Technical Provisions (TPs)

Considering an example of an insurance undertaking conducting business for 7 years in several countries which use market data for expense assumptions. The trend of unit expenses shows stabilization and the real expenses are significantly higher than market data. Is the use of market data possible only in case of new undertaking without any historical evidence or where such data are more prudent? Should the company in an example use market data, undertaking specific data, or a combination of undertaking specific data and market data?

According to Delegated regulation Article 22(1c), the assumptions are based on the characteristics of the portfolio of insurance and reinsurance obligations, where possible regardless of the insurance or reinsurance undertaking holding the portfolio. Insurance and reinsurance undertakings shall only use information specific to the undertaking, including information on claims management and expenses, where that information better reflects the characteristics of the portfolio of insurance or reinsurance obligations than information that is not limited to the specific undertaking or where the calculation of technical provisions in a prudent, reliable and objective manner without using that information is not possible. In Guidelines on the valuation of technical provisions, there is a Guideline 27 – Availability of market data, under heading Biometric risk factors, where insurance and reinsurance undertakings should assess the availability of relevant market data on expenses by considering the representativeness of market data relative to the portfolio of insurance or reinsurance obligations, and the credibility and reliability of data.