The European Insurance and Occupational Pensions Authority (EIOPA) published the report of the Joint Working Group (JWG) “Calibration of the Premium and Reserve Risk Factors in the Standard Formula of Solvency II” related to the non-life and health-non-similar-to-life-technique (non-SLT) calibration.
The JWG consisted of experts from supervisory authorities, the industry, the actuarial profession as well as observers from the European Commission (EC). The objective of the JWG was to discuss the most appropriate calibration methods and to derive recommendations to the European Commission on the setting of the premium and reserve risk factors.
On the basis of the collected data from EU Member States, the JWG launched an exercise which combined data validation processes, with a comparison of different estimation methods for the risk factors applied to that data, to receive robust empirical results for the calibration of the premium and reserve risk.
The JWG followed a systematic method of processing the underlying statistical framework and developing a more comprehensive set of validation tools which could then be applied to assess the reliability and robustness of the calibration. The recommended methodological basis for the calibration of the premium and reserve risk factors – referred to by the JWG as the ‘combined approach’ - combines the advantages of the various methodologies that were explored by the JWG and are described in the report.
The recommendations related to the combined approach were already communicated to the European Commission in order to allow the Commission to prepare its draft proposals for the Implementing Measures of Solvency II.
EIOPA wishes to emphasise that the report presents a significantly improved calibration methodology, which offers the advantage of taking into account the heterogeneity of the non-life risks in the individual markets for the setting of the European factors. At the same time, it ensures that the final factors are reflective of the average size of the portfolios of insurers in the European markets to which they are applied.
© EIOPA
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