Vastuuvelan riskimarginaalit Aktuaariyhdistyksen vuosikokous 27.2.2007 Jukka Rantala
2 Sisältö Taustaa IASB:n näkemys vastuuvelasta IAIS:n näkemys vastuuvelasta IAA:n riskimarginaalityöryhmän raportin luonnos CEIOPS:n neuvot Riskimarginaali ja vakavaraisuusvaatimukset
3 Taustaa IASB:n vakuutussopimusprojekti - Fair value-pohjainen varojen ja velkojen arviointi IAIS:n pyrkimys luoda vakavaraisuusvalvonnalle kansainvälinen kehikko - laajalti huolta, että IASB:n projekti johtaisi lopulta vakuutusalan vakavaraisuusvalvonnan tilanteen heikkenemiseen IAA - pelko siitä, ettei IASB riittävästi ymmärrä vakuutustoiminnan erityispiirteitä ja joutuu siten haitallisille harhapoluille Lausunnot IASB vakuutusprojektiin + standardit, Solvenssikirja 2003 - halu välttää kaksia vastuuvelan laskentatapoja - yrittää vaikuttaa yhdessä IAIS:n kanssa Yhteisiä työryhmiä IAIS:n kanssa, IAIS:n Insurance Contracts ja Solvency alakomiteat, IAA:n Regulation ja Accounting komiteat, Risk Margin WG
4 IASB:n alustavat johtopäätökset In measuring its insurance liabilities, an insurer should use the following three building blocks: - current unbiased probability-weighted estimates of future cash flows - current market discount rates that adjust the estimated future cash flows for the time value of money - an explicit and unbiased estimate of the margin that market participants require for bearing risk (a risk margin) and for providing other services, if any (a service margin)
To the extent possible, current estimates should be consistent with observed market prices 5 Some estimates relate to observable market variables, such as interest rates. An insurer should use these variables as direct inputs without adjustment. Other estimates relate to variables (such as mortality) that cannot, in general, be observed directly from market prices and transactions. These estimates should be reviewed every year and updated if they are no longer consistent with all available information about current conditions should not contradict observable market variables should not incorporate the effect of synergies with other assets and liabilities. For example, if an insurer is significantly more or less efficient than other market participants, its estimates of cash flows should not reflect its own efficiencies or inefficiencies
6 Discount rates should be consistent with observable market prices for cash flows whose characteristics match those of the insurance liability. Those characteristics include timing, currency and liquidity. exclude any factors that influence observed interest rates but are not relevant to the liability (for example, risks that affect the observed rate but are not present in the liability).
7 Estimating the margin Vähemmistö: an insurer should calibrate the margin at inception to the price observed in the transaction with the policyholder: thus an insurer would not recognise a net gain at inception Enemmistö: an unbiased estimate of the margin another party would require if it took over the insurer s contractual rights and obligations The Board does not intend to prescribe specific methods for determining margins, but does intend to give some guidance on characteristics that a margin would need to have Some other initiatives may lead to useful inputs for guidance on risk margins - IAA Risk Margin Working Group - Several supervisors have been developing ideas on risk margins for solvency, for example in the European Solvency 2 project - Several insurers have been developing thoughts on risk margins for solvency and for internal economical capital projects
8 Service margin Many insurance contracts require an insurer to provide services in addition to the service of bearing risk the measurement of an insurance liability should include a service margin if market participants typically require such a margin. This has the following implications - If the contract explicitly or implicitly provides the fee that market participants typically require, the insurer recognises an asset and measures it at the amount of the origination costs that market participants typically incur - If market participants typically require a higher explicit or implicit service fee, the initial measurement of the asset is less than the origination costs that market participants typically incur - When the insurer renders the related service in later periods, it releases the service margin and recognises revenue. The revenue is the margin that market participants would require, not the margin that is implicit or explicit in the contract. - If it becomes clear during the life of that contract that market participants would require a higher service margin than previously estimated, the measurement of the liability increases.
9 Service margin (IAA RMWG) Service margin represents the compensation required to provide such services, such as investment management services, as long as market participants typically require such a margin. Its objective is to avoid the front-ending of this expected future margin on such services as profit. This margin is conceptually similar to the risk margin. It reflects the difference between the total price charged by a market participant for the obligation to provide such services and the already considered current estimate and risk margin. It is especially important in view of the long term nature of many insurance contracts, as insurers often promise administrative services to policyholders for a long period of time, often at a fixed price.
10 IAIS:n dokumentit A new framework for insurance supervision: Towards a common structure and common standards for the assessment of insurance solvency, October 2005 Towards a common structure and common standards for the assessment of insurer solvency: cornerstones for the formulation of regulatory financial requirements, October 2005 Issues arising as a result of the IASB s Insurance Contracts Project Phase II, Second Set of IAIS Observations, May 2006 The IAIS Common Structure for the assessment of insurer solvency, Draft 23 January 2007
11 IAIS:n keskeisiä kannanottoja Total Balance Sheet lähestymistapa vakavaraisuusvalvontaan Tavoitteena tulisi olla saman vastuuvelan käyttö valvonta- ja talousraportointitarkoituksiin niin pitkälti kuin mahdollista Valvonnan kannalta vakavaraisuuspääoman tarkoitus on varmistaa, että korvaukset pystytään maksamaan ja vastuut kattamaan ajallaan ja suurella todennäköisyydellä Markkinadataa käytetään aina kun sitä olemassa ja loppu mallinnetaan markkinoita matkien Vastuun arvioinnin periaate pitäisi mieluummin lähteä vakuutussopimusten normaalista päättämisestä kuin oletuksesta kannansiirrosta; ts. pohjana ovat kassavirrat, jotka perustuvat vakuutussopimuksen mukaisiin suorituksiin edunsaajille Vastuuvelkaan on sisällyttävä riskimarginaali, joka pitäisi mitoittaa niin, että vastuuvelka vastaisi määrää, jonka kannan vastaanottavan vakuutusyhtiön voi vastuunsiirrossa odottaa vaativan vastaanottamiensa velvoitteiden kattamiseen
IAIS:n keskeisiä kannanottoja 12 A market consistent valuation of technical provisions should be based on the risk characteristics of the portfolio rather than the characteristics of the specific insurer holding the portfolio. - However it may be appropriate to use assumptions that reflect aspects of the insurer s specific business model and practices where they can be sufficiently substantiated. In a market consistent valuation methodology, technical provisions should be calibrated based on assumptions about diversification of the relevant risk factors which are consistent with market assumptions. Lack of diversification within a risk factor, relative to these assumptions, should be reflected in (increased) required capital, not in technical provisions. Mismatch risk exposure which is not intrinsic to the policy portfolio and is assumed voluntarily by the insurer should be reflected in required capital, and not in the technical provisions. the solvency regime requires the determination of a best estimate of the costs of meeting the obligations arising from the insurance portfolio, taking into account the time value of money, determined by reference to the relevant risk-free interest rates on the financial markets
IAIS:n vaatimuksia riskimarginaalin ominaisuuksille 13 Epävarmoissa kassavirroissa arviointi perustuu todennäköisyyksiin Exit model on suositeltava, mutta voittoa saisi sopimuksenteon hetkellä näyttää vain, jos vastuuvelan riskimarginaali on appropriate and sufficiently reliable Samanlaisten velvoitteiden ja riskien tulisi johtaa samanlaiseen vastuuseen Eivät preferoi tässä vaiheessa mitään riskimarginaalin laskentatapaa muiden edelle, mutta tuloksena olevan riskimarginaalin tulisi täyttää tiettyjä ominaisuuksia
IAIS:n vaatimuksia riskimarginaalin ominaisuuksille 14 Tulisi edistää läpinäkyvyyttä ja verrattavuutta Vakuutuksenottajan käyttäytyminen otettava huomioon ja tällöin tarkasteltava vakuutussopimusta kokonaisuutena ei yksittäisten piirteiden kannalta Ei ole tarvetta asettaa vastuuvelan minimiarvoksi takaisinostoarvoa Tulevat maksut tulee ottaa huomioon, jos ne liittyvät kiinteästi vakuutussopimuksen mukaisten velvoitteiden täyttämiseen Kassavirrat tulisi netottaa Ei hankintakulujen aktivointia, mutta hankintakuluja kattamaan tarkoitetut tulevat tuloerät voidaan ottaa huomioon Ehdollinen voitonjako osaksi vastuuvelkaa Johdannaiset sisällytettävä Oma luottoluokitus ei saa vaikuttaa
15
16 IAA:n Risk Margin Working group, draft report 7.2.2007 This report was prepared by the Risk Margin Working Group ( RMWG ) of the International Actuarial Association ( IAA ) in a response to a request of the Solvency and Actuarial Issues Subcommittee and Insurance Contracts Committee of the International Association of Insurance Supervisors. The RMWG has adopted the use of the term current estimate and margin over current estimate as standard terminology, although the latter is also referred to here as a "risk margin." Note that, in other literature, the current estimate phrase sometimes includes both concepts (i.e., the combination of the current estimate and the margin over current estimate as used in this report).
17 Riskien huomioonotto vastuuvelassa ja pääomavaatimuksessa vv ja pääoma vain pääoma Underwriting (insurance risk) x Underwriting (service risk) x Credit risk (that can be replicated) x Credit risk (that cannot be replicated) x Market risk (that can be replicated) x Market risk (that cannot be replicated) x Operational risk x Current (best) estimate x Current estimate uncertainty x Current estimate volatility x Catastrophe (very long tail) risk x Risk mitigation techniques x Risk concentration x Product adjustability features x Time risks over their life x Time ruin over short period x
18 RMWG:n pohdintaa valvonnan ja yleisen talousraportoinnin marginaalien eroista In the general purpose financial reporting sense, the amount incorporated in the insurance liability for current estimate uncertainty under an exit value approach for any risk is the amount that would be required to compensate a transferee for the risk inherent in a transfer of the net obligations, bearing in mind what is known of the probability distributions of the insured risk. In the regulatory sense, the emphasis is less on the expected market price, and more on the level of confidence which the current estimate and the risk margin in the liability together with the required capital provides for the overall sufficiency of the solvency assessment regime. In both cases, one of the key characteristics of the risk margin is to reflect the uncertainty in the calculation of the current estimate.
19 Desirable risk margin characteristics The less that is known about the current estimate and its trend; the higher the risk margins should be Risks with low frequency and high severity will have higher risk margins than risks with high frequency and low severity For similar risks, contracts that persist over a longer timeframe will have higher risk margins than those of shorter duration Risks with a wide probability distribution will have higher risk margins than those risks with a narrower distribution To the extent that emerging experience reduces uncertainty, risk margins will decrease, and vice versa. While the characteristics are expressed in a form that is risk oriented, the RMWG believes that the characteristics are also expressed reflecting the way the insurer to insurer (exit value) market works in practice where such markets exist. Given two well informed willing parties, the price demanded (and accepted) for risk transfer would incorporate these characteristics.
20 Desirable risk margin characteristics The risk margin methodology should have a consistent basis at issue and subsequent to issue, i.e., for the entire lifetime of the contract Use underlying assumptions consistent with those used in the determination of the corresponding current estimates Have a consistent risk margin methodology with other financial contracts; and Where possible, be determined in a manner consistent with accepted economic and actuarial pricing methodologies. The risk uncertainty itself should reflect knowledge about the risk(s) assumed, including observable information concerning the uncertainty associated with: - the estimated current level of the risk(s); - the estimated future level or trend of the risk(s), as applicable; - the estimated future term of the risk(s); and - the estimated future uncertainty associated with the first three sets of risk
21 Riskimarginaalin määräämistapoja Explicit assumption approaches. These risk margin methods use appropriate margins for adverse deviation on top of realistic current estimate assumptions. - Voi tulla kyseeseen, jos on olemassa erityisiä rajoituksia kuten ei voitonnäyttöä vakuutuksen alkaessa Quantile methods. These risk margin methods express uncertainty in terms of the excess of a percentile (quantile) for a given confidence level above the expected value for a given period, such as the lifetime of the coverage. - (e.g., confidence, CTE or moments) Cost of capital methods. These risk margin methods are determined based on the cost of holding the capital needed to perform the obligation. - This method appears to meet the IASB s primary objective of reflecting market charges for assuming risk, as well as that of the IAIS.
22 Cost of capital method The cost of capital method is based on the explicit assumption that, at each point in time, the risk margin must be sufficient to finance the (solvency) capital. Otherwise a transferee will be unwilling to pay less than an amount that would fund future capital requirements. Reflection of the estimated current and future economic capital needs of a potential transferee ensures that the amount paid for the transferee for risk provides for the entire risk that will affect the purchaser. Implementing the cost of capital method requires determination of the cost of capital from the perspective of the transferee. The cost of capital for this purpose is the before-the-event target intended to produce a desired after-the-event pre-tax return on the capital
23 Cost of capital metodissa tarvittavia oletuksia Reference entity - the entity to which the capital should relate: consistent with an exit value approach, it is reasonable to construct a reference entity to which the portfolio would be transferred Capital Capital release over time - The assumption that future capital needs is a constant percentage of the current estimate or the risk margin may not be appropriate. Cost of capital - In discussions of the cost of capital method, 4% and 6% have typically been used to illustrate the method. 6% is used in the example provided in the Swiss Solvency Test described as the cost of capital associated with a BBB company
24 Risk margin results for P/C insurance Longer tail, Risk free rate =4%, Cost of capital method Assumptions Capital % Capital % Cost of Increase 10 % per Capital Constant year Constant Initial Capital % Longer Tail Medium Tail Increase 10 % per year 30.0% 4.0% 6.1% 8.5% 2.2% 2.3% 30.0% 6.0% 8.8% 12.7% 3.2% 3.5% 30.0% 10.0% 14.7% 21.2% 5.4% 5.8% 60.0% 4.0% 11.8% 17.0% 4.3% 4.6% 60.0% 6.0% 17.7% 25.5% 6.5% 7.0% 60.0% 10.0% 29.4% 42.5% 10.8% 11.6%
Implied discount rate Medium tail, Risk free rate =4%, Cost of capital method 25 Assumptions Capital % Capital % Cost of Increase 10 % per Capital Constant year Constant Initial Capital % Longer Tail Medium Tail Increase 10 % per year 30.0% 4.0% -4.1% 2.4% 2.8% 2.7% 30.0% 6.0% -2.1% 1.7% 2.3% 2.1% 30.0% 10.0% 0.0% 0.3% 1.1% 1.0% 60.0% 4.0% -1.1% 1.0% 1.7% 1.5% 60.0% 6.0% 2.9% -0.3% 0.6% 0.4% 60.0% 10.0% 0.0% -2.6% -1.5% -1.9%
26 Translation of cost of capital method into quantile method cost of capital based on a 99.5% capital and a 4% cost Normal Typical Long-Tail Extreme Short term #sigma 0.239 0.276 0.322 0.938 Gamma 0.00 0.42 0.95 8.00 Quantile 59% 63% 67% 84% Medium term #sigma 0.618 0.713 0.832 2.425 Gamma 0.00 0.42 0.95 8.00 Quantile 73% 77% 81% 91% Long term #sigma 0.809 0.934 1.089 3.274 Gamma 0.00 0.42 0.95 8.00 Quantile 79% 83% 86% 94%
Risk margin comparison -- single premium annuity 27 40000 35000 30000 25000 Margin 20000 15000 10000 5000 0 0 10 20 30 40 Year CoC Quantile approach
Risk margin comparisons with consistent initial values single premium annuity 28 35000 Risk margin comparison 30000 25000 Margin 20000 15000 10000 5000 0 0 10 20 30 40 CoC Year Quantile approach
29 CEIOPS' Advice Role of technical provisions and capital requirements Reflecting existing market uncertainties the cost of capital must consist of a conservative market value margin that meets the objectives either: To transfer the liabilities portfolio to an able, rational and willing thirdparty (another (re)insurer) with a sufficiently high level of confidence; or To recapitalize the company with a sufficiently high level of confidence to ensure a proper run-off scenario by the original undertaking. Both technical provisions and capital requirements are part of a consistent overall framework, which aims to ensure an adequate level of protection of policyholders and beneficiaries: Technical provisions represent the amount that is required for an insurer to settle all insurance liabilities to policyholders and other beneficiaries arising over the lifetime of the portfolio; Capital provides further safeguarding of the policyholders and beneficiaries by 'protecting' the technical provisions and the assets backing them. - As to the calculation of the risk margin, the cost of capital approach should be used under certain preconditions to be defined in the Framework Directive, using historical volatilities in credit spreads for a BBB rating (corresponding to a 99,5 % confidence level).
30 Riskimarginaali ja solvenssi Riskimarginaalin määrääminen on kallistumassa siihen, että sen laskennassa oletetaan kannansiirto Onko solvenssivaatimuksessa otettava huomioon mahdollisuus, ettei kannansiirto onnistu? Silloin solvenssivaatimuksen tulisi perustua kvantiilimetodiin
31
32 Vastuuvelka valvonnassa ja verotuksessa; yksi vaihtoehto Minimisolvenssivaatimus MCR/SCR perustuu vaatimukseen, että varat riittävät suurella todennäköisyydellä kattamaan mm. seuraavat riskit - Varoihin liittyvät riskit - Vastuuvelka, joka syntyy seuraavan vuoden uudesta ja uudistetusta liikkeestä ottaen huomioon niihin liittyvä maksutulo - Vanhan vastuuvelan riski, joka koostuu ennakoitujen ja toteutuvien kassavirojen erotukseen ja seuraavan vuoden lopun ja vuoden alun vastuuvelkojen erotukseen Vanhaa vastuuvelkaa koskevat säännökset (katesäännökset, etuoikeussäännökset, verosäännökset) voitaisiin ulottaa koskemaan MCR/SCR:ää
33 Groupen lausunto CP 20:een We accept that it might be reasonable to require that the change to Solvency II should not give rise to a reduction in the total (technical provisions plus SCR) for a transitional period, which however should be short. One of the impacts of displacement of prudence from technical provisions to capital could be: A prudential calculation of technical provisions may suggest a better protection to policyholders than the MCR, because technical provisions are usually in many ways ring fenced (e.g. by priority rules in case of bankruptcy, by rules for assets backing the provisions, maybe taxation) to policyholders, whereas the solvency capital is not. Those ring fencing rules should be reviewed in order to judge if they should be extended to cover technical provisions and the SCR.