Part VII transfers and the FCA’s approach to the review

What involvement does the Financial Conduct Authority (FCA) have in Part VII transfers and what are its current expectations? This article summarises the key points of the FCA’s approach to the review of Part VII transfers and provides perspective from Milliman’s experience of Part VII transfers.

Can a bonus malus system evaluate motor liability insurance risk better?

Under a bonus malus system, motor liability insurers can adjust policyholders’ premiums based on individuals’ claims history. For instance, a customer may receive a reduction, or “bonus,” on their premium if no claim is made during the previous year. Conversely, the customer may receive a premium increase, or “malus,” if a claim is made during the previous year.

In this article, Milliman actuary Diana Dodu provides an analysis of bonus malus systems in several European countries. She highlights the similarities and differences between the system designs in each country.

Here is an excerpt:

• Countries that do not have a specific system defined by law, such as Poland, where the system is fully liberalised and insurers have the liberty to provide own risk coefficients and load back the premium to obtain balance; Estonia, where insurers can design their own rules and where it may seem that the maximum bonus can be achieved within several years of claims free driving; and Lithuania, where according to the Law on Compulsory Motor Third Party Liability Insurance effective from 17 May 2007, premiums are fixed by the insurer and companies can take into account risk factors.

• Countries where the bonus malus system is defined in the legislature, requiring insurers to take into consideration loss history, but which grant freedom to insurance companies to design their own rules, which is present in countries such as the Czech Republic and Slovakia.

• Countries that are regulated by law, such as Italy and Romania… and Hungary, where according to law NGM 21/2011, the number of classes are predefined as well as movement between classes depending on the number of accidents, and insurers are obligated to issue accident and claim certificates, but are also allowed to use historical data for the purposes of classification to calculate additional correction factors, and Serbia, where the bonus malus system is defined in the law on compulsory traffic insurance but insurers can use correction coefficients if they do not contradict the ones mandated by law.

• Countries such as Croatia, where there seems to be a defined system, but companies offer extra benefits such as additional bonuses above the maximum and protection of the bonus (after several years of no claims, insureds can pay an additional premium to protect the bonus in case they have an accident in the subsequent year), and Slovenia, where you can also protect your bonus, while the future premium in cases of protection of the bonus would depend on the number of accidents in past periods.

• Latvia, where companies can set premiums based on prior histories with a conversion system in which it seems that it is more difficult to move towards bonus classes and where the system is evaluated annually (on September 15).

Milliman’s Arius named “Best reserving solution” in 2017 InsuranceERM Awards

Milliman has announced that Arius®, Milliman’s advanced analytics loss reserving software for insurers and reinsurers, was named “Best reserving solution” in the 2017 InsuranceERM awards. Senior industry experts from across Europe and the U.K. served as judges for the award.

The recognition comes as Milliman launches Arius 3.0, which provides significant enhancements to the software’s automation capabilities, together with key additions to its reporting tools. This is the thirteenth major release of new functionality since Arius’ introduction four years ago.

“Our goal with Arius is to provide an InsurTech solution that will increase efficiency and streamline insurance companies’ reserving processes,” said Ken Scalf, Property & Casualty Software Products Manager at Milliman, “and we’re thrilled it’s being recognized as “Best reserving solution” by InsuranceERM. Arius provides much-needed reliability and efficiency in this era of increased industry disruption.”

In addition to the industry’s leading desktop loss analysis toolset, Arius 3.0 debuts as the centerpiece of Milliman’s just-released Arius Enterprise solution. The new Enterprise system provides reserving departments with cloud-based centralized data, department-wide project management, automation, governance tools, and sophisticated reporting and data visualization. Arius Enterprise, which runs on the Microsoft Azure platform, specifically addresses the challenges faced by mid-to-large sized insurance companies.

EIOPA provides feedback on SFCRs

This blog is part of the Pillar 3 Reporting series. For more blogs in this series click here.

The European Insurance and Occupational Pensions Authority (EIOPA) has recently provided feedback to the industry on the first batch of published Solvency and Financial Condition Reports (SFCRs). The findings are based on observations from a sample of the 2016 group SFCRs and also from similar reviews of solo SFCRs by various national supervisors.

In order to support the industry in preparing future SFCRs, EIOPA has published a Supervisory Statement with its findings. It should be noted, however, that the findings are nonbinding on companies. Nonetheless it is reasonable to expect that supervisors might expect the industry to at least consider these findings when drafting their next reports.

This blog post outlines some of the highlights from the supervisor’s feedback:

• Where a reporting item is not applicable, it is important to have a clear indication that the information is not applicable. Examples would include pointing out that an internal model, the matching adjustment or the volatility adjustment are not applicable for a given company.

• Companies should take care in setting the content and language styles of the reports, particularly the Summary section. Policyholders should be the main addressees of the Summary, and EIOPA has outlined the minimum content it expects to see in this section of the report. The remaining sections can be addressed to analysts and investors, so it is not expected that legislative definitions or detailed requirements need to be explained in the main body of the SFCR.

• While it is good practice to include Quantitative Reporting Templates (QRTs) in the Appendix to the SFCR, it should not prevent companies from including quantitative information in the body of the report. If appropriate, parts of the QRTs should be repeated or complemented by the narrative information in the SFCR.

• It is expected that the sensitivity to different scenarios or stresses is disclosed in a structured format. Within the chapter on Risk Profile, information on the overall impact should be provided under each risk section.

• EIOPA would like to see more undertaking-specific information regarding valuation of investments, valuation of deferred tax assets and liabilities and valuation of technical provisions.

• Within the section on Valuation of Technical Provisions, the SFCR should provide a description of the level of uncertainty in the calculations. The degree of uncertainty should be at least linked to the assumptions underlying the calculation, such as economic and noneconomic assumptions, future management actions and future policyholder behaviour.

• Undertakings should also include comparative information against the previous year’s submission in certain areas of their 2017 SFCRs. EIOPA recommends that companies provide comparative information in table format as much as possible. Qualitative information on material differences between two reporting years is also expected to be included in the report.

Companies should, where possible, bear this feedback in mind when preparing their next SFCRs.

U.S. GAAP targeted improvements for long-duration insurance contracts: Update II

The Financial Accounting Standards Board (FASB) has proposed changes to the accounting for long-duration insurance contracts in four major areas. In this paper, Milliman consultants William Hines and Karthik Yadatore summarize the FASB’s original proposal and outlines the key changes made during the re-deliberations.

RSR feedback from Central Bank of Ireland

This blog is part of the Pillar 3 Reporting series. For more blogs in this series click here.

The Central Bank of IreIand (CBI) recently completed a review of 2016 Regular Supervisory Reports (RSRs) and has now written to companies with its feedback. To recap, the RSR is a private report submitted to the supervisor, and the Solvency and Financial Condition Report (SFCR) is the publicly disclosed equivalent of this report.

The CBI’s review focussed on the following:

• Confirming that each of the headings and subheadings required by the regulations were addressed in the reports
• Assessing the completeness and quality of responses under each of the main headings
• Checking that the details provided were in line with the CBI’s understanding of the firm

The letter sent to each company detailing the supervisor’s feedback can be found at the CBI’s website here. A key point highlighted is the requirement that the RSR be forward-looking, focussing on the business planning horizon. Companies should include detailed analyses of the risks facing their businesses over this period.

Companies should bear this feedback in mind when preparing their next RSRs, where possible.

RSR reporting frequency
Under Solvency II regulations, companies must prepare a full RSR at least every three years. However, the frequency of the RSR is at the discretion of the local supervisor, which can request more frequent reporting. Based on this review, the CBI is happy that a three-year cycle is appropriate. However, it will look to spread reporting across the three-year period by requesting some companies to report an RSR in 2018 and some in 2019. Therefore the CBI has outlined in the letter when it expects firms to submit their next RSRs.

For companies not required to submit a full RSR in a given year, they should instead provide summaries of material changes. The summary must detail any material changes that have occurred over the reporting period relating to topics covered in the RSR and provide a concise explanation about the causes and effects of such changes.