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4.2 QIS 4 preliminary comments on draft TS

2. Introduction. We recently managed to obtain confidential information on the technical specification of QIS4, which was discussed in the Extraordinary Members' Meeting of CEIOPS on 17 Dec 2007The specification we obtained only covers solo companies only, but is still 229 pages longThe Groups sec

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4.2 QIS 4 preliminary comments on draft TS

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    1. 4.2 QIS 4 preliminary comments on draft TS

    2. Introduction We recently managed to obtain confidential information on the technical specification of QIS4, which was discussed in the Extraordinary Members’ Meeting of CEIOPS on 17 Dec 2007 The specification we obtained only covers solo companies only, but is still 229 pages long The Groups section was missing / still being drafted This presentation summarises our preliminary findings, which is being shared with the SG Key points that will be discussed are in a bold font Lesser points for information are in a grey font Once the final version is published we will review that in more detail and it should be noted that that some aspects of this may differ from the draft version we comment on here

    3. Initial key messages – improvements Some improvements compared to QIS3 Increased guidance provided, but we have not yet seen the spreadsheet Includes many simplified approaches and proxies for best estimate liabilities More flexible and pragmatic approach to market-consistent approaches Market and premium risk removed from CoC-methodology Can more fully use own company-specific factors in SCR for Non life premium and reserve risk Introduction of geographical diversification in non-life underwriting risk Mass lapse catastrophe stress reduced from 75% to 30%

    4. Initial key messages - concerns Some new concerns Risk free rates based on government bonds and not swaps, which will significantly increase technical provisions and therefore reduce available capital New linear MCR approach - not risk sensitive and a retrograde step back to Solvency I Duration requirements for hybrid step up instruments could make them unmarketable and have major implications for existing instruments Some old concerns remain Treatment of deferred tax – QIS4 spec is confused and not as agreed with EU Commission 6% cost of capital Non life calibration No allowance for expected profits/losses for non-life

    5. Section 1 – Valuation Technical Provisions – Principles

    6. Section 1 – Valuation Technical Provisions – risk margin

    7. Section 1 – Valuation Technical Provisions – risk margin (cont’)

    8. Section 1 – Valuation Technical Provisions – life technical provisions

    9. Section 1 – Valuation Technical Provisions – non-life technical provisions

    10. Section 2 – Own funds

    11. Section 3 – SCR –general structure

    12. Section 3 – SCR – risk mitigation

    13. Section 3 – SCR – operational risk

    14. Section 3 – SCR –market risk

    15. Section 3 – SCR – counterparty default risk

    16. In QIS 3, Ť Counterparty Default Risk is the risk of default of a counterparty to risk mitigating contracts like reinsurance and financial derivatives. ť An alternative approach* for un-rated counterparties under Solvency II (total / equivalent) regimes, is to set up an equivalence between solvency ratio and ratings Section 3 – SCR – counterparty default risk

    17. Section 3 – SCR – life u/w risk

    18. Section 3 – SCR – health risk

    19. Section 3 – SCR – non-life u/w risk

    20. Section 5 –MCR

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