August 20th, 2009

Solvency II – Summary of CEIOPS March Consultation Papers: Technical Provisions – Elements of Actuarial and Statistical Methodologies for the Calculation of the Best Estimate

Posted at 1:00 AM ET

Financial Intelligence Team

The best estimate is defined as “the probability-weighted average of future cash-flows, taking account of the time value of money (expected present value of future cash-flows) using the relevant risk-free interest rate term structure.” It is to be calculated gross, with recoverables from reinsurance or special purpose vehicles (SPVs) calculated separately.

The calculation should allow for the various causes of uncertainty in future cash-flows. The (re)insurer will need to demonstrate:

  • The appropriateness, robustness, and auditability of the techniques used.
  • That the assumptions used are appropriate, realistic, and have been validated and reviewed.
  • That the (re)insurer has the capabilities to use the techniques appropriately.

CEIOPS includes simulation, deterministic and analytical techniques, or combinations thereof, as appropriate methodologies.

CEIOPS notes that some aspects of the analysis would normally require a simulation technique but that (re)insurers may apply other valuation techniques if they can demonstrate that these aspects are adequately addressed. The supervisor can require an alternative technique where it achieves the objectives (prudent, reliable and objective) more effectively.

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  • Susan Witcraft, Managing Director
  • Frank Achtert, Managing Director
  • Iain Boyer, Managing Director
  • Michelle Harnick, Managing Director
  • Dave Lightfoot, Managing Director
  • Scott Lohman, Managing Director
  • Don Mango, Managing Director
  • Eddy Vanbeneden, Managing Director
  • Jeff Bellmont, Senior Vice President
  • Gina Carlson, Senior Vice President
  • Debbie Griffin, Senior Vice President
  • David Flandro, Senior Vice President
  • Benoît Butel, Vice President
  • Sebastien Portmann, Vice President
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