overall impact by runout


									                  CEIOPS-CP-48-09 IA Annex Catastrophe risk
                  Overall impact
                  This template assesses the particular impact of each option on different stakeholders, and whether it is direct or indirect.
                  -/?/+ = negative impact/no clear impact/positive impact
                  L/M/H = Low/Medium/High
                  S/L/P = Short-term/Long-term/Permanent

                        Policy Option            Party Affected
                                                                  Description                                               Type (indirect/direct)                         Impact                                                           Effect (-/?/+) Likelihood (L/M/H) Timing (S/L/P)

                                               Policyholders                                                                                                                                                                                ?

                                                                  The application of scenario shocks or standardized
                    option 1: • simulation                        scenarios are easy to apply by sophisticated
                                                                  undertakings. Undertakings shall be able to allow for     Indirect effect for sophisticated firms        The simplicity and assumptions made will incentivise             +            H                   S
                   of the impact of a pre-
                                                                  full risk mitigation effects. However predefined                                                         sophisticated firms to go down the partial internal module
                    defined shock on the
                                                                  scenarios will not capture all risks, thus the need to                                                   path.
                  financial position of the
                        (re)insurance       Industry              have some alternative measure in those
                     undertaking (nature                          circumstances. The complexity and level of expertise
                                                                                                                            Indirect effect for less sophisticated firms   The simplicity of the calculation may not incentivise less       -            H                   S
                    and calibration of the                        on the use of personalised scenarios outweights the
                                                                                                                                                                           sophisticated firms to analyse their own risk profile and
                         shock to be                              benefit of a more risk sensitive approach under the
                                                                                                                                                                           estimate a capital charge relative to their specific exposure.
                         determined)                              standard formula. personalised scenarios are
                                                                  considered to fall under partial internal model.

                                                                                                                                                                           The complexity of the method may necessitate the
                                               Supervisors                                                                  Indirect                                                                                                        -            M                   S
                                                                                                                                                                           contracting of highly qualified and thus expensive staff

                                               Policyholders                                                                                                                                                                                ?

                   option 2: • definition of
                      a closed formula                            A closed formula is usually more appreciated by less
                   calibrated to a VaR at                         sophisticated firms
                   the 99.5% confidence                                                                                                                                                                                                     ?
                   level over a one-year
                     period (design and                           There is a risk of insufficient recognition of the risk                                                  Stimulates more sophisticated undertakings to move towards
                      calibration of the                                                                                    Indirect effect for sophisticated firms                                                                   +                  H                   S
                                                                  characteristics of the undertakings portfolio                                                            the use of a partial internal model
                    closed formula to be
                        determined)                               Allowance for reinsurance is limited, high level                                                         Refrains the less sophisticated undertakings to move towards
                                                                  assumptions may need to be made, which may not be         Indirect effect for less sophisticated firms   the use of internal models. Risk of underestimation or       -                M                   P
                                                                  in line with all undertakings                                                                            overestimation.

                                               Supervisors                                                                                                                                                                                  ?

                                               Policyholders                                                                                                                                                                                ?

                                                                                                                                                                           This option will draw on the strenghts of both methods as
                                                                  A combination of the standardized scenarios and the
                                                                                                                            Direct                                         well as try to mitigate the weakeness by having an alternative ?
                                                                  factor methods will provide undertakings with tools that
                                                                  can be used when one of the methods is not
                        option 3: • a                             approapriate. For example when a scenario is not
                     combination of the        Industry           adequate the undertakling will apply the factor. In life,
                      above methods                               the application of shock scenarios is seen to                                                            Measures will need to be in place to discourage cherry
                                                                                                                            Indirect                                                                                                        -            H                   P
                                                                  adequately represent and capture the risk of a                                                           picking
                                                                  catastrophe, thus the need of a factor is considered

                                               Supervisors                                                                                                                                                                                  ?

24abd9f6-d3b2-4023-8981-07fda40fc255.xls // overall impact                                                                                                                                                                                                                                     4/20/2010
CEIOPS-CP-48-09 IA Annex Catastrophe risk
This template identifies the extent to which each option delivers the objectives that are relevant for this impact assessment.
* Where relevant

                                                                                     Relevant objectives                                                      Additional quality indicators
                                Harmonized risk-sensitive and        Introduce proportionate requirements for    Harmonise supervisory powers, methods and Sustainability Consistency
                               prospective solvency standards                   small undertakings                                 tools
           Policy Option

                              Effectiveness   Efficiency
                              (0/+/++)        (0/+/++)          Effectiveness (0/+/++)     Efficiency (0/+/++)   Effectiveness (0/+/++) Efficiency (0/+/++)      (0/+/++)    (0/+/++)

      Option 1                ++              ++                ++                         ++                                        ++                       ++ +           +

      Option 2                +               +                 ++                         ++                                        ++                       ++ +           +

      Option 3                ++              ++                +                          +                                          +                       + +            +

24abd9f6-d3b2-4023-8981-07fda40fc255.xls // summary                                                                                                                                     4/20/2010

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