversification Lloyd’s have a suggested mapping of which countries / US states belong to each of the 18 regions?
Geographical split Sep-10 At the Lloyd's workshop there was some discussion about how best to approach geographical split and a This is down to the agent but is important that you can justify the approach.
number of agents expressed concern about the difficulty in collating this data. I'm not sure if this discussion
reached any clear conclusion. As an example of the issue, if we have material worldwide business or
business coded to US (but due to current system limitations the extracted data may not show which part of
US) is it legitimate to pro-rate this (potentially overstating diversification benefit) or is it better to allocate to
one particular area (potentially understating diversification benefit). Do you have any advice on which way to
lean or is it purely down to the agent?
IBNR Sep-10 Note on a Solvency II basis claims provisions would include outstanding reserves (case reserves) and This figure should be on a QIS5 basis, not as reported in the QMA. It should be identical (when summed) to section 3 if the QIS5
IBNR reserves but would exclude reserves relating to claims arising from exposures (on contracts existing Insurance Obligations tab (i.e. TP's excluding risk margin).
as at YE09) falling after 31.12.09. It would also include all years of account. It would also include other
adjustments as set out in the Lloyds guidance on technical provisions on a Solvency II basis. c) We
understand that the figure in 8a2) would be different from the figure in 8b). Please could you confirm which
figure we should use for the QIS5 spreadsheet?
I.Premiums Sep-10 Should premiums for the I.Premiums sheet and Geographic Diversification sheet be gross or net of Both Gross and Net premiums should be entered gross of acquisition costs.
acquisition costs?
Net PCO Sep-10 Data item 8 Ref: QIS5 Spreadsheet - Geographical diversification tab, "Net PCO" column H As per Lloyds The net PCO should be agents' QIS5 estimate of technical provisions excluding any risk margin.
guidance this figure (when summed across all QIS5 classes of business and all geographical zones)
relate to the 2009 reporting year. a) We assume that we would take this information (i.e. the total sum) from
QMA returns as at 31.12.09 (i.e. submitted Feb 2010). Please could you confirm if this is correct. a2) We
also read the Lloyds guidance as taking the figure from QMA206 reporting year of account 2009 row 1+2+3
less QMA 203 reporting year of account 2009 row 21+23. Please could you confirm if this is correct b) The
QIS5 spreadsheet (and CEIOPs technical specifications guidance) suggests the data item required is the
net of reinsurance claims provisions on a Solvency II valuation basis as at 31.12.09. Please could you
confirm if this is correct.
Net written Sep-10 Data Item 5. Ref: QIS5 Spreadsheet - Geographical diversification tab, "Net Written" column D As per a) Yes this is correct, please take the 2009 premium as reported in the QMA as at 31.12.2009. The premiums information used should be
Lloyds guidance this is the 'net of reinsurance written premium relating to the 2009 reporting year' (when gross of acquisition costs.
summed across all QIS5 classes of business and all geographical zones) a) We assume that we would a2) Yes, this is correct, this is the same information as reported in a1).
take this information (i.e. the total sum) from QMA returns as at 31.12.09 (i.e. submitted Feb 2010). Please b) Gross less Ceded as reported in the Premiums tab should match that which has been put in the Geographical Diversification tab to meet
could you confirm if this is correct. a2) We also read the Lloyds guidance as taking the figure from the check built in to the premiums sheet, this will be from the QMA.
QMA100 reporting year of account, col: CNV row 5. Please could you confirm if this is correct. b) We also c) No, the information placed in the Premium and Geographical Diversification tabs should relate to the 2009 Reporting Year (i.e. all years
assume that the information required in the QIS5 spreadsheet should match the net figure inferred from of account).
taking item 3 from item 1 above (as there is a check built in the QIS5 spreadsheet). Please could you confirm
if this is correct. c) We understand that the figure in 5.a2) would be different from the figure in 5b) – 5.a2 So the information to be used in the spreadsheet is that reported in the QMA as at 31.12.2009
being on a reporting year basis (2009 only) and 5b being on a calendar year basis (all years of account).
Please could you confirm which figure we should use for the QIS5 spreadsheet.
Net written Sep-10 Data Item 6. Ref: QIS5 Spreadsheet - Geographical diversification tab, "Next years expected net written" The Premiums for 2010 for the Geographical Diversification tab should be your estimate of next years written premium from all
column E As per Lloyds guidance this figure (when summed across all QIS5 classes of business and all underwriting years (i.e. largely 2010 and the unwritten from from 2009) gross of acquisition costs. The SBF may be a useful proxy for this
geographical zones) can be taken from the latest approved SBF for 2010. a) We read this figure to be the but it assumes that the unwritten portion of business at the end of any underwriting year remains relatively stable from year to year.
net written premium for 2010 underwriting year of account supplied in the SBF. Please could you confirm if
this is correct. b) The QIS5 spreadsheet (and CEIOPs technical specifications guidance) suggests the
data item required is the 2010 equivalent of data item 5, which we read as the ' calendar year net written
premium for the 2010 calendar year for all years of account'. Please could you confirm if this is correct. c)
We understand that the figure in .6a) would be different from the figure in 6b). Please could you confirm
which figure we should use for the QIS5 spreadsheet.
USPs Sep-10 I am a little concerned by what “better than best efforts” will be defined as, particularly for the purposes of We are expecting 3 spreadsheet submissions from each syndicate (p.5 of guidance), one of which will have the selected USPs (and no geo
USPs. I think we are OK for the data in methods 1 and 2 of underwriting risk (basically the ultimate at the diversification). There is no requirement to work through all 3 methods, particularly the one(s) for which the data requirement can’t be met.
end of the first year), but I don’t think we would even get close to the data standards required in the QIS5 We are, however, asking agents to explain and justify the chosen method. If you are able to apply more than one method, there may be
technical specifications for method 3. Therefore we are intending to only include the results from one of the benefit in working through both and comparing the results. In the future, the standard formula SCR may be subject to public disclosure; the
first two methods in our submission (Lloyd’s doesn’t stipulate which version of USPs should be used) lower the standard formula SCR, the more favourable balance sheet capital will look in comparison.
depending on which best fits the data. For the reserves, methods 2 and 3 are OK, but we might struggle a
little with the data quality around the inflationary adjustment and margin on O/S claims required in method
1. Therefore we are proposing to be more approximate for method 1 and to focus more on methods 2 and 3.
Please can you confirm that this is acceptable? Note that we will be putting together commentary in the
submission that details the exact data challenges in a bit more detail than the above.
Classes of business Sep-10 Please could we clarify the distinction between the two motor S2 class of business categories? Are they All we have regarding the split between classes is what is given in the QIS5 specification and previous CEIOPS documents. Your
actually trying to split between bodily injury claims and physical damage claims? For example, physical suggestion would be an acceptable interpretation of the wording. There is uncertainty over what to do with property damage to something
damage to a third party vehicle could potentially at the moment fall into both motor categories (it is liability to other than a vehicle, given the tight definition within "Motor Other", but following your suggestion seems sensible. Please make comments
a third party and also damage to a vehicle). in the qualitative questionnaires regarding these issues.
Reserving CLASSES Sep-10 I would like to ask a question about the Lloyds grouping for the solvency II. From my understanding there are Lloyd's are not specifying any groupings for reserving classes under Solvency II. Lloyd's feedback is clear in that the most important
many syndicates which don't report on Lloyds' grouping hence reserve was not set that way. The result of consideration when considering segmentation for reserving classes is homogeneous risk groups. These should be the basis for the
following the Lloyds grouping sometime would show a reserving class being split by two Solvency II reserving exercises, as is currently the case. Projections based on homogeneous risk groups can be allocated or aggregated as
classes. I wonder whether Lloyds' grouping should always be followed so that Lloyds can maintain a necessary using appropriate/proportionate methods.
consistency as whole or we can just group based on our reserving classes just like FSA returns?
Risk codes Sep-10 We have a question about the QIS5 classifications of motor business between what appears to be own The exact split will differ between syndicate to syndicate. Lloyd's will provide results of QIS5 for reference - this will probably include the
damage and liability elements. Given that the premium is not normally split in this way, we wondered if there split between the motor classes to assist future exercises. However, this information is currently unavailable and the principle of substance
was any sort of approximation that was being used in the market? Given the presence of much larger motor over form should be applied if the exact split is proving difficult. Alternatively a proportionate split may be available from the pricing basis.
writers than ourselves in Lloyd’s we are wanting to ensure that our segmentation was consistent with the Lloyd's would be interested in any approximate approaches applied to understand where difficulties may have arisen so please include any
rest of the market. detail in the note to QIS5.
Risk codes Sep-10 I’m reviewing the risk code mappings per the Lloyd’s detailed guidance for QIS 5 released last week and I think the sheet you are looking at is "I.Current Situation" - the reason why the QIS5 lines of business are missing is that it is assumed the
notice that you have the following QIS5 lines of business:- Income protection, Non-proportional health, current situation is on a QIS4 basis. If we the go to the sheet "I.QIS5 insurance obligations" we see in cells F8 to F11 the place to show
medical expenses and workers’ compensation. However, I can’t see these lines of business on the QIS5 how it splits into the QIS5 lines.
sheets. There are some - such as Accident, Health, Legal expenses – are they meant to map across to
these?
Binders Sep-10 We have a question of the treatment of binders within QIS5 technical provisions. For instance, assume a The proposed approaches for binders continues to be debated with the market and a definitive position has yet to be reached. The current
binder has incepted on 01/10/2009 and has a cancellation period of 180 days. We identified two favoured option would be to take the exact wording of the specification and only include policies that have a legal obligation. A binding
interpretations of Lloyd’s guidance: a) Future premium will cover the full period of the open binder – authority is not a policy as such and so should be assessed on a "look through basis" (i.e. look at the underlying policies). In practise this
in this case 9 months As per the “expected profit within future premiums” paragraph on page 13 of would mean that only policies with upcoming renewals (that had been accepted) would be included and which would be a much smaller
Lloyd’s detailed guidance for QIS5, the binder “exists” at the valuation date (31/12/09) under the concept of sample than the notice period. Whatever approach is to be adopted it should be carefully noted as the impact of different approaches will be
contract certainty. Consequently (as per the same paragraph) all future cashflows from the binder should analysed. It is unlikely this issue will be fully resolved before QIS5 is completed.
be included in the future premiums. It should be considered as unearned and incepted business. In practice
this means that cashflows from policies written under the binder should be allowed until the binder expires
on 30/09/2010. b) Future premium will cover only the cancellation period of the open binder – in
this case 180 days. Let’s now focus on the contract certainty of underlying policies. Any individual policy
not yet written by the valuation date could be considered as not being “existing business”, in the eventuality
that the binder is cancelled on 01/01/2010.
Under this scenario, the business incepting during the 6-month cancellation period (i.e. until 30/06/2010)
would relate to unincepted business and no allowance should be made for any profit/loss on policies
incepting between 01/07/2010 and 30/09/2010. Which one of these two interpretations would you
recommend?
Cash-flow Sep-10 Does Lloyd's have a view on how syndicates should approach the requirements for a strict cashflow basis Agents are approaching the problem in a number of ways. One such way is to take underwriting year reserves and split to claims/premium
for the technical provisions? The most detailed data source available to us is based on Xchanging provisions (perhaps in a similar way to existing practices). Use separate claims/premium cashflow patterns to project these cashflows
messages. However these messages do not reflect actual cashflows that take place. Does Lloyd's have a forwards. Some are thinking of either calculating these patterns directly, if they have the data, or taking an underwriting year cashflow
view on how syndicates should approach making allowance for cashflows relating to (for example) the pattern and using an approach (perhaps looking at underlying inception/earnings/payments) to split into two different patterns. Premium
difference between signed and booked premiums? provision cashflow patterns would generally be delayed, behind claims provision cashflow patterns. Others have discussed splitting an
underwriting year cashflow projection into what related to claims/premium provisions as at the valuation date, recognising the move
towards premium provisions in the later cashflows. Overall, we are just suggesting that a reasonable (and justifiable) methodology is used
and documented as part of the Technical Provision section of the dry run.
Expected profits Sep-10 Page 299 of the technical spec states that: OF.15. Expected profits included in future premiums (EPIFP) All premiums that are due in the future from "existing" policies (i.e. on the legal obligation basis) will need to be considered here. The
result from the inclusion in technical provisions of premiums on existing (in-force) business that will be EPIFP component is trying to test what the impact of incorporating future profits actually has.
received in the future, but that have not yet been received. Can you confirm that in force includes the “new”
legally contracted business as well as future premium from “normal” in force business?
Expenses Sep-10 We need to make allowances for investment management expenses in the best estimate technical Any investment management expenses that would be incurred by a business as a result of running off liabilities should be taken into
provisions. Which investments should be taken account of for this allowance? Is it just the investment account.
returns on technical provisions or the investment returns?
Insurance obligations Sep-10 Section 5 of the I.QIS5 insurance obligations tab asks for information on technical provisions and capital at The Capital at Risk relates to life business only. This will need to be completed for any firm (or life syndicate) conducting life business.
risk. I am unsure of which value this capital at risk figure should take? To help me answer this question I This would include composite companies but no syndicates write composite business.
have followed where the values in section 5 impact the rest of the QIS5 spreadsheet. It appears for non-life
anyway that they impact section 2.2 of the SF.MCR_G tab only. From the Lloyd’s detailed guidance, I
understood that this section related to composite companies only. Does this mean that only composite
companies need to fill out section 5 of the I.QIS5 insurance obligations tab?
Loss absorbency Sep-10 Adjustment for the loss absorbing effect of technical provisions. Is this relevant for non-life syndicates? No we do not see it as being relevant. This is generally considered a "traditional" life assurance feature that is not relevant to most (if not
all) non-life.
Sep-10 Under Sections SCR.9.25–9.27 of the QIS5 Technical Specifications, undertakings are allowed to make an If (1) is not possible we still would like agents to attempt something sensible (and explained) similar to (2) so that we can see the impact of
adjustment to the gross standard deviation factors to allow for the benefit of non-proportional reinsurance. the non-proportional adjustments. Agents should explain in detail why the approach in (2) has been used. I think (3) is the same as (2), i.e.
SCR.9.27 presents Annex N as the means by which non-proportional reinsurance can be allowed for. Annex a sensible approach that has been explained.
N (and the associated QIS5 helper tabs) require some simple inputs, e.g. Limit and Attachment assuming a
single non-proportional reinsurance contract by Solvency II class of business, with unlimited reinstatements.
It is very unlikely that firms will have in place single non-proportional reinsurance contracts that provide
cover at the level of granularity of the Solvency II class of business. In reality, reinsurance protection will
apply to more granular classes. This, together with simplistic assumptions relating to the structure of the
contract (e.g. single XoL layer, no allowance for proportionality or aggregate deductibles, unlimited
reinstatements etc.) mean that it is unclear how undertakings can allow for non-proportional reinsurance
where these simplifying assumptions are not applicable.
I would further argue that, if only because of the granularity issue, this is likely to be the case for almost
every undertaking). So, my questions are as follows: (1): Is it possible for undertakings to calculate the
Non-Proportional adjustments using alternative techniques, which can then be described in detail in the
qualitative sections of the QIS5 questionnaire? (2): If (1) is not possible, where the simplifying
assumptions are not directly applicable (e.g. where the reinsurance contracts do not exist at a Solvency II
class level), is it allowable for undertakings to calculate parameters based on simplifying assumptions, e.g.
set the input field for the "limit" of the contract to be a volume-weighted average of limits of non-proportional
reinsurance contracts for all the classes that map to the Solvency II sub-classes? (3): If (2) is not possible,
is it the case that undertakings must set the adjustment factor to 100% (i.e. take no credit for non-
proportional reinsurance), or are there other methods that may be adopted? Incidentally, at the QIS5
workshop I attended last week (08/09/2010), Jerome Kirk indicated that (1) and (2)
ought to be possible, but the letter of the law (i.e. SCR.9.27 of the Technical Specifications) seems to
suggest that these are not possible, which would imply that undertakings would set the adjustment factor to
100%, and therefore not take credit for non-proportional reinsurance.
Durations Sep-10 The ‘QIS5 insurance obligations’ sheet of the QIS5 spreadsheet asks for the durations to be input in cells Both the QIS5 technical specification and submission spreadsheet ask for modified duration. It is possible that some of the helper sheets
G134:G172. In the CEIOPS QIS5 manual for completion of the spreadsheets it asks for the modified contain errors and it is worth checking the CEIOPS website for future updates or Q&A responses
duration. However the discounting tool helper spreadsheet seems to calculate the duration. Which one
should we provide?
Expected profits Sep-10 On pages 299-300 of the QIS5 guidance it discusses the expected profits on future premiums. OF.15 says EPIFP is testing the effect of including profits via the future premium cashflows (and whether this should form part of tier 1 or tier 3), so the
expected profits included on future premiums for 'existing (in-force) business' need to be identified own fund item should capture all elements of this. This would include future instalment (or other) inflows due in the future on incepted
separately. Does 'existing business' here mean the same as 'existing contracts' in the best estimate business, premiums on unincepted business, but not premiums that are over-due (which stay within premium debtors and are not moved to
calculations (that is, does it include unincepted contracts to which we have a legal obligation) or is it just premium provisions).
concerned with future premiums on in-force=incepted business?
Gross written premium Sep-10 Data Item 1. Ref: QIS5 Spreadsheet - Premiums tab, "Gross Written" As per Lloyds guidance this is the Yes, this is correct
figure in QMA1 col. A:3. (when summed across all QIS5 classes of business) a) We assume that we
would take this information from QMA returns as at 31.12.09 (i.e. submitted Feb 2010). Please could you
confirm if this is correct. b) In which case we read the data as calendar year gross written premium for
calendar year 2009 (for all underwriting years of account). Please could you confirm if this is correct?
Non proportional Sep-10 Please would you answer the following questions in relation to QIS 5 Annex N – Adjustment factor for non- Lloyd's is asking syndicates to complete the non-proportional adjustment on the prescribed basis if possible. Lloyd's have received a
reinsurance proportional reinsurance for the Non-SLT health and non-life premium and reserve risk sub-modules. This number of syndicates outlining their belief the cacluation is not possible but could be made posssible in applying a numer of assumptions
states in the second bullet that the adjustment factor should only be calculated in relation to per risk excess or simplifications. Therefore Lloyd's are suggesting the following: if a syndicate can complete the calculation "correctly" then they should
of loss reinsurance which complies with the following conditions; it covers all insurance claims that the do so. If a syndicate believes they cannot complete the adjustment exactly as specific then they should apply a reasonable approach to make
insurance or reinsurance undertaking may incur in the segment during the following year; etc; Strict the adjustment "work" but ensure they provide a comment that they have done so including the reason for not being able to complete it
interpretation of this appears to suggest that any reinsurance that does not apply to a whole CEIOPS QIS 5 initially. This will enable Lloyd's to understand the potential quantum/complexity of any issues facing the market and feedback to CEIOPS or
Line of Business (ie does this have to be the definition of “segment”) would need to be excluded. Thus, for the FSA specifically where the adjustment is impractical, impossible or inaccurate. Finally, only Lloyd's central submission will go initially
example, any reinsurance covering specific perils or territories would not be included, and specific marine to the FSA and so the proposed approach will enhance the feedback process rather than stop any potential re-wording if needed.
insurance would not be included for the MAT line of business. ; The phrase “per risk” suggests that per
event reinsurance would be excluded. Please would you confirm that this is the correct interpretation of the
treatment of outwards reinsurance for (a) and (b) as it is likely to mean that a
lot of reinsurance is not included? Point (a) was raised with a representative of the FSA at a recent
seminar, who advised that the QIS 5 specification should be interp
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