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					Consultation - Solvency II - QIS4 - no comments received after 15 February


Drafting suggestions on QIS4 technical specifications                                                                                                                                                                                                                       METAINFOSECTION
e-mail                last name   First   Organisation   Type of          documents          area Q2   Sub-       Paragraph   Drafting suggestion Q2                                            Explanation changes Q2                                           priority   Creation date
                                  name                   Organisation                                  section Q2 reference
                                                                                                                  Q2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    "Future cash flows from obligations towards policyholders and     Allows insurers with approved internal models to use 'mark to     Medium    15-02-2008
uk                                                       association      Specification                                       beneficiaries on insurance contracts are hedgeable if they can    model' approaches. Since internal models will reference
                                                                                                                              be replicated using financial instruments for which a market      external market data and will be approved by supervisors, this
                                                                                                                              value is directly observable on a deep, liquid and transparent    is likely to produce the most accurate assessment of the value
                                                                                                                              market. Where an insurer has an internal capital model            of the cash flows.
                                                                                                                              approved by the supervisor then f Future cash flows from
                                                                                                 II        A          18      obligations towards policyholders and beneficiaries on
                                                                                                                              insurance contracts may also be valued using „mark to model‟
                                                                                                                              techniques a Monte Carlo simulation to derive market
                                                                                                                              consistent values."




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Circumstances where cash-flows are hedgeable could include, We believe almost all unit-linked life contracts may be                   Low     15-02-2008
uk                                                       association      Specification                                       for example, some options and guarantees embedded in life     substantially hedged.
                                                                                                                              insurance contracts, some all unit-linked (equity-indexed for
                                                                                                 II        A          21      instance) life insurance contracts, cash flows where there is
                                                                                                                              no uncertainty in the amount and timing etc.



Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Simplified actuarial methods and statistical techniques may       Absolute thresholds are not risk sensitive and there is a           High    15-02-2008
uk                                                       association      Specification                                       be used if: the criteria outlined below are satisfied. These      circularity in the argumentation.
                                                                                                                              criteria are required to be applied where they are expected
                                                                                                                              to be met. For the avoidance of doubt and any circularity, it
                                                                                                                              is not necessary to calculate best estimate values using the
                                                                                                                              standard approach in order to determine whether the
                                                                                                 II        A          32
                                                                                                                              absolute/ relative criteria (to the overall technical provisions)
                                                                                                                              are met - they are to be applied on a best efforts basis.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    …For some cash-flows, the link may be to consumer prices,         Link to TS.II.B.14 In order to obtain market-consistent prices    Medium    15-02-2008
uk                                                       association      Specification                                       but there are other links such as salary inflation, which tends   you need to use assumptions consistent with market prices,
                                                                                                                              to exceed consumer price inflation. The base underlying           which applies to inflation rates as well as other assumptions
                                                                                                                              inflation assumptions (i.e. before allowing for specific          such as risk free rates.
                                                                                                                              features) used should be consistent with that implied by the
                                                                                                 II        B          10      market prices of relevant financial instruments. Standard
                                                                                                                              actuarial techniques may be used to extrapolate to the
                                                                                                                              inflation relevant to the undertaking.
Consultation - Solvency II - QIS4 - no comments received after 15 February


Drafting suggestions on QIS4 technical specifications                                                                                                                                                                                                                          METAINFOSECTION
e-mail                last name   First   Organisation   Type of          documents          area Q2   Sub-       Paragraph   Drafting suggestion Q2                                            Explanation changes Q2                                              priority   Creation date
                                  name                   Organisation                                  section Q2 reference
                                                                                                                  Q2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    "For QIS4 purposes, for Euro, US dollars and sterling             Market consistency here should mean insurance liabilities are          High    15-02-2008
uk                                                       association      Specification                                       denominated cash-flows the prescribed risk-free interest rate     valued in ways that is consistent with common practice in
                                                                                                                              structure shall be derived from published money-market swap       capital markets. Swap rates can be thought of as representing
                                                                                                                              rates. For all other currencies, there should be a                the risk at which high credit quality institutions can borrow or
                                                                                                                              consideration of the availability of liquid swap markets.         lend providing they maintain their credit quality. For many
                                                                                                                              Where this is the case they should be used. In this case, Tthe    currencies, the swap rate is the largest and most liquid of all
                                                                                                                              prescribed risk-free interest rate term structure for cash-       fixed-interest markets. This is particularly important where
                                                                                                                              flows denominated in Euros should be consistent with the Euro     derivatives products are embedded. If a yield structure other
                                                                                                                              area yield curve published by the European Central Bank           than the swap rate is used the result would not replicate the
                                                                                                                              (ECB). Yield curves for other EEA currencies and certain other    value of the same instrument in capital markets. We
                                                                                                                              currencies will be derived to be consistent with the ECB yield    appreciate that there may be currencies, including non-EEA
                                                                                                                              curve. These will be supplied by CEIOPS for EEA and other         ones, where the swap markets are not yet well developed and
                                                                                                 II        B          12      major currencies on the basis of this criteria. Undertakings      in that case an alternative would be needed and QIS4 should
                                                                                                                              are expected to use a similar approach for non specified          set out an alternative. This should be based on the use of
                                                                                                                              currencies."                                                      government bonds with adjustments reflecting yields available
                                                                                                                                                                                                from local money markets. We believe that the swap rate is
                                                                                                                                                                                                the appropriate benchmark for sterling, euros and US dollars.
                                                                                                                                                                                                We believe that where possible yield curves should be defined
                                                                                                                                                                                                by firms and not supervisors.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Taxation payments or compulsory contributions required to        This amended wording better reflects the UK 'I minus E' tax             High    15-02-2008
uk                                                       association      Specification                                       meet policyholder liabilities should be allowed for on the basis system for life funds. We note that the suggested treatment of
                                                                                                                              that currently applies, whereas. tTaxation payments              future tax changes does not align with IAS 12 (Paras 46 and 47).
                                                                                                                              contingent on the undertaking making a profit should not be
                                                                                                                              included only to the extent that profits have been anticipated
                                                                                                                              in the valuation and the related tax are not allowed for
                                                                                                                              elsewhere. In cases where changes to taxation requirements
                                                                                                                              have been agreed (but not yet implemented), the pending
                                                                                                 II        B          15      adjustments should be reflected in the calculations. The
                                                                                                                              recognition of taxation on the best estimate should be
                                                                                                                              consistent with the amount and timing of the profits and
                                                                                                                              losses that are expected to be incurred in the future.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    The best estimate of the liabilities should show the value of     We believe that the assessment of probability of default in this     Medium    15-02-2008
uk                                                       association      Specification                                       the cash-flows gross of reinsurance. The reinsurance asset        section will duplicate the assessment in the risk margin. Link to
                                                                                                                              should include the change in the value of the undertaking‟s       TS.II.B.17 The aim should be to reduce the value of the
                                                                                                                              liability cash flows from holding the reinsurance. The            reinsurance asset for the market-consistent cost of future
                                                                                                                              reinsurance asset should be adjusted to allow for the market-     possible defaults.
                                                                                                                              consistent cost of future possible counterparty defaults
                                                                                                 II        B          16      expected counterparty default. A similar principle applies to
                                                                                                                              cash-flows from a SPV. However, care should be taken not to
                                                                                                                              double-count risks already assessed as part of the risk margin.
Consultation - Solvency II - QIS4 - no comments received after 15 February


Drafting suggestions on QIS4 technical specifications                                                                                                                                                                                                                         METAINFOSECTION
e-mail                last name   First   Organisation   Type of          documents          area Q2   Sub-       Paragraph   Drafting suggestion Q2                                            Explanation changes Q2                                             priority   Creation date
                                  name                   Organisation                                  section Q2 reference
                                                                                                                  Q2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    The assessment of the probability of default shall implicitly     We believe that the assessment of probability of default in this    Medium    15-02-2008
uk                                                       association      Specification                                       take into account that the probability of default may increase    section will duplicate the assessment in the risk margin. We
                                                                                                                              under adverse scenarios. If the probability of default of the     also believe that as defined in this section the parameters
                                                                                                                              counterparty significantly depends on the amount payable to       would be extremely difficult to define.
                                                                                                                              the insurance or reinsurance undertaking under the
                                                                                                                              reinsurance contract or special purpose vehicles, the average
                                                                                                 II        B          20
                                                                                                                              probability of default should be used. The average shall be
                                                                                                                              weighted with the product of the amount payable and the
                                                                                                                              probability that the amount will be payable.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Paragraph should be replaced with: “Contractual recurring         We believe that the proposed treatment of future premiums             High    15-02-2008
uk                                                       association      Specification                                       premiums, non-contractual future premiums paid at the             proposed in the IASB's Phase II paper is inappropriate for
                                                                                                                              discretion of policyholders and any resulting additional          insurance. The IASB may change its views. We believe that an
                                                                                                                              policyholder benefits, should be taken into account using an      economic assessment is the essential foundation, taking into
                                                                                                                              economic assessment of the expected future cashflows i.e.         account policyholder behaviour.
                                                                                                                              only future premiums arising from existing contracts as well as
                                                                                                 II        B          27      their associated future cash outflows should be taken into
                                                                                                                              acount. An appropriate probability assumption (i.e.
                                                                                                                              persistency rate) should be applied to those cashflows."




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Delete whole paragraph and replace with: "Where a contract        As above. This then effectively applies a different                   High    15-02-2008
uk                                                       association      Specification                                       includes future premiums to continue at a defined level for an    interpretation to the proposed IFRS wording to that intended
                                                                                                                              agreed term, such premiums are deemed to be contractual           by IASB – namely that premiums don‟t need to be enforceable
                                                                                                                              even if not enforceable and should be taken into account on       to be contractual. This treatment better reflects true
                                                                                                 II        B          28      the basis of premium payments expected after allowance for        economic value and so, together with the SCR stresses on the
                                                                                                                              discontinuances.”                                                 same basis, is more consistent with Solvency II‟s aims.



Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Insert before existing text, "The risk margin should be defined We believe this more accurately reflects the basis on which the         High    15-02-2008
uk                                                       association      Specification          II        C           1      using the respective share of the entire entity SCR, in line    risk margin will be calculated by the market reflecting
                                                                                                                              with market practice."                                          diversification effects.

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    "In cost of capital the risk margin is calculated by determining The calculation of the cost of capital needs to allow for              High    15-02-2008
uk                                                       association      Specification                                       the cost of providing an amount of eligible own funds equal to diversification effects.
                                                                                                                              the SCR necessary to support the insurance and reinsurance
                                                                                                                              obligations over the lifetime thereof. In order to do this the
                                                                                                                              undertaking has to make a projection of its insurance and
                                                                                                                              reinsurance obligations until their extinction and for each
                                                                                                 II        C           2
                                                                                                                              year determine the SCR of an undertaking that has such
                                                                                                                              obligations with appropriate recognition of diversification
                                                                                                                              effects."




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    “The calculation of technical provisions is based on their      We believe the QIS3 treatment was more appropriate, using               High    15-02-2008
uk                                                       association      Specification                                       current exit value, using the SCR capital calculated at the end the SCR calculation arising at the end of the 1-year time
                                                                                                                              of the 1-year time horizon (denoted by t = 1).”                 horizon. This recognises that the risks assessed will crystallise
                                                                                                 II        C           3
                                                                                                                                                                                              over the period and will not all occur at t = 0.
Consultation - Solvency II - QIS4 - no comments received after 15 February


Drafting suggestions on QIS4 technical specifications                                                                                                                                                                                                                           METAINFOSECTION
e-mail                last name   First   Organisation   Type of          documents          area Q2   Sub-       Paragraph   Drafting suggestion Q2                                             Explanation changes Q2                                              priority   Creation date
                                  name                   Organisation                                  section Q2 reference
                                                                                                                  Q2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    "The risk margin is calculated on a net-of–reinsurance basis       We believe this more accurately reflects the basis on which the        High    15-02-2008
uk                                                       association      Specification                                       only and after reduction for profit sharing."                      risk margin will be calculated by the market. This point is
                                                                                                                                                                                                 made in a section on simplification (II.C.23) but should more
                                                                                                 II        C           6
                                                                                                                                                                                                 appropriately be included in the earlier sections as a high level
                                                                                                                                                                                                 principle.

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Delete paragraph.                                                  This does not give you an economic cost of capital because             High    15-02-2008
uk                                                       association      Specification                                                                                                          some level of diversification would be anticipated in the
                                                                                                                                                                                                 market place. It is inconsistent with the SCR where
                                                                                                                                                                                                 diversification is allowed between lines of business. The
                                                                                                 II        C          13                                                                         calculation of the capital requirements for risk margin purposes
                                                                                                                                                                                                 should as far as possible be the same as the SCR itself but
                                                                                                                                                                                                 excluding hedgeable risks.



Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    “All participants should assume a Cost-of-Capital factor of 6%     The cost-of-capital factor is by definition the rate above the       Medium    15-02-2008
uk                                                       association      Specification                                       above the risk-free interest rate on the valuation of the risk     risk-free interest rate. The current wording could be
                                                                                                 II        C          14      margin.”                                                           misinterpreted as suggested the factor to apply to the
                                                                                                                                                                                                 projected capital is 6% plus the risk free rate.

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    The main practical difficulty of the method is deriving the SCR    The original text could be interpreted as requiring either a           High    15-02-2008
uk                                                       association      Specification                                       for future years. The calculation of the different risk charges    completely accurate projection of the SCR or a simplification
                                                                                                                              for the future SCRs can either be done by the direct               using one of the suggested methods. In practice the method
                                                                                                                              application of the SCR formulae or by simplifications. In the      used in QIS 3 tended to be to calculate an accurate time zero
                                                                                                                              following paragraphs there is a list of the risks to be taken      SCR and project the different components of this using drivers
                                                                                                                              into account and a short description of possible simplifications   such as mathematical reserves, capital at risk etc. These
                                                                                                                              that could be used. Reflecting this companies may derive           intermediate methods should be allowed. Link TS.II.C.17 to
                                                                                                                              future SCR values using t = 0 SCR figures and the ratio of best    C.27 inclusive. For most companies, especially profit sharing
                                                                                                                              estimate liabilities at future time periods with that at t = 0.    companies, even the so called "simplified methods" outlined in
                                                                                                 II        C          16
                                                                                                                                                                                                 QIS4 will be unnecessarily complex and costly to perform. The
                                                                                                                                                                                                 re-drafting (which is the method used in the QIS3 spreadsheet)
                                                                                                                                                                                                 strikes the appropriate balance between accuracy and cost-
                                                                                                                                                                                                 effectiveness.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Add the QIS3 method as another option.                             Other components do not seem to be allowed. As for II.C.16,            High    15-02-2008
uk                                                       association      Specification          II        C          26                                                                         the QIS3 method is preferred as it is more flexible.
Consultation - Solvency II - QIS4 - no comments received after 15 February


Drafting suggestions on QIS4 technical specifications                                                                                                                                                                                                                          METAINFOSECTION
e-mail                last name   First   Organisation   Type of          documents          area Q2   Sub-       Paragraph   Drafting suggestion Q2                                             Explanation changes Q2                                             priority   Creation date
                                  name                   Organisation                                  section Q2 reference
                                                                                                                  Q2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    "The valuation of extra benefits, including any projections or The valuation of extra benefits should reflect the choice of the          High    15-02-2008
uk                                                       association      Specification                                       assumptions on future returns of the firm‟s asset portfolio,    risk-free interest rate curve used for discounting. There is a
                                                                                                                              should be consistent with the choice of the risk-free interest concern about the treatment of shareholder transfers.
                                                                                                                              rate curve used for discounting. The assumptions on future
                                                                                                                              asset returns underlying the valuation of extra benefits should
                                                                                                                              not exceed the level given by the forward rates derived from
                                                                                                 II        D          35      the risk-free interest rates. Shareholder transfers should be
                                                                                                                              treated as a liability of the fund which pays them but may be
                                                                                                                              considered as available capital elsewhere in the firm."




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    For the valuation of technical provisions the implied volatility   Clarification / guidance. Financial instruments such as             Medium    15-02-2008
uk                                                       association      Specification                                       is the relevant volatility measure for financial instruments.      derivatives typically have two variants: future returns on the
                                                                                                                              Total return (as opposed to price return) financial instruments    underlying assets are assumed to only comprise of price returns
                                                                                                                              should be used where insurers will receive the total return        (e.g. the reflecting the change in the FTSE 100 index but not
                                                                                                                              achieved on their underlying assets, with price return             any dividends paid on the shares comprising the index); and
                                                                                                                              instruments being used where no income/dividend will be            where future returns assume both price return and dividend
                                                                                                                              received on the underlying assets.                                 return. For longer term financial instruments the implied
                                                                                                 II        D          63                                                                         volatility levels on these two variants can be significantly
                                                                                                                                                                                                 different and in order to replicate the appropriate market
                                                                                                                                                                                                 price it is important that the right financial instrument is
                                                                                                                                                                                                 chosen.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    In practice, certain types of liabilities, although stemming       It should be made clear that, even though, "life" actuarial           High    15-02-2008
uk                                                       association      Specification                                       from claims covered by non-life insurance contracts, may be        techniques are used for a non-life product, that the results are
                                                                                                                              similar in nature to liabilities commonly observed in life         not disclosed within the life business but within the non-life
                                                                                                                              insurance business. These claims should be valued based on         business.
                                                                                                 II        E           5      their nature, i.e. life insurance principles. The results of
                                                                                                                              these liabilities should be disclosed within the non-life LOBS.



Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Participants should use statistical methods compatible with        It is important to emphasise that, especially for the longer          High    15-02-2008
uk                                                       association      Specification                                       current actuarial 'best practice' and should take into account     tailed lines of business, incurred claims triangles are required
                                                                                                                              all factors that might have a material impact on the expected      as well. For the longer-tailed LOBs, estimates based on paid
                                                                                                                              future claims experience. Typically, this will require the use     data only, will lead to poor estimates, regardless the number
                                                                                                                              of claims data on an occurrence year basis or an underwriting      of methods that are being used.
                                                                                                                              year basis or an accident year basis for the run-off triangles.
                                                                                                                              These run-off triangles should at least include cumulative paid
                                                                                                 II        E          10      claims and incurred claims data. Other data which is useful
                                                                                                                              would include for example triangles with number of claims
                                                                                                                              reported and/or number of open claims. In addition, some
                                                                                                                              exposure measures such as number of policies would be useful
                                                                                                                              as well.
Consultation - Solvency II - QIS4 - no comments received after 15 February


Drafting suggestions on QIS4 technical specifications                                                                                                                                                                                                                        METAINFOSECTION
e-mail                last name   First   Organisation   Type of          documents          area Q2   Sub-       Paragraph   Drafting suggestion Q2                                          Explanation changes Q2                                              priority   Creation date
                                  name                   Organisation                                  section Q2 reference
                                                                                                                  Q2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    As a simplified approach, tThe "Expected Loss Based Proxy"      The current description is not clear (i.e. what is the definition    Medium    15-02-2008
uk                                                       association      Specification                                       (See Crossreference TS.IV.F) could be used with a combined      of year y: is it calendar year y or accident year y) and seems
                                                                                                                              ratio estimated from the firm's own data and other              not to incorporate the most-up-to date data/information. As
                                                                                                                              information. The combined ratio is the sum of the loss ratio    the best estimate of the technical provisions is already
                                                                                                                              and the expense ratio. The loss ratio for                       determined with sophisticated actuarial methods, by means of
                                                                                                                              accident/underwriting/occurrence year y is defined as the       run-off triangles, whereby the ultimate claims by accident/
                                                                                                                              ratio for of estimated ultimate claims over earned premiums     underwriting/ occurrence year is already determined, it seems
                                                                                                                              for a given LoB. The estimated ultimate claims can be derived   most practical to use this to determine the loss-ratios. This is
                                                                                                                              from the actuarial techniques which are used to derive the      also in line with best-practice and is being applied by the
                                                                                                                              best-estimate of the technical provisions. The earned           industry. The method itself is a sophisticated method and not a
                                                                                                                              premiums is calculated as follows: earned premium of            simplification.
                                                                                                 II        E          17      calendar year y = premium reserves of calendar year y at the
                                                                                                                              beginning of the year + written premium during calendar year
                                                                                                                              y - premium reserves at the end of calendar year y. The
                                                                                                                              expense ratio is the ratio of expenses (other than claims
                                                                                                                              expenses) to written premiums and the expenses are those
                                                                                                                              attributable to the written premiums.
Consultation - Solvency II - QIS4 - no comments received after 15 February


Drafting suggestions on QIS4 technical specifications                                                                                                                                                                                                                              METAINFOSECTION
e-mail                last name   First   Organisation   Type of          documents          area Q2   Sub-       Paragraph     Drafting suggestion Q2                                              Explanation changes Q2                                              priority   Creation date
                                  name                   Organisation                                  section Q2 reference
                                                                                                                  Q2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                      The best estimate should in general be assessed using at least Any best estimate method that gives appropriate values should               High    15-02-2008
uk                                                       association      Specification                                         two different methods that could be considered reliable and be allowed to be used.
                                                                                                                                relevant. Two methods are considered different when they
                                                                                                                                are based both on different actuarial techniques and different
                                                                                                                                sets of assumptions, therefore cross-checking each other if
                                                                                                                                there is some model or parameter error. Judgement should
                                                                                                 II        E           20       then be used to choose the most appropriate method. A most
                                                                                                                                appropriate method is a technique which is part of best
                                                                                                                                practice and which captures the nature of the liability most
                                                                                                                                adequately.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                     Goodwill on acquisitions - Goodwill should be valued at nil          Linked to comment on TS.V.F.1 & TS.VI.D.1. We believe that             High    15-02-2008
uk                                                       association      Specification                                        for solvency purposes. Nevertheless, in order to quantify the        the economic value of all assets must be included. Given that
                                                                                                                               issue, participants are requested, for information only, to          all risks are explicitly allowed for when determining capital
                                                                                                                               provide, when possible, t The treatment under IFRS 3 and             amounts there would be an element of double counting if
                                                                                                                               IFRS 4 (that is considered an acceptable proxy for valuation on      certain assets were excluded. We recommend that for the
                                                                                                                               an economic value basis ). If a different valuation basis is         purposes of QIS4 exercise that the economic value of intangible
                                                                                                                  Goodwill on used, full explanation must be provided.                              assets is taken into account and companies are asked to
                                                                                                 III       A                                                                                        separately identify, quantify and describe the valuation
                                                                                                                  acquisitions
                                                                                                                                                                                                    process of any intangible assets so that the potential scale of
                                                                                                                                                                                                    the economic value associated with these assets can be
                                                                                                                                                                                                    assessed.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                      Intangible assets - Intangible assets should be valued at nil for   Linked to comment on TS.V.F.1 & TS.VI.D.1. We believe that             High    15-02-2008
uk                                                       association      Specification                                         solvency purposes. Nevertheless, in order to quantify the           the economic value of all assets must be included. Given that
                                                                                                                                issue, participants are requested, for information only, to         all risks are explicitly allowed for when determining capital
                                                                                                                                provide, when possible, t The treatment under IAS 38 is             amounts there would be an element of double counting if
                                                                                                                                considered an acceptable proxy for valuation on an economic         certain assets were excluded. We recommend that for the
                                                                                                                                value basis, to the extent that the revaluation option and not      purposes of QIS4 exercise that the economic value of intangible
                                                                                                                   Intangible   the cost model is used (such a treatment is considered an           assets is taken into account and companies are asked to
                                                                                                 III       A                    acceptable proxy for valuation on an economic value basis). If      separately identify, quantify and describe the valuation
                                                                                                                     assets
                                                                                                                                a different valuation basis is used, full explanation must be       process of any intangible assets so that the potential scale of
                                                                                                                                provided.                                                           the economic value associated with these assets can be
                                                                                                                                                                                                    assessed.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                     …If a different valuation basis is used, full explanation must       Link TS.IX When determining the SCR market risk module                 High    15-02-2008
uk                                                       association      Specification                                        be provided. When performing capital calculations using a            changes in deferred tax asset values (and liabilities) need to be
                                                                                                                  Deferred tax
                                                                                                 III       A                   scenario approach the change in deferred tax liabilities also        reflected.
                                                                                                                     assets
                                                                                                                               should be allowed for.
Consultation - Solvency II - QIS4 - no comments received after 15 February


Drafting suggestions on QIS4 technical specifications                                                                                                                                                                                                                         METAINFOSECTION
e-mail                last name   First   Organisation   Type of          documents          area Q2   Sub-       Paragraph    Drafting suggestion Q2                                            Explanation changes Q2                                            priority   Creation date
                                  name                   Organisation                                  section Q2 reference
                                                                                                                  Q2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                     "For the purposes of QIS 4, pension liabilities may be excluded   It was noted that pensions were left out of SCR in QIS 3 and we      High    15-02-2008
uk                                                       association      Specification                                        from the SCR calculation. The treatment under IAS 19 is           believe that this would be appropriate for QIS4 as there
                                                                                                                               considered an acceptable proxy for valuation on an economic       continues to be significant uncertainty about how these
                                                                                                                               value basis. If a different valuation basis is used, full         liabilities should be treated. This may also involve an undue
                                                                                                                               explanation must be provided. However, firms are also             burden on firms for QIS4. This should be Pillar 2, rather than
                                                                                                                               encouraged to provide feedback on whether they consider IAS       part of standard SCR.
                                                                                                 III       A         IAS19     19 to be a good proxy for valuation of pension liabilities (or
                                                                                                                               assets) on an economic value basis and to suggest ways in
                                                                                                                               which an economic valuation might be more properly
                                                                                                                               achieved."




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                     The treatment under IAS12 is considered an acceptable proxy Link TS.IX When determining the SCR market risk module                     High    15-02-2008
uk                                                       association      Specification                                        for valuation on an economic basis. When performing capital changes in deferred tax asset values (and liabilities) need to be
                                                                                                                               calculations using a scenario approach the change in deferred reflected.
                                                                                                                  Deferred tax
                                                                                                 III       B                   tax assets also should be allowed for. If a different valuation
                                                                                                                   liabilities
                                                                                                                               basis is used a full explanation must be provided.
Consultation - Solvency II - QIS4 - no comments received after 15 February


Drafting suggestions on QIS4 technical specifications                                                                                                                                                                                                                                    METAINFOSECTION
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                                                                                                                  Q2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                       All financial liabilities should be valued on a market-               Link TS.I.B.2 It needs to be made clear that debt issued by a             High    15-02-2008
uk                                                       association      Specification                                          consistent basis. Where reliable market values are available          company should be valued in line with market prices and not
                                                                                                                      Other      these should be used in the first instance. Where this is not         say by discounting using risk free rates and making no
                                                                                                                    financial    the case it is likely to be appropriate to value the liabilities at   adjustment for own credit risk as this would place a higher
                                                                                                 III       B       liabilities   fair value in accordance with the guidance provided in IAS39.         value on the liability than the market value.
                                                                                                                  and amounts    If a different valuation basis is used, a full explanation must
                                                                                                                    payable      be provided.


Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                       …"evolution of paid claims and incurred claims…."     Ai,j=           It is important to emphasise that, especially for the longer              High    15-02-2008
uk                                                       association      Specification                                          gross cumulative amount of claims paid / gross incurred               tailed lines of business, incurred claims triangles are required
                                                                                                 IV        B           1         claims …..                                                            as well. Estimates on paid data only, will lead to poor
                                                                                                                                                                                                       estimates.

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                       A (gross in I) and A (gross in I): the gross resp net cumulative      Basing these ratios on cumulative paid claims will lead to poor           High    15-02-2008
uk                                                       association      Specification                                          amount of incurred claims paid claims (per LOB) …..                   estimates of the ceded reserves, as reinsurance payments are
                                                                                                                                                                                                       typically delayed (especially for those long tailed LOBs)
                                                                                                 IV        J          16                                                                               compared to gross payments. We would therefore recommend
                                                                                                                                                                                                       the same approach, whereby incurred claims are applied.



Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                             Capital tiering rules (TS.V): Current drafting suggests that              High    15-02-2008
uk                                                       association      Specification                                                                                                                when remaining term reduces below the 10 year limit, a T1
                                                                                                                                                                                                       instrument falls 100% into T2, and similarly from T2 to T3
                                                                                                                                                                                                       below the 5 year limit. Some straight-line amortisation, would
                                                                                                 V                                                                                                     better reflect the economic reality of these instruments and
                                                                                                                                                                                                       would remove unnecessary large step-changes in capital
                                                                                                                                                                                                       resources.


Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                       Grandfathering New paragraph TS.V.A.3: Grandfathering of              It is of the utmost importance that the issue of how to treat             High    15-02-2008
uk                                                       association      Specification                                          existing instruments on introduction of Solvency 2 is an              existing instruments under the new Solvency II regime is
                                                                                                                                 acknowledged issue which will be dealt with when formulating          explicitly considered and it may be necessary to have special
                                                                                                 V         A        3 - NEW
                                                                                                                                 implementing measures.                                                criteria for these instruments when formulating implementing
                                                                                                                                                                                                       measures.

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                       The main concern about a particular eligible element is to            * The last bulletpoint seems not to be fully in accordance with         Medium    15-02-2008
uk                                                       association      Specification                                          what extent it meets the characteristics set forth in the             the Framework Directive. The last bulletpoint says : “no item
                                                                                                                                 Framework Directive Proposal. In other words, elements are            is included in own funds if it is not available to absorb losses for
                                                                                                                                 classified in relation to how well and when they absorb losses        the benefit of all policyholders”
                                                                                                                                 compared to paid-upordinary share capital, or paid-up initial         * As we understand the framework directive there is a
                                                                                                                                 fund:                                                                 distinction between Tier 1 and Tier 2 capital dependant on the
                                                                                                                                 • the excess of assets over liabilities is a tier 1 item;             fact that a capital element is available on a going concern basis
                                                                                                                                 • a hybrid capital instrument, regardless of its legal form, can      or solely in a winding up situation (Article 92). A capital
                                                                                                                                 be a tier 1, tier 2 or tier 3 item;                                   element may clearly be available in a winding up situation but
                                                                                                 V         B           2
                                                                                                                                 • a subordinated liability can be a tier 1, tier 2 or tier 3 item;    not on a going concern basis because of restriction in use on a
                                                                                                                                 • a promise to provide own funds can be a tier 2 or tier 3            going concern basis that no longer is valid in a winding up
                                                                                                                                 item;                                  • no item is included in       situation.
                                                                                                                                 own funds if it is not available under some circumstances to          * The definition of a liability may differ from country to
                                                                                                                                 absorb losses for the benefit of all policyholders.                   country.
Consultation - Solvency II - QIS4 - no comments received after 15 February


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                                                                                                                  Q2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    If an insurer operates business that is "ring-fenced" in separate   It is not clear what is meant by "if an insurer operates funds",        High    15-02-2008
uk                                                       association      Specification                                       funds, the assets of which are not transferable to other parts      an example and more guidance would be helpful and should be
                                                                                                                              of the insurer's business (i.e. they are unable to losses from      consistent with the sections in own funds and groups. Further
                                                                                                                              other business), the then any related own funds above for this      work is needed.
                                                                                                 V         B           3      business in excess of the SCR (for that business) calculated for
                                                                                                                              each fund are should be excluded from the own funds of the
                                                                                                                              insurer.



Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    For each ancillary own fund item, participants are also        Group support as ancillary creates a problem. Starting point for           Medium    15-02-2008
uk                                                       association      Specification                                       requested to provide information on the valuation basis. If an Solvency II is that all assets are valued at market value, not at
                                                                                                                              item is not valued at nominal value, y You are requested to    nominal value.
                                                                                                                              explain why valuation is not at nominal value and provide a
                                                                                                 V         D           3      description of the valuation basis used and the valuation
                                                                                                                              assumptions made.



Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    "In order to facilitate completion of the spreadsheets, some        Makes clear that it is for the insurer to use their own               Medium    15-02-2008
uk                                                       association      Specification                                       examples are written below. These examples are given in a           judgement to determine how to classify own fund items,
                                                                                                                              purely indicative way. Insurers should apply their own              referring to the defined characteristics of the different tiers of
                                                                                                 V         E           1      judgement to allocate own fund items according to the               capital
                                                                                                                              characteristics for classification of capital items set out below
                                                                                                                              (TS.V.E.2 to TS.V.E.6)"

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                        [We believe this is an over-complex classification and should be      Medium    15-02-2008
uk                                                       association      Specification          V         E           2                                                                          for guidance only.]
Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    (…) · A net surplus on a insurer's (...) A net deficit on such a     · If the obligation to meet the deficit ranks below                    High    15-02-2008
uk                                                       association      Specification          V         E           2      scheme is not included in own funds if the claims of                policyholders it should be excluded.
                                                                                                                              participants to the scheme are (...)

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    (...) · Non-cumulative fixed-term preference shares with a          It is essential that issue date is used in connection with step up      High    15-02-2008
uk                                                       association      Specification                                       maturity duration of at least 10 years from the reporting date.     features as otherwise it will greatly affect the viability of
                                                                                                                              (...)                                                               hybrid capital instruments. The maturity of a hybrid is more
                                                                                                                              · Other hybrid capital instruments which fulfil the criterion of    relevant than the current effective duration in assessing the
                                                                                                                              loss-absorbency in going concern with a maturity duration of        protection afforded by a hybrid to policyholders. This is
                                                                                                                              at least 10 years from the reporting date. Any interest step-       because the option to redeem is at company's discretion and
                                                                                                                              ups must not apply before 10 years from the issue date              subject to supervisor approval. In the adverse circumstances
                                                                                                 V         E           2      reporting date and must not exceed the maximum of 100 basis         being considered the effective duration would be very much
                                                                                                                              points or 50% of the initial credit spread at the issue date.       longer than the current effective duration because under such
                                                                                                                              · Subordinated liabilities which fulfil the criterion of loss-      circumstances the debt would not be redeemed. Linked to
                                                                                                                              absorbency in going concern with a maturity duration of at          comment on TS.V.E.3, TS.V.E.4, TS.V.I.8, TS.V.I.9, TS.V.I.10,
                                                                                                                              least 10 years from the reporting date.                             TS.V.I.11.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    (...) · Subordinated l Liabilities subordinated to policyholders‟ To clarify the subordinated liabilities which should be                 Medium    15-02-2008
uk                                                       association      Specification                                       interests which fulfil the criterion of loss-absorbency in going considered in the determination of own funds.
                                                                                                 V         E           2      concern with a maturity duration of at least 10 years from the
                                                                                                                              reporting date.
Consultation - Solvency II - QIS4 - no comments received after 15 February


Drafting suggestions on QIS4 technical specifications                                                                                                                                                                                                                               METAINFOSECTION
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                                  name                   Organisation                                  section Q2 reference
                                                                                                                  Q2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    (…) · Cumulative fixed-term preference shares with a                Linked to comment on TS.V.E.2, TS.V.E.4, TS.V.I.8, TS.V.I.9,              High    15-02-2008
uk                                                       association      Specification                                       maturity duration of at least 5 years from the reporting date.      TS.V.I.10, TS.V.I.11
                                                                                                                              · Other hybrid capital instruments with a maturity duration of      It is essential that issue date is used in connection with step up
                                                                                                                              at least 5 years from the reporting date. Any interest step-ups     features as otherwise it will greatly affect the viability of
                                                                                                                              must not apply before 5 years from the issue reporting date         hybrid capital instruments. The maturity of a hybrid is more
                                                                                                                              and must not exceed the maximum of 100 50 basis points or           relevant than the current effective duration in assessing the
                                                                                                                              50% of the initial credit spread at the issue date.                 protection afforded by a hybrid to policyholders. This is
                                                                                                                              · Subordinated liabilities with a maturity duration of at least 5   because the option to redeem is at company's discretion and
                                                                                                                              years from the reporting date. The eligibility of non-perpetual     subject to supervisor approval. In the adverse circumstances
                                                                                                 V         E           3      instruments above should run off over the last five years of        being considered the effective duration would be very much
                                                                                                                              issue in the following ratio: 80% - 4 years Tier 2/ 60% - 3 years   longer than the current effective duration because under such
                                                                                                                              Tier 2/ 40% - 2 years Tier 2/ 20% - 1 year Tier 2/ 0% final year    circumstances the debt would not be redeemed. Also it makes
                                                                                                                              Tier 2 eligible and the balance eligible in Tier 3.                 no sense to have more severe restrictions on step ups for tier 2
                                                                                                                                                                                                  than tier 1.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Basic own funds, tier 3                                             Linked to comment on TS.V.E.2, TS.V.E.3, TS.V.I.8, TS.V.I.9,              High    15-02-2008
uk                                                       association      Specification                                       · Cumulative fixed-term preference shares with a maturity           TS.V.I.10, TS.V.I.11                      It is essential that issue
                                                                                                                              duration of less than 5 years from the reporting date.              date is used in connection with step up features as otherwise it
                                                                                                                              · Other hybrid capital instruments with a maturity duration of      will greatly affect the viability of hybrid capital instruments.
                                                                                                                              less than 5 years from the reporting date.                          The maturity of a hybrid is more relevant than the current
                                                                                                                              · Subordinated liabilities with a maturity duration of less than    effective duration in assessing the protection afforded by a
                                                                                                                              5 years from the reporting date.                                    hybrid to policyholders. This is because the option to redeem is
                                                                                                                                                                                                  at company's discretion and subject to supervisor approval. In
                                                                                                 V         E           4                                                                          the adverse circumstances being considered the effective
                                                                                                                                                                                                  duration would be very much longer than the current effective
                                                                                                                                                                                                  duration because under such circumstances the debt would not
                                                                                                                                                                                                  be redeemed.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    (...) As a consequence, only part of unbudgeted                     There's no rationale behind the number of 40 %. We think if             Medium    15-02-2008
uk                                                       association      Specification                                       supplementary member calls can be classified in Tier 2              such calls are regarded as certain they should qualify for Tier
                                                                                                                              ancillary own funds, being calls, the recoverability of which is    2. In general, we think that splitting capital instruments needs
                                                                                                                              considered certain. For QIS4, 40 % of the callable amount can       to be well founded.
                                                                                                                              be classified in Tier 2 ancillary own funds, and the rest in Tier
                                                                                                                              3 ancillary own funds. If relevant past experience shows that
                                                                                                 V         E           5
                                                                                                                              95 % of a call are paid in normally, the split is 95 % to 5 % for
                                                                                                                              Tier 2 respectively Tier 3.
                                                                                                                              (...)
Consultation - Solvency II - QIS4 - no comments received after 15 February


Drafting suggestions on QIS4 technical specifications                                                                                                                                                                                                                             METAINFOSECTION
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                                  name                   Organisation                                  section Q2 reference
                                                                                                                  Q2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    For the reporting of intangible assets, participants are invited    We believe that the economic value of all assets must be                High    15-02-2008
uk                                                       association      Specification                                       to refer to the technical specification on the valuation of         included. Given that all risks are explicitly allowed for when
                                                                                                                              assets and liabilities other than technical provisions.             determining capital amounts there would be an element of
                                                                                                                              Intangible assets (including goodwill) should be valued at nil      double counting if certain assets were excluded. We
                                                                                                                              on an economic basis for solvency purpose. For information          recommend that for the purposes of QIS4 exercise the
                                                                                                                              purposes, intangible assets should be reported, using IFRS,         economic value of intangible assets is taken into account and
                                                                                                                              grouped in four categories:(…)                                      companies are asked to separately identify, quantify and
                                                                                                 V         F           1                                                                          describe the valuation process of any intangible assets so that
                                                                                                                                                                                                  the potential scale of the economic value associated with these
                                                                                                                                                                                                  assets can be assessed.
                                                                                                                                                                                                  Linked to comment on TS.III.A & TS.VI.D.1




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    On the "Key Features" column of the table:                          In line with the previous CEA's position on available capital           High    15-02-2008
uk                                                       association      Specification                                       (1) The total amount of the item must be subordinated to the        expressed on the "CEA Working Paper on the Total Balance
                                                                                                                              interests of policyholders and all other senior creditors           Sheet Approach", and since "the solvency system aims at the
                                                                                                                              creditors who, in a winding up situation, rank equal or above       protection of policyholders and beneficiaries" , our preliminary
                                                                                                                              policyholders. (...)                                                thoughts on this matter lead us to the conclusion that the
                                                                                                                                                                                                  subordinated liabilities mentioned in Article 86º of the FD are
                                                                                                 V         I           8
                                                                                                                                                                                                  those liabilities that are subordinated to policyholders'
                                                                                                                                                                                                  interests.
                                                                                                                                                                                                  Linked to comment on TS.V.I.9, TS.V.I.11




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    On the "Key Features" column of the table:                          · Linked to comment on TS.V.E.2, TS.V.E.3, TS.V.I.4, TS.V.I.9,          High    15-02-2008
uk                                                       association      Specification                                       (...) (3) the item: must be undated or of sufficient maturity       TS.V.I.10, TS.V.I.11
                                                                                                                              duration in relation to the insurance obligations it covers (i.e.   It is essential that issue date is used in connection with step up
                                                                                                                              must have a maturity duration of at least 10 years from             features as otherwise it will greatly affect the viability of
                                                                                                                              reporting date); and (...)                                          hybrid capital instruments.
                                                                                                                              (4) the item must be · free from any requirements to redeem         The maturity of a hybrid is more relevant than the current
                                                                                                                              the item; · free from any incentives to redeem (i.e. step-ups       effective duration in assessing the protection afforded by a
                                                                                                                              must not apply before 10 years from issue reporting date and        hybrid to policyholders. This is because the option to redeem is
                                                                                                                              must not exceed a prescribed level (the maximum of 100 bsp          at company's discretion and subject to supervisor approval. In
                                                                                                                              or 50% of initial credit spread)                                    the adverse circumstances being considered the effective
                                                                                                 V         I           8      (5) at a pre-determined trigger point based on the firm‟s MCR,      duration would be very much longer than the current effective
                                                                                                                              any coupons must be: able to be cancelled; or able to be            duration because under such circumstances the debt would not
                                                                                                                              deferred for an indefinite term, where coupons are non cash         be redeemed.
                                                                                                                              cumulative and can only be settled in stock or new Issuer           · As market standard, the deferred interests should be payed
                                                                                                                              securities ranking junior to or pari passu with the issued          with the proceeds of sales of stocks or other junior or pari
                                                                                                                              Hybrid and having features at least similar to the Hybrid.          passu securities and not only with stocks underwritten by bond
                                                                                                                              Please note, that this is a principle not a rule. Consequently      investors. Most of the bond investors indeed can not invest in
                                                                                                                              existing instruments may be eligible if the participant is able     equity and therefore this prevent many fixed income investors
                                                                                                                              to justify this on basis of the economic character of the           from participating in the market of hybrid or reduce their
                                                                                                                              instrument.                                   (...)                 appetire for this kind of instruments.
Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    On the "Items" column of the table:                                 · On the other hand, a pre-determined trigger point87 in on
                                                                                                                                                                                                  Called up common equity is tier 1 capital ex article based            Medium    15-02-2008
uk                                                       association      Specification                                       The excess of assets over liabilities:                              connection with article 90 and should be listed as such to avoid
                                                                                                                              · paid up and called up common equity (common share                 unnecessary obscurities.
                                                                                                 V         I           8
                                                                                                                              capital, initial fund) with redemption subject to prior
                                                                                                                              supervisory approval, (…)
Consultation - Solvency II - QIS4 - no comments received after 15 February


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                                  name                   Organisation                                  section Q2 reference
                                                                                                                  Q2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    On the "Key Features" column of the table:                          Linked to comment on TS.V.I.8, TS.V.I.11                                High    15-02-2008
uk                                                       association      Specification                                       (1) The total amount of the item must be subordinated to the        In line with the previous CEA's position on available capital
                                                                                                                              interests of policyholders and all other senior creditors           expressed on the "CEA Working Paper on the Total Balance
                                                                                                                              creditors who, in a winding up situation, rank equal or above       Sheet Approach", and since "the solvency system aims at the
                                                                                                                              policyholders.                                         (...)        protection of policyholders and beneficiaries" , our preliminary
                                                                                                                                                                                                  thoughts on this matter lead us to the conclusion that the
                                                                                                 V         I           9
                                                                                                                                                                                                  subordinated liabilities mentioned in Article 86º of the FD are
                                                                                                                                                                                                  those liabilities that are subordinated to policyholders'
                                                                                                                                                                                                  interests.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    On the "Key Features" column of the table:                          Linked to comment on TS.V.E.2, TS.V.E.3, TS.V.I.4, TS.V.I.8,            High    15-02-2008
uk                                                       association      Specification                                       (...) (3) the item: · must be of sufficient maturity duration in    TS.V.I.10, TS.V.I.11.
                                                                                                                              relation to the insurance obligations it covers (i.e. must have     It is essential that issue date is used in connection with step up
                                                                                                                              a maturity duration of at least 5 years from reporting date);       features as otherwise it will greatly affect the viability of
                                                                                                                              and (...)                                                           hybrid capital instruments.
                                                                                                                              (4) the item must be · free from any requirements to redeem         The maturity of a hybrid is more relevant than the current
                                                                                                                              the item; · free from any incentives to redeem (i.e. step-ups       effective duration in assessing the protection afforded by a
                                                                                                                              must not apply before 5 years from issue reporting date and         hybrid to policyholders. This is because the option to redeem is
                                                                                                                              must not exceed a prescribed level (the maximum of 100 bsp          at company's discretion and subject to supervisor approval. In
                                                                                                 V         I           9      or 50% of initial credit spread) (...)                              the adverse circumstances being considered the effective
                                                                                                                                                                                                  duration would be very much longer than the current effective
                                                                                                                                                                                                  duration because under such circumstances the debt would not
                                                                                                                                                                                                  be redeemed.
                                                                                                                                                                                                  Also it makes no sense to have more severe restrictions on step
                                                                                                                                                                                                  ups for tier 2 than tier 1 !!




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    On the "Items" column of the table:                                 Linked to comment on TS.V.E.2, TS.V.E.3, TS.V.I.4, TS.V.I.8,            High    15-02-2008
uk                                                       association      Specification                                       · Hybrid capital instruments with a maturity duration of at         TS.V.I.10, TS.V.I.11                   It is essential that issue
                                                                                                                              least 5 years from reporting date: e.g. · cumulative                date is used in connection with step up features as otherwise it
                                                                                                                              preference shares, · others (to be specified by participants)       will greatly affect the viability of hybrid capital instruments.
                                                                                                                              provided they posses the key features in the preceding              The maturity of a hybrid is more relevant than the current
                                                                                                                              column.                                                             effective duration in assessing the protection afforded by a
                                                                                                                              · Subordinated liabilities with a maturity duration of at least 5   hybrid to policyholders. This is because the option to redeem is
                                                                                                                              years from reporting date, e.g. · fixed term subordinated           at company's discretion and subject to supervisor approval. In
                                                                                                 V         I           9      liabilities, · others (to be specified by participants) provided    the adverse circumstances being considered the effective
                                                                                                                              they posses the key features in the preceding column.               duration would be very much longer than the current effective
                                                                                                                                                                                                  duration because under such circumstances the debt would not
                                                                                                                                                                                                  be redeemed.
Consultation - Solvency II - QIS4 - no comments received after 15 February


Drafting suggestions on QIS4 technical specifications                                                                                                                                                                                                                               METAINFOSECTION
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                                  name                   Organisation                                  section Q2 reference
                                                                                                                  Q2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    On the "Key Features" column of the table:                          Linked to comment on TS.V.E.2, TS.V.E.3, TS.V.I.4, TS.V.I.8,              High    15-02-2008
uk                                                       association      Specification                                       (...) (3) the item: · must be undated or of sufficient maturity     TS.V.I.9, TS.V.I.11               It is essential that issue date is
                                                                                                                              duration in relation to the insurance obligations it covers (i.e.   used in connection with step up features as otherwise it will
                                                                                                                              must have a maturity duration of at least 10 years from             greatly affect the viability of hybrid capital instruments.
                                                                                                                              reporting date); and (...)                                          The maturity of a hybrid is more relevant than the current
                                                                                                                              (4) the item must be · free from any requirements to redeem         effective duration in assessing the protection afforded by a
                                                                                                                              the item; · free from any incentives to redeem (i.e. step-ups       hybrid to policyholders. This is because the option to redeem is
                                                                                                                              must not apply before 10 years from issue reporting date and        at company's discretion and subject to supervisor approval. In
                                                                                                 V         I          10      must not exceed a prescribed level (the maximum of 100 bsp          the adverse circumstances being considered the effective
                                                                                                                              or 50% of initial credit spread)                                    duration would be very much longer than the current effective
                                                                                                                              (...)                                                               duration because under such circumstances the debt would not
                                                                                                                                                                                                  be redeemed.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    On the "Key Features" column of the table:                          Linked to comment on TS.V.I.8, TS.V.I.11                                  High    15-02-2008
uk                                                       association      Specification                                       (1) The total amount of the item must be subordinated to the        In line with the previous CEA's position on available capital
                                                                                                                              interests of policyholders and all other senior creditors           expressed on the "CEA Working Paper on the Total Balance
                                                                                                                              creditors who, in a winding up situation, rank equal or above       Sheet Approach", and since "the solvency system aims at the
                                                                                                                              policyholders.                                                      protection of policyholders and beneficiaries" , our preliminary
                                                                                                                              (...)                                                               thoughts on this matter lead us to the conclusion that the
                                                                                                 V         I          11
                                                                                                                                                                                                  subordinated liabilities mentioned in Article 86º of the FD are
                                                                                                                                                                                                  those liabilities that are subordinated to policyholders'
                                                                                                                                                                                                  interests.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    On the "Items" column of the table:                                 Linked to comment on TS.V.E.2, TS.V.E.3, TS.V.I.4, TS.V.I.8,              High    15-02-2008
uk                                                       association      Specification                                       · Hybrid capital instruments with a maturity duration of less       TS.V.I.9, TS.V.I.10                     It is essential that issue
                                                                                                                              than 5 years from reporting date: e.g. · cumulative                 date is used in connection with step up features as otherwise it
                                                                                                                              preference shares, · others (to be specified by participants) .     will greatly affect the viability of hybrid capital instruments.
                                                                                                                              · Subordinated liabilities with a maturity duration of less than    The maturity of a hybrid is more relevant than the current
                                                                                                                              5 years from reporting date, e.g. · fixed term subordinated         effective duration in assessing the protection afforded by a
                                                                                                                              liabilities, · others (to be specified by participants).            hybrid to policyholders. This is because the option to redeem is
                                                                                                                                                                                                  at company's discretion and subject to supervisor approval. In
                                                                                                 V         I          11                                                                          the adverse circumstances being considered the effective
                                                                                                                                                                                                  duration would be very much longer than the current effective
                                                                                                                                                                                                  duration because under such circumstances the debt would not
                                                                                                                                                                                                  be redeemed.
Consultation - Solvency II - QIS4 - no comments received after 15 February


Drafting suggestions on QIS4 technical specifications                                                                                                                                                                                                                             METAINFOSECTION
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                                  name                   Organisation                                  section Q2 reference
                                                                                                                  Q2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    The principle of substance over form should be followed            It is very impractical and difficult to understand results when       Low        15-02-2008
uk                                                       association      Specification                                       considered in determining how risks are to be treated. For         for example risks associated with non-life products (e.g. Bodily
                                                                                                                              instance, where claims are payable in the form of an annuity       injury claims arising from the Motor Third Part Liability
                                                                                                                              (for example in motor insurance), agreed claims should             portfolio) are reported under the module of life risk.
                                                                                                                              normally be part of SCRlife determined with actuarial              Companies would regard the risk of increased claims as part of
                                                                                                                              techniques which are commonly used for life insurance              non-life risk rather than life risk, even though technically "life"
                                                                                                                              products (e.g. use of mortality or disability tables). The         methods are used to evaluate these risks. We agree that "life"
                                                                                                 VI        A           3      results should for practicality reasons be disclosed under the     techniques may be more appropriate to evaluate the risk, but
                                                                                                                              non-life risk module. life technical unless If the impact of the   this should be a decision left to the company.
                                                                                                                              associated risk on the risk capital charges for the individual
                                                                                                                              risk modules can be expected to be negligible, the traditional
                                                                                                                              non-life techniques may be used.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    For the calculation of the SCR, when participants are              Linked to comment on TS.III.A & TS.V.F.1                              Medium     15-02-2008
uk                                                       association      Specification                                       requested to input the value of assets, in accordance to the       We believe that the economic value of all assets must be
                                                                                                                              specifications on the valuation of assets and liabilities other    included. Given that all risks are explicitly allowed for when
                                                                                                                              than technical provisions, intangible assets (including            determining capital amounts there would be an element of
                                                                                                                              goodwill) are to be valued at nil on an economic basis.            double counting if certain assets were excluded. We
                                                                                                                                                                                                 recommend that for the purposes of QIS4 exercise the
                                                                                                                                                                                                 economic value of intangible assets is taken into account and
                                                                                                 VI        D           1                                                                         companies are asked to separately identify, quantify and
                                                                                                                                                                                                 describe the valuation process of any intangible assets so that
                                                                                                                                                                                                 the potential scale of the economic value associated with these
                                                                                                                                                                                                 assets can be assessed.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    In line with Article 103(7) of the Framework Directive             The aim is to determine the 99.5th percentile VaR for                    High    15-02-2008
uk                                                       association      Specification                                       Proposal, this option is intended to allow the use of internal,    underwriting risk, i.e. the change in the technical provisions
                                                                                                                              insurer specific data within the design of the standard formula    consistent with this (the assets will remain unchanged). For
                                                                                                                              calculation of the underwriting risk capital charges. This         this purpose it is not necessary to assume the distribution that
                                                                                                                              option can be taken where there is the same underlying             CEIOPS has used to derive the 99.5th percentile stresses for the
                                                                                                 VI        F           1      distribution assumption of the data and the same statistical       standard approach. What is important is that the 99.5th
                                                                                                                              tests are applied. If another distribution was used or different   percentile shocks that companies use is consistent with their
                                                                                                                              statistical tests, then a partial internal model would be          experience.
                                                                                                                              required.
Consultation - Solvency II - QIS4 - no comments received after 15 February


Drafting suggestions on QIS4 technical specifications                                                                                                                                                                                                                           METAINFOSECTION
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                                                                                                                  Q2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Scope of application of undertaking-specific parameters:             Link TS.VI.F.3        This needs to be aligned with Article        Medium    15-02-2008
uk                                                       association      Specification                                       Logically, it follows that this method can be used if data           103(7) of the Directive, which also allows this for life
                                                                                                                              quality standards are set and respected, as well as an explicit      companies as well as non-life and health ones to "… within the
                                                                                                                              standardized method of calculation (distribution assumption          design of the standard formula, replace a subset of its
                                                                                                                              and statistical tests). Given the current availability of explicit   parameters by parameters specific to the undertaking
                                                                                                                              standardized methods, the use of undertaking-specific                concerned when calculating the life, non-life and special
                                                                                                                              parameters is limited in QIS3 to certain parameters of the non       health underwriting modules". Also, what is important is that
                                                                                                                              life and health underwriting modules.                                the 99.5th percentile shocks that companies use is consistent
                                                                                                 VI        F           2      The scope of the calculation of the undertaking-specific             with their experience and not that it necessarily conforms with
                                                                                                                              parameters extends to life, non-life and health business             a standard distribution prescribed by CEIOPS.
                                                                                                                              subject to companies having sufficient data to make
                                                                                                                              reasonable assumptions.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    However, this does not preclude a more extensive application         Need to understand what companies have done and why. Also,         Medium    15-02-2008
uk                                                       association      Specification                                       to other parameters, including in the "life" module in the           what is important is that the 99.5th percentile shocks that
                                                                                                                              future. CEIOPS would welcome participants‟ comments on               companies use is consistent with their experience and not that
                                                                                                                              potential alternative standardized methods and the way they          it necessarily conforms with a standard distribution prescribed
                                                                                                                              could lead to alternative sets of undertaking-specific               by CEIOPS.
                                                                                                 VI        F           3      parameters. Participants are requested to describe the
                                                                                                                              approach used to derive undertaking-specific parameters and
                                                                                                                              any underlying assumptions.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Delete entire paragraphs.                                            No longer needed.                                                  Medium    15-02-2008
uk                                                       association      Specification          VI        F         4 to 8

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Simplified methods and statistical techniques may be used if Need to make clear that there is no circularity.                           Medium    15-02-2008
uk                                                       association      Specification                                       the criteria outlined below are satisfied. These criteria are
                                                                                                                              required to be applied where they are expected to be met.
                                                                                                                              For the avoidance of doubt and any circularity, it is not
                                                                                                                              necessary to calculate SCR using the standard approach in
                                                                                                 VI        G           5      order to determine whether the absolute / relative criteria
                                                                                                                              (to the overall SCR) are met - they are to be applied on a
                                                                                                                              best efforts basis.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    For with-profits business in life insurance, the specification of The KC factors should be done on a net basis, not gross.                High    15-02-2008
uk                                                       association      Specification                                       the standard formula calculation as set out in this
                                                                                                                              specification takes into account the risk absorption ability of
                                                                                                 VI        H           1      future profit sharing. This is achieved by a three step “bottom
                                                                                                                              up” approach as follows:



Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Delete whole paragraph.                                              The KC factors should be done on a net basis, not gross.             High    15-02-2008
uk                                                       association      Specification          VI        H           2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Delete whole paragraph.                                              The KC factors should be done on a net basis, not gross.             High    15-02-2008
uk                                                       association      Specification          VI        H           3

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Delete whole paragraph.                                              The KC factors should be done on a net basis, not gross.             High    15-02-2008
uk                                                       association      Specification          VI        H           4
Consultation - Solvency II - QIS4 - no comments received after 15 February


Drafting suggestions on QIS4 technical specifications                                                                                                                                                                                                                         METAINFOSECTION
e-mail                last name   First   Organisation   Type of          documents          area Q2   Sub-       Paragraph   Drafting suggestion Q2                                           Explanation changes Q2                                              priority   Creation date
                                  name                   Organisation                                  section Q2 reference
                                                                                                                  Q2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Delete whole paragraph.                                          The KC factors should be done on a net basis, not gross.               High    15-02-2008
uk                                                       association      Specification          VI        H           5

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Delete whole paragraph.                                          The KC factors should be done on a net basis, not gross.               High    15-02-2008
uk                                                       association      Specification          VI        H           6

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    The allowance for risk mitigating effects in the standard        Link TS.II.D.44     Needs to be consistent with the recognition        High    15-02-2008
uk                                                       association      Specification                                       formula is restricted to instruments except where processes      of risk mitigation tools. Where a firm has processes and
                                                                                                                              and controls that the company has in place to manage             practices to dynamically replicate options these should be
                                                                                                                              investment risk are part of a firm's integrated principles and   recognised. Examples include dynamic replication strategies to
                                                                                                 VII       B           6      practice processes and controls such as dynamic hedging          manage investment risk on variable annuity products and
                                                                                                                              strategies, e.g. to dynamically replicate options as part of     where companies are uses similar approaches to manage
                                                                                                                              variable annuity hedging strategies.                             guarantee costs.



Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                     This refers to undertaking specific parameters only being            Medium    15-02-2008
uk                                                       association      Specification                                                                                                        allowed to adjust the parameters not the underlying
                                                                                                                                                                                               distribution. If this is to be so then CEIOPS must specify the
                                                                                                                                                                                               distributions assumed for all elements of underwriting risk at
                                                                                                                                                                                               the most granular level (e.g. for life a segregation of
                                                                                                 VII       F           1                                                                       parameter and trend assumptions and divided between survival
                                                                                                                                                                                               and disability recovery, between CI and DI) This then allows
                                                                                                                                                                                               entities to build entity specific outcomes from the basic blocks.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                     Is this collateral for financial instruments or for all types of       Low     15-02-2008
uk                                                       association      Specification          VII       I           1                                                                       asset?
Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    The SCR is determined as: SCR = BSCR + SCRop - expected          It should be rather obvious that the risk for premium                  High    15-02-2008
uk                                                       association      Specification                                       profits/losses non-life business                                 insufficiency should depend on the relationship between
                                                                                                                                                                                               premium income and expenses and losses. It may look like that
                                                                                                                                                                                               there is an underlying assumption that the combined ratio for
                                                                                                                                                                                               all lines of business on average equals 100 percent so the only
                                                                                                                                                                                               risk we have to consider is the 1 into 200 event for exceeding
                                                                                                                                                                                               the average combined ratio (of 100 percent). The non-life
                                                                                                                                                                                               insurance companies will on average have to make a profit on
                                                                                                                                                                                               the underwriting result. The fact that an insurance company on
                                                                                                                                                                                               average (over time) will have a combined ratio below 100
                                                                                                VIII       A           4                                                                       (make a profit) is not taken into account when calculating the
                                                                                                                                                                                               SCR-requirement for premium risk. In order to do that the level
                                                                                                                                                                                               of the combined ratio have to taken into account and not just
                                                                                                                                                                                               the variation around the combined ratio. One way to do this is
                                                                                                                                                                                               to allow for future profit and losses in non-life insurance.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                     Only administration expenses should be used.                         Medium    15-02-2008
uk                                                       association      Specification         VIII       B           2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                     Recommendation that companies disclose management actions            Medium    15-02-2008
uk                                                       association      Specification         VIII       C           4                                                                       to local regulators.
Consultation - Solvency II - QIS4 - no comments received after 15 February


Drafting suggestions on QIS4 technical specifications                                                                                                                                                                                                                            METAINFOSECTION
e-mail                last name   First   Organisation   Type of          documents          area Q2   Sub-       Paragraph   Drafting suggestion Q2                                             Explanation changes Q2                                               priority   Creation date
                                  name                   Organisation                                  section Q2 reference
                                                                                                                  Q2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    According to Art. 106 of the Framework Directive Proposal,         It needs to be clarified that the KC factor applies to all. CEIOPS    Medium    15-02-2008
uk                                                       association      Specification                                       the SCR should take into account the loss absorbing capacity       need to do something on deferred taxes, but this is tricky.
                                                                                                                              of deferred taxes for unexpected losses. Calculations of           More guidance is required on how to deal with these tax
                                                                                                                              changes in NAV within SCR calculations should reflect the          effects. [to be completed]. The extra wording clarifies that the
                                                                                                                              changes in tax assets and liabilities consistent with the stress   default position for QIS4 is "net of tax".
                                                                                                                              applied, on a going-concern basis and consistent with II.B.15.
                                                                                                VIII       C           5      Due to the variety of tax regimes across the Member States,
                                                                                                                              participants are invited to comment on how this specific risk
                                                                                                                              mitigation mechanism would apply in their Member State.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    "The scenario-based method … C BSCR…"                              Typo                                                                    Low     15-02-2008
uk                                                       association      Specification         VIII       C           7

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    The alternative method may be used by the participant             The requirement to "demonstrate" could be interpreted as               Medium    15-02-2008
uk                                                       association      Specification         VIII       C           7      provided it can demonstrate they can justify that it is likely to having to do both methods in order to provide this
                                                                                                                              provide a more accurate estimate of the ...                       demonstration

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    "Therefore, the capital charges need to be calculation either This explanation is very confused and misleading.                          Medium    15-02-2008
uk                                                       association      Specification                                       … the participant should still make the default calculation in
                                                                                                                              this case and disclose the results) The default SCR and KC
                                                                                                                              calculations are therefore needed as inputs for the
                                                                                                                              spreadsheet, which will then provide a combined scenario
                                                                                                                              (i.e. lower stresses, but for all risk factors) that can be used
                                                                                                VIII       C           7
                                                                                                                              to derive the SCR capital amount in one go without needing to
                                                                                                                              aggregate individual capital amounts using a correlation
                                                                                                                              matrix approach."




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Where there is some doubt the participant should choose the Current text is confusing.                                                   Medium    15-02-2008
uk                                                       association      Specification                                       method delivering the highest SCR. In case … justify its
                                                                                                                              choice. Participants should use the alternative method where
                                                                                                VIII       C           7
                                                                                                                              they believe it will give more appropriate results and explain
                                                                                                                              why they believe this.

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                       This is calculated gross and should be net as it was in QIS3. Why     Medium    15-02-2008
uk                                                       association      Specification          IX        A           4                                                                         is the correlation between market risk and interest rate risk
                                                                                                                                                                                                 zero?

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                       As above.                                                               High    15-02-2008
uk                                                       association      Specification          IX        A           5

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    For the determination of the capital charge for equity risk,       Link TS.IX.C.13 The sole criteria for assuming a higher shock           High    15-02-2008
uk                                                       association      Specification                                       the following indices are considered:                              should be that the underlying investment is inherently more
                                                                                                                              No. Index                                                          volatility than global equities. Whether or not an asset is listed
                                                                                                                              1 Global                                                           or not does not change its inherent volatility.
                                                                                                 IX        C           9      2 Other
                                                                                                                              Footnote 31 Comprising emerging markets, non-listed
                                                                                                                              equities, private equity, hedge funds and other alternative
                                                                                                                              investments
Consultation - Solvency II - QIS4 - no comments received after 15 February


Drafting suggestions on QIS4 technical specifications                                                                                                                                                                                                                           METAINFOSECTION
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                                  name                   Organisation                                  section Q2 reference
                                                                                                                  Q2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                   The size of the equity stress seems small when compared to               Medium    15-02-2008
uk                                                       association      Specification                                                                                                      the stress commonly used in UK industry ICA models. The shock
                                                                                                 IX        C          11                                                                     of 32% can also be lower than some internal models.


Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                   This does not align with XVI.B.34. Groups and branches are               Medium    15-02-2008
uk                                                       association      Specification          IX        E           7                                                                     more onerous than groups and solos.
Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    The phrase "interest rate risk" should be "currency risk".     Typo.                                                                    Medium    15-02-2008
uk                                                       association      Specification          IX        E           7

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    “Government bonds are exempted from an application of this     The capital charge is just the sum of a product calculated at            Medium    15-02-2008
uk                                                       association      Specification                                       module. The exemption relates to borrowings by the national    the level of each exposure. Hence the spread risk module
                                                                                                                              government, or guaranteed by the national government, of an    assumes that the credit events are 100% correlated between all
                                                                                                                              OECD or EEA state, issued in the currency of the government.   credit ratings. We note that this is inconsistent with the
                                                                                                                              Both assets and liabilities associated with unit-linked        approach for concentration which is also built around credit
                                                                                                                              contracts should be excluded.”                                 events and assumes that they are uncorrelated (TS.IX.G.17).
                                                                                                                                                                                              There is also no account of the change in value in the
                                                                                                 IX        F           3                                                                     liabilities - there may be cases where the value of the
                                                                                                                                                                                             liabilities is also affected - like in the case of the equity stress.
                                                                                                                                                                                              At the very least the stress should be specified such that unit
                                                                                                                                                                                             linked assets are excluded.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                   Market value not net asset value is used, but net asset value is         Medium    15-02-2008
uk                                                       association      Specification          IX        F           7                                                                     subject to the shock. Also, the summation does not seem to
                                                                                                                                                                                             allow for diversification.

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                   Is F(rating) similar to a shock? Or is it IX.F.8 and IX.F.9 together     Medium    15-02-2008
uk                                                       association      Specification          IX        F           8                                                                     that is the shock? See also IX.G.11- IX.G.13 and compare with
                                                                                                                                                                                             FSA values.

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                   A scenario-based approach is preferred. We are broadly                     High    15-02-2008
uk                                                       association      Specification                                                                                                      comfortable with the level of the factors applied for each
                                                                                                                                                                                             rating category. The factors may be made more risk sensitive
                                                                                                                                                                                             by allowing for +/1 and -/3 ratings as well as the full letter
                                                                                                                                                                                             ratings. The current calibration assigns capital requirements 4
                                                                                                                                                                                             times as large for an A+ bond as for an AA- bond. This seems
                                                                                                                                                                                             unduly "lumpy" and could provide opportunity for arbitrage
                                                                                                                                                                                             (either by insurers or by investment banks). The QIS3
                                                                                                 IX        F           8                                                                     calibration paper provided by CEIOPS (or an early version
                                                                                                                                                                                             thereof) showed the derivation of this table. The full-letter-
                                                                                                                                                                                             only calibration and the factor-based approach should be
                                                                                                                                                                                             offered only as simplifications.
Consultation - Solvency II - QIS4 - no comments received after 15 February


Drafting suggestions on QIS4 technical specifications                                                                                                                                                                                                                       METAINFOSECTION
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                                  name                   Organisation                                  section Q2 reference
                                                                                                                  Q2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    After "Unrated, unsecured 2.00%" include a new line "Unrated The capital charge is excessive for unrated secured lending              High    15-02-2008
uk                                                       association      Specification                                       secured [1.00% - 1.25%]".                                    (for example commercial mortgages) as for long duration
                                                                                                                                                                                           exposures this can be 16% of the asset value. It also appears
                                                                                                                                                                                           out of line with Basel II IRB capital charges which for unrated
                                                                                                                                                                                           secured lending might be in the region of 4% of asset value. A
                                                                                                                                                                                           suggested range of 1-1.25% is made based upon our assessment
                                                                                                 IX        F           8
                                                                                                                                                                                           of the 99.5% one year risk on secured unrated lending, and that
                                                                                                                                                                                           it would be appropriate to benchmark this with a similar spread
                                                                                                                                                                                           widening to the range A-BBB.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Add "Similarly, a look-through approach should be applied to   The look-through basis should also apply to reinsurance assets.        High    15-02-2008
uk                                                       association      Specification          IX        G           9      assets representing reinsurers' funds withheld by a
                                                                                                                              counterparty."

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                   In X.A.1 we are pleased to see that CEIOPS recognise that            Medium    15-02-2008
uk                                                       association      Specification                                                                                                      receivables from intermediaries and other credit exposures
                                                                                                                                                                                             which are not covered in the spread risk sub-module (such as
                                                                                                 X         A           1                                                                     bank deposits), are subject to credit risk. However they do not
                                                                                                                                                                                             appear to be taken into account in the calculations specified in
                                                                                                                                                                                             X.A.6.

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Gross SCR u/w = Aggregate SCR for underwriting risks           Need a relatively pragmatic calculation for what in most cases       Medium    15-02-2008
uk                                                       association      Specification                                       calculated according to the standard formula, but              is likely to be relatively small component of the SCR, e.g. a
                                                                                                                              disregarding the risk mitigating effect of reinsurance         company could have numerous reinsurance arrangements and
                                                                                                                              contracts (or SPV) (and disregarding the loss absorbing        doing lots of separate calculations adds very little extra
                                                                                                                              capacity of future bonuses and deferred taxes)                 accuracy but could significantly increase the workload. There
                                                                                                                                                                                             is no justification for excluding the effect of loss absorption
                                                                                                 X         A           3
                                                                                                                                                                                             from discretionary bonuses and deferred tax. Also, in most
                                                                                                                                                                                             instances this is unlikely to have much effect as profit sharing
                                                                                                                                                                                             business is seldom reassured.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    [Double counting]                                              The calculation of reinsurance counterparty default risk capital     Medium    15-02-2008
uk                                                       association      Specification                                                                                                      in X.A takes into account the probability of default by the
                                                                                                                                                                                             insurer and the loss given default. This is already included
                                                                                                 X         A           3
                                                                                                                                                                                             within the technical provisions (II.B.16) and therefore it is
                                                                                                                                                                                             being double counted.

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Replace formula with: "LGD = max(0%, 75%*(recoverable +        The inclusion of the SCR components in this calculation is likely      High    15-02-2008
uk                                                       association      Specification                                       SCRgross - SCRnet) - collateral)".                             to be disproportionate for many reinsurance arrangements as
                                                                                                                                                                                             the calculations are complex and additional accuracy will be
                                                                                                 X         A           6
                                                                                                                                                                                             small for many arrangements.
Consultation - Solvency II - QIS4 - no comments received after 15 February


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Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    net SCR market = Aggregate SCR for market risks calculated         Need a relatively pragmatic calculation for what in most cases          High    15-02-2008
uk                                                       association      Specification                                       according to the standard formula (disregarding the loss           is likely to be relatively small component of the SCR, e.g. a
                                                                                                                              absorbing capacity of future bonuses and deferred taxes)           company could have numerous financial derivatives and doing
                                                                                                                                                                                                 lots of separate calculations adds very little extra accuracy but
                                                                                                 X         A           6                                                                         could significantly increase the workload. There is no
                                                                                                                                                                                                 justification for excluding the effect of loss absorption from
                                                                                                                                                                                                 discretionary bonuses and deferred tax.



Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Gross SCR market = Aggregate SCR for market risks calculated       Need a relatively pragmatic calculation for what in most cases          High    15-02-2008
uk                                                       association      Specification                                       according to the standard formula, but disregarding the risk       is likely to be relatively small component of the SCR, e.g. a
                                                                                                                              mitigating effect of the financial derivatives (and disregarding   company could have numerous financial derivatives and doing
                                                                                                                              the loss absorbing capacity of future bonuses and deferred         lots of separate calculations adds very little extra accuracy but
                                                                                                 X         A           6      taxes)                                                             could significantly increase the workload. There is no
                                                                                                                                                                                                 justification for excluding the effect of loss absorption from
                                                                                                                                                                                                 discretionary bonuses and deferred tax.



Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Concerning the spread risk module the table should state:                                                                                Medium    15-02-2008
uk                                                       association      Specification          X         A           7      "disallowance of mitigating effect of credit derivatives in the
                                                                                                                              determination of the exposure".

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                       Why is the Herfindahl Index relevant to this market?                  Medium    15-02-2008
uk                                                       association      Specification          X         A          14

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                       LGD should be net of reinsurance, future bonuses and deferred         Medium    15-02-2008
uk                                                       association      Specification          X         A          17                                                                         taxes. Why is the Vasicek method used in this case?


Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    In case of reinsurance ceded to a reinsurer (i) part of the      Where an intragroup cession is to a rated counterparty the                High    15-02-2008
uk                                                       association      Specification                                       same group (internal reinsurance) that does not have a rating rating of the counterparty should be used.
                                                                                                                              required for X.A.9, the probability of default of counterparty i
                                                                                                                              is replaced , for the share of the reinsurance that is
                                                                                                                              retroceded outside the group to a counterparty k by the
                                                                                                 X         A          19      probability of default of counterparty k. (the probability of
                                                                                                                              default of counterparty i still being used for the share of the
                                                                                                                                                                              47
                                                                                                                              reinsurance kept in retention by reinsurer i)



Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                       SIVs and other vehicles that have the same purpose as                 Medium    15-02-2008
uk                                                       association      Specification                                                                                                          reinsurance should be treated in the same way. This should
                                                                                                                                                                                                 also include intragroup arrangements and disproportionate
                                                                                                 X         A          20
                                                                                                                                                                                                 arrangements. Is this worldwide or only EEA?



Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    “The probability of default depends on the solvency ratio          It is helpful to have, in X.A.20, a table that converts solvency        Low     15-02-2008
uk                                                       association      Specification                                       (ratio of own funds and SCR) including group support,              ratio for an internal company accepting reinsurance into a
                                                                                                                              according to the following table:”                                 credit rating. However given that our main internal companies
                                                                                                                                                                                                 all cede and accept reinsurance from each other, it will create
                                                                                                 X         A          20                                                                         a circular calculation and the possibility of iterations. It would
                                                                                                                                                                                                 be helpful to clarify whether group support can be taken into
                                                                                                                                                                                                 account in the solvency ratios.
Consultation - Solvency II - QIS4 - no comments received after 15 February


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Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Based on the principle of substance over form, set out in           Related to commentary on VI.A.3                                       High    15-02-2008
uk                                                       association      Specification                                       paragraph TS.VI.A.3, agreed claims arising from non-life
                                                                                                                              business payable in the form of an annuity should normally be
                                                                                                 XI        A           3      part of SCRlife (subject to materiality considerations). In
                                                                                                                              particular, the risk of revision is applicable only to this type of
                                                                                                                              annuities.

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Correlation between mortality risk and longevity risk = 0 =        We would expect that the correlation is negative.                    Medium    15-02-2008
uk                                                       association      Specification          XI        A           6      should be negative
Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    "Where possible calculations should be made net of risk            We prefer this calculation to be net of risk mitigation.             Medium    15-02-2008
uk                                                       association      Specification                                       mitigation actions. Otherwise the following formula may be         However, if this is not possible we suggest a correction to the
                                                                                                                              used : KC life = sqrt(ΣcorrLiferxc •KC r •KC c ) [should be        formula. The treatment of diversification of the KC values, as
                                                                                                                              replaced by] KC = SQRT[∑Corrrxc ●SCRr●SCRc] - SQRT[∑Corrrxc        described in the final sentence of TS.VI.H.4, TS.VI.H.5 and the
                                                                                                                              ●(SCRr - KCr)●(SCRc - KCc)]".                                      formula in TS.XI.A.7, is logically incorrect, and may result in
                                                                                                                                                                                                 inappropriate results, such as the reduction of the SCR if an
                                                                                                 XI        A           7                                                                         additional risk is added. Diversification should be determined
                                                                                                                                                                                                 on a pre-and post-mitigation basis, and the total value of
                                                                                                                                                                                                 mitigation should be taken as the difference between the two.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    For those contracts that provide benefits both in case of death    Splitting contracts into "death" and "survival" components           Medium    15-02-2008
uk                                                       association      Specification                                       and survival there is no need to unbundle them. one of the         (Option 2) makes no sense - there is only 1 life and so there can
                                                                                                                              following two options should be chosen and applied                 only be survival or death and not both! Contracts on different
                                                                                                                              consistently to all contracts in the various lines of business     lives are automatically unbundled and TS.XI.B.1 excludes any
                                                                                                                              concerned:                                                         natural hedges, i.e. where an increase in mortality rates may
                                                                                                                              • Option 1: Contracts where the death and survival benefits        be favourable (e.g. annuity business) and so there is no need
                                                                                                                              are contingent on the life of the same insured person(s),          for unbundling in this instance.
                                                                                                                              should not be unbundled. For these contracts the mortality
                                                                                                                              scenario should be applied fully allowing for the netting effect
                                                                                                                              provided by the „natural‟ hedge between the death benefits
                                                                                                                              component and the survival benefits component (note that a
                                                                                                                              floor of zero applies at the level of contract if the net result
                                                                                                 XI        B           3      of the scenario is favourable to the (re)insurer).
                                                                                                                              • Option 2: All contracts are unbundled into 2 separate
                                                                                                                              components: one contingent on the death and other
                                                                                                                              contingent on the survival of the insured person(s). Only the
                                                                                                                              former component is taken into account for the application of
                                                                                                                              the mortality scenario.
Consultation - Solvency II - QIS4 - no comments received after 15 February


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                                                                                                                  Q2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Lifelong = sum (deltaNAV longevityshock) Replace formula and       The change is to allow recognition that disabled life reserves     Medium    15-02-2008
uk                                                       association      Specification                                       notations with "Lifelong = SQRT{ {delta NAV1(longevity             are included here and require a different definition also that
                                                                                                                              shock)}^2 + {delta NAV2( shock to disabled life reserves)}^2}      the two are not correlated. Drafting also allows subsequently
                                                                                                                              where the subscript 1 denotes each policy where the payment        the use of different calibrations.
                                                                                                                              of benefits (either lump sum or multiple payments) is
                                                                                                                              contingent on longevity risk and 2 annuities where the
                                                                                                                              payment is dependent on incapacity. The other terms
                                                                                                                              represent delta NAV = The change in the net value of assets
                                                                                                 XI        C           6      minus liabilities longevityshock = a (permanent) 25% decrease
                                                                                                                              in mortality rates for each age. Shock to disabled life reserves
                                                                                                                              is a 25% decrease in the rate at which annuities cease
                                                                                                                              payment through death or recovery."




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                       If a disability risk becomes a longevity risk then 25% is not      Medium    15-02-2008
uk                                                       association      Specification                                                                                                          appropriate. Also it should be consistent with XI.D.9. That is,
                                                                                                                                                                                                 simplification is not applicable to DLR as most will be below
                                                                                                 XI        C          10                                                                         age 60. However, even if the age limit is removed, this
                                                                                                                                                                                                 simplification would not work for DLRs. A separate
                                                                                                                                                                                                 simplification for DLRs is needed.

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Lifedis = sum ( ΔNAV | disshock) Formula should be amended         We believe that the summation and the focus on individual            High    15-02-2008
uk                                                       association      Specification                                       as follows: "Lifedis =  ∆NAV | disability where the subscript i    policies means that there is a 100% correlation between all
                                                                                                                              denotes each policy where the payment of…”                         policies which is not consistent with Solvency II aim to take
                                                                                                 XI        D           5
                                                                                                                                                                                                 account of diversification within each risk component (article
                                                                                                                                                                                                 103 (4)).

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Lapse risk relates to the loss, or adverse change in the value     Link TS.II.B.27 The SCR should also capture the risk that          Medium    15-02-2008
uk                                                       association      Specification                                       of insurance liabilities, resulting from changes in the level or   persistency rates in respect of future premiums are worse than
                                                                                                                              volatility of the rates of policy lapses, terminations, changes    expected with the expected level of future premiums being
                                                                                                                              to paid-up status (cessation of premium payment) and               reflected in the technical provisions.
                                                                                                                              surrenders. The standard formula allows for the risk of a
                                                                                                                              permanent change of the rates as well as for the risk of a
                                                                                                                              mass lapse event. Companies should assess whether a 50%
                                                                                                                              increase in changes in paid-up status is sufficient taking into
                                                                                                 XI        E           1      account how policyholder behaivour might change in adverse
                                                                                                                              circumstances and whether ceasing premiums would result in
                                                                                                                              a loss of guaranteed insurabilty. Where companies believe
                                                                                                                              that a stress greater than 50% should apply they should use
                                                                                                                              this and explain why.
Consultation - Solvency II - QIS4 - no comments received after 15 February


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Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Lifelapse = Lapsedown + max(Lapseup, Lapsemass) Lifelapse = sumk   The current suggestion could result in double counting of              High    15-02-2008
uk                                                       association      Specification                                       (max (Lapseup; lapsedown;0)) where […] k denotes each              capital arising from the various lapse assumptions. We believe
                                                                                                                              homogeneous risk group. The assessment of whether the "up"         that a similar issue came up in the context of QIS2 in the SCR
                                                                                                                              or "down" stress applies should be carried out at the level of     for underwriting risks, e.g. mortality, and was corrected in
                                                                                                                              groups of similar policies (i.e. homogeneous risk risk groups)     QIS3. A redraft has been suggested consistent with the other
                                                                                                                              determined by the undertaking as appropriate for the               comments in this section about not focusing on individual
                                                                                                 XI        E           3      assessment of lapse risk."                                         policies. We also suggest the inclusion of a zero in the formula
                                                                                                                                                                                                 to avoid negative SCRs feeding into the calculations (along the
                                                                                                                                                                                                 lines of CEIOPS own suggestion for interest rate risk in
                                                                                                                                                                                                 TS.IX.B.4).




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Capital charges are calculated on a policy-by-policy model         Link TS.XI.E.2, 5, 6 and 7. The requirement to do the                  High    15-02-2008
uk                                                       association      Specification                                       point by model point comparison of surrender value and best        calculations on a policy by policy basis could be very
                                                                                                                              estimate provision. The surrender strain on a policy is defined    burdensome and completely impractical for large firms where
                                                                                                                              as the difference between the amount currently payable on          the calculations are likely to be done using representative
                                                                                                                              surrender and the best estimate provision held. The amount         model points rather than every policy. Also, companies should
                                                                                                                              payable on surrender should be calculated net of any amounts       be able to make the assessment as to whether there is likely to
                                                                                                                              recoverable from policyholders or agents, e.g. net of the          be a surrender strain or gain at product level so as to avoid
                                                                                                                              surrender charge that may be applied under the terms of the        burdensome calculations. Also, it is possible for a policy to
                                                                                                 XI        E           4      contract. For the avoidance of doubt, the assessment of            have surrender strains and gains at different points in its life.
                                                                                                                              whether a (positive/negative) surrender strain is expected to
                                                                                                                              arise is required to be done at product level and not at an
                                                                                                                              individual policy level.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Lapse = sum (ΔNAV | lapseshock) , lapsedown = ∆NAV |               The additive nature of upwards and downwards shocks - which            High    15-02-2008
uk                                                       association      Specification          XI        E           4      lapseshock down                                                    is in contrast to the approach to interest risk in QIS4
                                                                                                                                                                                                 (paragraph B.8), this needs to be addressed.

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    "where i denotes each policy. The other terms represents..."       As above.                                                              High    15-02-2008
uk                                                       association      Specification                                       Amend definition of lapseshock down as follows (new text
                                                                                                                              underlined) “Reduction of 50% in the assumed rates of
                                                                                                                              lapsation in all future years for policies where the surrender
                                                                                                 XI        E           5      strain is expected to be negative”. Formula should be
                                                                                                                              amended as follows: lapseup = ∆NAV | lapseshock up.



Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    "where i denotes each policy. The other terms represents..." As above.                                                                    High    15-02-2008
uk                                                       association      Specification                                       Amend definition of lapseshock up as follows (new text
                                                                                                                              underlined) “Increase of 50% in the assumed rates of lapsation
                                                                                                 XI        E           6      in all future years for policies where the surrender value is
                                                                                                                              expected to be positive”.
Consultation - Solvency II - QIS4 - no comments received after 15 February


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Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    lapseshock(up) = Increase of 50% in the assumed rates of           Link TS.XI.E.2, 5 and 7 - need a consistent definition, which          High    15-02-2008
uk                                                       association      Specification                                       lapsation for policies where the in general a surrender value      should be where an increase in surrenders/ lapses cause a
                                                                                                                              strain is expected to be positive.                                 financial strain. This is not the same as there being a positive
                                                                                                                                                                                                 surrender value. This should be where companies expect a
                                                                                                                                                                                                 strain and they should not be required to do individual policy
                                                                                                                                                                                                 calculations to isloate individual policies with this feature as
                                                                                                 XI        E           6
                                                                                                                                                                                                 this would be very burdensome. Also, it is possible for a policy
                                                                                                                                                                                                 to have surrender strains and gains at different points in its
                                                                                                                                                                                                 life.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Delete this paragraph.                                             We have various concerns with this component of the SCR,               High    15-02-2008
uk                                                       association      Specification                                                                                                          including: 1) The increased scope of the "mass" lapse
                                                                                                                                                                                                 calculation - from unit-linked in QIS3 to all business; 2) The
                                                                                                                                                                                                 double counting of capital arising from the various lapse
                                                                                                                                                                                                 assumptions - "mass" and permanent increase in lapse.
                                                                                                 XI        E           7                                                                         The same issue appeared in QIS2 in the SCR for underwriting
                                                                                                                                                                                                 risk, e.g. mortality and was corrected in QIS3.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    [Second alternative] Lapse (mass) is defined as 30 20% of the      Companies should not be required to do individual policy               High    15-02-2008
uk                                                       association      Specification                                       sum of surrender strains over the policies where a (positive)      calculations to isloate individual policies with a surrender
                                                                                                                              surrender strain is generally expected. For the avoidance of       strain as this would be very burdensome. Also, it is possible for
                                                                                                                              doubt, the assessment of whether a (positive) surrender strain     a policy to have surrender strains and gains at different points
                                                                                                 XI        E           7      will arise is required to be done at product level and not at an   in its life. See also the comments to TS.XI.E.4
                                                                                                                              individual policy level. ...



Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    “…payable by policyholders. These expenses are                     To provide clarity.                                                  Medium    15-02-2008
uk                                                       association      Specification          XI        F           3      administrative expenses only.”
Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    "The mortality and disability catastrophe risk component may       A net asset value approach may be very complex but, where              High    15-02-2008
uk                                                       association      Specification                                       be calculated by assessing changes in net asset value using        possible, SCR components should use scenario-based
                                                                                                                              appropriate scenarios based upon a 1.5 per mille stress. As a      approaches as factor-based approaches will always miss key
                                                                                                 XI        H           4      simplification, this may be defined as follows:"                   features for some companies. Accordingly, the factor approach
                                                                                                                                                                                                 should be offered as a simplification.



Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Premiums and provisions have to be allocated between the           A more granular approach would be reasonable. We would for           Medium    15-02-2008
uk                                                       association      Specification                                       following geographical areas: Each country of the EEA,             example expect that a company with international business
                                                                                                                              Switzerland, the rest of Europe, Asia (excluding Japan and         across the US/Canada would be better diversified for non-life
                                                                                                                              China), Japan, China, Oceania (excluding Australia),               risk than a company writing business in Luxembourg/Belgium.
                                                                                                XIII       B           8      Australia, North America ( excluding Canada and US), Canada,       This is not reflected in the current suggested geographical
                                                                                                                              US, South America, Central America, Africa.                        areas.
Consultation - Solvency II - QIS4 - no comments received after 15 February


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Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    The loss ratio for accident/underwriting/occurrence year y is      The current description is not clear (i.e. what if the definition   Low        15-02-2008
uk                                                       association      Specification                                       defined as the ratio for of estimated ultimate claims over         of year y: is it calendar year y or accident year y) and seems
                                                                                                                              earned premiums for a given LoB. The estimated ultimate            not to incorporate the most-up-to date data/information. As
                                                                                                                              claims can be derived from the actuarial techniques which are      the best estimate of the technical provisions is already
                                                                                                                              used to derive the best-estimate of the technical provisions.      determined with sophisticated actuarial methods, by means of
                                                                                                                              The earned premiums is calculated as follows: earned               run-off triangles, whereby the ultimate claims by
                                                                                                                              premium of calendar year y = premium reserves of calendar          accident/underwriting/occurrence year is already determined,
                                                                                                                              year y at the beginning of the year + written premium during       it seems most practical to use this to determine the loss-ratios.
                                                                                                                              calendar year y - premium reserves at the end of calendar          This is also in line with best-practice and is being applied by
                                                                                                                              year y. The loss ratio is defined as the ratio for year y of       the industry.
                                                                                                                              incurred claims in a given LoB over earned premiums,
                                                                                                XIII       B          11      determined at the end of year y. The earned premiums should
                                                                                                                              exclude prior year adjustments, and incurred claims should
                                                                                                                              exclude the run-off result, that is they should be the total for
                                                                                                                              losses occurring in year y of the claims paid (including claims
                                                                                                                              expenses) during the year and the provisions established at
                                                                                                                              the end of the year.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Include as a footnote: "To avoid double counting catastrophic      We found no information in the technical specification whether      Low        15-02-2008
uk                                                       association      Specification                                       losses in the premium loss calculation, adjust for extreme loss    catastrophe claims should be stripped out for the calculation of
                                                                                                                              data points using appropriate statistical techniques if            historic loss ratios for the premium risk calculation (if a
                                                                                                                              necessary."                                                        internal scenarios are used for the Cat exposure). There is,
                                                                                                                                                                                                 therefore, a danger of double counting with the natural
                                                                                                                                                                                                 catastrophe scenarios. The specification notes in XIII.C.1 that
                                                                                                                                                                                                 "In order to avoid double counting, the calibration of the
                                                                                                                                                                                                 scenarios and market losses should allow for the parts of the
                                                                                                                                                                                                 catastrophe risks which are covered by the premium risk" -
                                                                                                                                                                                                 however it is not clear how this can be since the extent of the
                                                                                                                                                                                                 cat risks are covered in the premium risk will vary from insurer
                                                                                                                                                                                                 to insurer based on past experience. Therefore it would make
                                                                                                XIII       B          11
                                                                                                                                                                                                 sense to adjust the loss data by extreme/low frequency losses
                                                                                                                                                                                                 to get an estimate for the premium risk. For example If we
                                                                                                                                                                                                 estimate a loss ratio based on twenty years loss data and we
                                                                                                                                                                                                 have 100- or 200-year events in the data set, this might lead to
                                                                                                                                                                                                 an overestimated loss ratio. This will affect the calculation of
                                                                                                                                                                                                 undertaking-specific parameters (premium risk std deviation).
                                                                                                                                                                                                 This point should be clarified in the technical specification.
Consultation - Solvency II - QIS4 - no comments received after 15 February


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Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    s(res, lob) = sqrt [clob x s2(U, res, lob) + (1 – clob) x s2(M, res, lob)] Where   The standard deviation for reserve risk for each individual line      Medium    15-02-2008
uk                                                       association      Specification                                       clob = Credibility factor for LoB s(U, res, lob) = Undertaking-                    of business is provided. In B.34, the non-life underwriting risk
                                                                                                                              specific estimate of the standard deviation for reserving risk                     asks whether undertaking-specific information is able to be
                                                                                                                              and s(M, res, lob) = Market-wide estimate of the standard                          built into the formula. No credibility is given to a company‟s
                                                                                                                                                                                                                 own experience in B.23 (although we note that estimates of
                                                                                                                              deviation for reserving risk. The market-wide estimate of
                                                                                                XIII       B          23                                                                                         companies‟ own premium and reserve risk are requested in
                                                                                                                              tThe standard deviation for...
                                                                                                                                                                                                                 B.34). We would suggest that the same credibility factors
                                                                                                                                                                                                                 should apply as for the premium risk.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    The market wide factors for reserve risk …… for premium                            No rationale has been provided for the market-wide factors.           Medium    15-02-2008
uk                                                       association      Specification                                       risk ……                                                                            The factors are very similar to QIS 3, except for credit and
                                                                                                                                                                                                                 surety where factors have increased. The QIS 3 results showed
                                                                                                                                                                                                                 us that many non-life insurers would not have sufficient own
                                                                                                XIII       B        23, 25                                                                                       funds. We would expect the same results in QIS 4. [See also:
                                                                                                                                                                                                                 CEA Response to EU Commission's Draft Call for Advice on QIS4]



Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    The credibility factor lob is defined in the following table:                      For lines 2, 4, 7, 8, 10 a lot of credibility seems to be given if    Medium    15-02-2008
uk                                                       association      Specification                                       [ADJUST TABLE FOR THE LOBS WHERE N=5]                                              only 3 or 4 years of data is available. In addition there is no
                                                                                                                                                                                                                 added credibility if more than 5 years of data is available. For
                                                                                                                                                                                                                 the purpose of measuring standard deviations, we would
                                                                                                                                                                                                                 expect that more than 5 years of data would always improve an
                                                                                                                                                                                                                 estimate and this should therefore receive more credibility.
                                                                                                                                                                                                                 We agree that some credibility is given for these lines, if less
                                                                                                                                                                                                                 years are available, but it makes sense to give more credibility
                                                                                                XIII       B          26                                                                                         to those estimates which are based on more than 5 years of
                                                                                                                                                                                                                 available data. /// Furthermore a jump of the credibility
                                                                                                                                                                                                                 factor from 0 to 0.64 when 1 additional year of data is realised,
                                                                                                                                                                                                                 is very steep. The jumps should be more gradual.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                                       Is the Herfindahl Index useful? No alternative available at this        Low     15-02-2008
uk                                                       association      Specification                                                                                                                          stage. We recommend that the Herfindahl approach be tested
                                                                                                XIII       B          29                                                                                         for QIS4 and ask for what other alternatives are recommended.


Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                                       Does the short term health module contain a cat risk module?            Low     15-02-2008
uk                                                       association      Specification         XIII       C           6

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                                       Question 2 only gives the option for a Yes or No answer and this        Low     15-02-2008
uk                                                       association      Specification                                                                                                                          may depend on several points. Therefore a third response is
                                                                                                XIV        B           1                                                                                         needed of Don't Know/ Not Decided Yet.
Consultation - Solvency II - QIS4 - no comments received after 15 February


Drafting suggestions on QIS4 technical specifications                                                                                                                                                                                                                          METAINFOSECTION
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                                  name                   Organisation                                  section Q2 reference
                                                                                                                  Q2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                    The MCR is insufficiently sensitive to the different levels of risk      High    15-02-2008
uk                                                       association      Specification                                                                                                       in different WP business. According to the CEIOPS document on
                                                                                                                                                                                              the calibration on the SCR and MCR (31 Jan 2008), risk
                                                                                                                                                                                              mitigation could be positive or negative and also depends on
                                                                                                                                                                                              whether the business is life, or both life and non-life. Thus,
                                                                                                 XV        E           3                                                                      parameters based on portions of the technical provisions will
                                                                                                                                                                                              not be able to reflect fully the different levels of risk within
                                                                                                                                                                                              the with-profits business.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Under "1st level segment" rephrase the unit-linked side as       For unit-linked business, the level of the parameters is                High    15-02-2008
uk                                                       association      Specification                                       "Unit-linked - Retail"                                          incorrect. The parameters need to be reduced or a different
                                                                                                                                                                                              definition used, or a third parameter should be added (to be
                                                                                                                                                                                              defined by the company). The linear approach does not take
                                                                                                                                                                                              account of assets. This is a particular problem for with-profits
                                                                                                                                                                                              funds. The split between with-profits provisions for guaranteed
                                                                                                                                                                                              and discretionary benefits are not defined in the spec. Further,
                                                                                                                                                                                              it does not fit well with the structure of UK WP business. UK
                                                                                                 XV        E           4                                                                      QIS4 MCR submissions from WP offices are likely to be
                                                                                                                                                                                              inconsistent due to this. Given the focus on achieving a
                                                                                                                                                                                              meaningful "straw-man" for the MCR it would be a pity if our
                                                                                                                                                                                              results were so affected.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    In the table, replace the Class VII business with: "Class VII In the UK, unit-linked and pension business is not classified in           High    15-02-2008
uk                                                       association      Specification                                       business (Management of group pension funds) Non-retail unit- Class VII. FSA require firms to place this business in Class III.
                                                                                                 XV        E           6      linked business and management of group pension funds". Also
                                                                                                                              replace "0.0005" with "0.25*Expul).

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                    The specification should set out clearly the different methods           High    15-02-2008
uk                                                       association      Specification                                                                                                       permitted by the draft Directive i.e. (i) Accounting
                                                                                                                                                                                              consolidation-based method and (ii) Deduction and aggregation
                                                                                                                                                                                              method on the standard formula approach. Within these
                                                                                                                                                                                              headings the options for testing should then be set out. The
                                                                                                                                                                                              specification needs to be clear on which method is being
                                                                                                                                                                                              considered. Also, the third bullet in this section requests
                                                                                                                                                                                              adjusted results allowing for intra-group transactions. We
                                                                                                                                                                                              should draft guidance on how such adjustments should be
                                                                                                                                                                                              carried out. For example, where there is an internal
                                                                                                XVI        A           9                                                                      reinsurance arrangement the reinsurance counterparty risk in
                                                                                                                                                                                              respect of that risk should be set to zero, both in SCR and
                                                                                                                                                                                              Technical Provisions. Adjustments to capital would be
                                                                                                                                                                                              unnecessary as this would have no impact on the aggregated
                                                                                                                                                                                              capital in the group.
Consultation - Solvency II - QIS4 - no comments received after 15 February


Drafting suggestions on QIS4 technical specifications                                                                                                                                                                                                                            METAINFOSECTION
e-mail                last name   First   Organisation   Type of          documents          area Q2   Sub-       Paragraph   Drafting suggestion Q2                                              Explanation changes Q2                                              priority   Creation date
                                  name                   Organisation                                  section Q2 reference
                                                                                                                  Q2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                        [Not clear this requirement for an EEA ultimate undertaking          Medium    15-02-2008
uk                                                       association      Specification                                                                                                           matches the treatment in the Directive, if the solo entity can
                                                                                                XVI        A          11                                                                          provide this consolidated data from the parent]


Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Please comment on the recognition of diversification effects        We believe that there are two separate issues in the question:         High    15-02-2008
uk                                                       association      Specification                                       between EEA and non-EEA business and the extent to which            measurement of diversification effects and the transferability
                                                                                                                              and how these diversification effects can or cannot be              of capital. We note that the former is really about
                                                                                                                              realised and quantified?                                            implementing the provisions in article 237 (1) (b), whereas the
                                                                                                XVI        B        QCG 6                                                                         latter is dealt in the directive under article 229 (3). The
                                                                                                                                                                                                  relevant section in the QIS4 is about the measurement of the
                                                                                                                                                                                                  group SCR so the question should reflect that.



Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                        It should be clarified that where the entire group is being            High    15-02-2008
uk                                                       association      Specification                                                                                                           assessed (3rd bullet), Solvency 2 bases of valuation and capital
                                                                                                XVI        B           6                                                                          standards should be applied to non-EEA subsidiaries.


Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                        [Not clear what is the intention / effect of seeking to impose         High    15-02-2008
uk                                                       association      Specification                                                                                                           limits on diversification. Is this a groups only issue? Does this
                                                                                                XVI        B           7                                                                          confuse identifying the value of diversification effects with
                                                                                                                                                                                                  capital transferability?]

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Include as a footnote: "Using a best efforts basis, non-            It is not clear how non-financial sector entities can be excluded    Medium    15-02-2008
uk                                                       association      Specification                                       insurance entities should be excluded from group                    from diversification if they are subsidiaries of insurance
                                                                                                                              diversification effects."                                           entities which are themselves subs of other sector
                                                                                                                                                                                                  companies.e.g.Intermediate holding companies: how do we
                                                                                                                                                                                                  carve them out of the consolidated accounts? What if the group
                                                                                                XVI        B           9                                                                          is more complicated and has non-insurance entities all along
                                                                                                                                                                                                  the chain belonging to intermediate holding companies that
                                                                                                                                                                                                  also own insurance entities?




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Paragraph should be replaced with: "A firm may contain items        Paragraphs B.14 - B.16 concern the value of diversification          Medium    15-02-2008
uk                                                       association      Specification                                       of eligible own funds and/or profit sharing mechanisms within       benefits between with profit business and other business and
                                                                                                                              the technical provisions, which can only be used to cover the       the extent that these benefits should be allowed for in
                                                                                                                              liabilities for a limited set of policyholders, for example         calculating the wider group SCR. We suggest that XVI.B.14-
                                                                                                                              where a firm writes with-profit business, or protected cell or      16,17,19 be adjusted as shown.
                                                                                                XVI        B          14      statutory lines/social insurance with participation. A set of
                                                                                                                              assets, liabilities and own funds which is so restricted is
                                                                                                                              termed a “fund”."




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Paragraph should be replaced with: "CEIOPS considers that, in                                                                            Medium    15-02-2008
uk                                                       association      Specification                                       this instance, the restrictions on the transferability of capital
                                                                                                                              out of such “funds” should be reflected in the calculation of a
                                                                                                                              wider SCR that includes both business within a “fund” and
                                                                                                XVI        B          15      other business sold by the firm or group that is not subject to
                                                                                                                              such restrictions. A firm/group may contain more than one
                                                                                                                              such “fund”."
Consultation - Solvency II - QIS4 - no comments received after 15 February


Drafting suggestions on QIS4 technical specifications                                                                                                                                                                                                                         METAINFOSECTION
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                                  name                   Organisation                                  section Q2 reference
                                                                                                                  Q2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Paragraph should be replaced with: "In order to assess the                                                                            Medium    15-02-2008
uk                                                       association      Specification                                       impact of limits on transferability of capital with respect to
                                                                                                                              such “funds” and the degree to which it should be restricted,
                                                                                                XVI        B          16
                                                                                                                              firms are asked to calculate the SCR on two bases."



Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Paragraph should be replaced with: "Firstly the firm should                                                                           Medium    15-02-2008
uk                                                       association      Specification                                       calculate the wider firm/group SCR making full allowance for
                                                                                                                              the limits on capital transferability. Own funds within a
                                                                                                                              “fund” should only be recognised in the own funds of the
                                                                                                                              wider firm/group to the extent that they are available to
                                                                                                                              support all the business of that firm/group. Reductions in the
                                                                                                                              SCR due to diversification of risk inside/outside a “fund”
                                                                                                XVI        B          17      should only be allowed to the extent that the reduced SCR
                                                                                                                              plus permitted capital transfers would be sufficient to ensure
                                                                                                                              that each of the “fund” and the other business is protected to
                                                                                                                              the 99.5%ile SCR level."




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Text to be included after XVI.B.19 below.                        To be retained following the new text.                               Medium    15-02-2008
uk                                                       association      Specification         XVI        B          18

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Paragraph should be replaced with: "If a firm is not able to                                                                          Medium    15-02-2008
uk                                                       association      Specification                                       make full allowance for the limits on capital transferability
                                                                                                                              described in TS.XVI.B.17, a simplification is permitted: The
                                                                                                                              firm should calculate separate solo SCRs for the “fund” and
                                                                                                                              other business assuming no capital transferability between the
                                                                                                                              two, and take the sum of the two separate SCRs as the
                                                                                                                              combined SCR. Any own funds within a “fund” that are
                                                                                                                              surplus to that fund‟s solo SCR should be assumed to be non-
                                                                                                XVI        B          18a     transferable and unavailable for use outside of the “fund”."
                                                                                                                              …[normal rules on use of simplifications apply…]




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    Paragraph should be replaced with: "Secondly firms/groups        We consider that this new text would sit better within the SCR       Medium    15-02-2008
uk                                                       association      Specification                                       should calculate the group SCR on the basis of the entire        and/or Own Funds spec rather than the Groups spec, as
                                                                                                                              balance sheet, recognising diversification between business      restrictions on transferability between blocks of business can
                                                                                                                              inside and outside of a “fund”."                                 exist within a single firm. There is a significant risk that some
                                                                                                                                                                                               firms with such restrictions are unaware of this text, if they do
                                                                                                                                                                                               not consider themselves part of a group. Adopting a minimum
                                                                                                XVI        B          19
                                                                                                                                                                                               intervention approach, this material could be left where it is
                                                                                                                                                                                               and signposts to it could be added to it at suitable points
                                                                                                                                                                                               earlier in the specification.




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                     May need adjustment based on changes to XVI.B.7, 14-                 Medium    15-02-2008
uk                                                       association      Specification         XVI        B          20                                                                       16,17,19.
Consultation - Solvency II - QIS4 - no comments received after 15 February


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                                  name                   Organisation                                  section Q2 reference
                                                                                                                  Q2

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                   To be retained and renumbered accordingly.                            Medium    15-02-2008
uk                                                       association      Specification         XVI        B          21

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                   This paragraph appears to belong to the old QIS3 approach and         Medium    15-02-2008
uk                                                       association      Specification                                                                                                      it is not clear how this fits in with the methods indicated in A9.
                                                                                                                                                                                             It does not appear to be needed for the consolidated approach.
                                                                                                                                                                                             Is this intended to be an alternative approach to the
                                                                                                                                                                                             consolidated data method? Furthermore, it is not clear what is
                                                                                                                                                                                             meant by the last sentence "The index i refers to the
                                                                                                XVI        B          33                                                                     consolidated calculation and the calculation for with-profit
                                                                                                                                                                                             funds". Presumably "i" would run across all subsidiaries and
                                                                                                                                                                                             include with-profits funds under methods b) and d) as set out in
                                                                                                                                                                                             B20?




Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                   As above.                                                             Medium    15-02-2008
uk                                                       association      Specification         XVI        B          35

Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                   The basis of valuation of capital should be specified e.g. where        High    15-02-2008
uk                                                       association      Specification                                                                                                      capital in non-EEA jurisdictions is concerned this should
                                                                                                XVI        D          12                                                                     generally this be based on local accounting bases.


Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                                                                                   It should be clarified that the non-transferable assets taken           High    15-02-2008
uk                                                       association      Specification                                                                                                      into consideration within group capital in any subsidiary should
                                                                                                                                                                                             be limited to a maximum of the local solvency capital
                                                                                                XVI        D          22
                                                                                                                                                                                             requirement, before applying the diversification effects noted.



Paul.Barrett@abi.org. Barrett     Paul    ABI            National trade   QIS4 - Technical                                    "Group support" would constitute an eligible element of        The segment 'and a ...group level' is not relevant to the                Low    15-02-2008
uk                                                       association      Specification                                       capital ancillary own funds at the level of individual group   performance of the QIS, it could be read to imply that there is
                                                                                                                              undertakings and a binding commitment to support individual    a nee d to evaluate a liability in the parent solo computation. I
                                                                                                XVI        E           2
                                                                                                                              undertakings at the group level.                               would strike out as irrelevant. Not a critical point though.

				
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