May an insurer use undertaking-specific parameters to determine the solvency capital requirement for underwriting risk and how can an insurer apply for use of the parameters?
Under Solvency II, insurers have the option to use undertaking-specific parameters to determine the solvency capital requirement (SCR). When calculating the SCR for life, non-life and health insurance underwriting risk, insurers may replace a subset of parameters (standard parameters) within the standard formula by parameters specific to them, if the standard formula does not provide an appropriate representation of their underlying risks. The subset consists of the following parameters:
The above parameters are calibrated on the basis of the internal data of the insurer concerned, and of data directly relevant to the transactions of the insurer concerned making use of standard methods.
An insurer's use of undertaking-specific parameters (USPs) is subject to explicit approval by the supervisory authority. As part of its approval process, DNB establishes the completeness, accuracy and adequacy of the information used. When calculating the USPs, insurers can select a method from a number of standardised methods prescribed in Annex XVII to Delegated Regulation (EU) 2015/35.
Every insurer is entitled to apply for the use of USPs. An application may relate to a solo insurer and/or an insurance group.
Solvency II allows insurers to submit their applications from 1 April 2015. Early application increases the chances of a decision before Solvency II becomes effective.
The application package comprises the following documentation:
The accompanying letter must be sent by post. The other parts can be submitted electronically using DNB's E-line application.
The application phase starts with determining whether the application package contains all the evidence required. As soon as the package is considered complete, the substantive assessment commences.
DNB will assess the application package against the Solvency II rules and regulations regarding undertaking-specific parameters, i.e. the Solvency II Directive, the Solvency II Implementing Regulation and the Guidelines on undertaking-specific parameters. For an overview, please refer to this page.
The national supervisory authority will decide on the use of USPs. For insurance groups, we will take a joint decision with the College of Supervisors. We will take a decision within six months from receipt of the complete application.
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