Approval of undertaking specific parameters (USP)
Overview of the measure
When calculating their regulatory capital requirement, insurance institutions and groups may, in certain cases, use parameters specific to them in place of the parameters in the standard formula. These are commonly known as undertaking-specific parameters (USPs), or group-specific parameters (GSPs) when applied at group level to calculate the capital requirement on a combined or consolidated basis.
The parameters that can be personalised in this way are laid down in regulations; they relate solely to the calculation of certain underwriting risks, at the segmentation level that includes, for each relevant business line, direct business, and accepted proportionately.
The use by an insurance institution or group of specific parameters for calculating the capital requirement is subject to prior authorisation by the ACPR.
The use of specific parameters is defined, for institutions and groups respectively, in point V of Article R.352-5 and in the ninth paragraph of point II of Article R.356-19 of the Insurance Code, applicable to institutions and groups covered by each of the three codes, which transpose Article 104 (7) of Directive 2009/138/EC, known as “Solvency II”. These provisions are supplemented by Articles 218 to 220 and Annex XVII, as well as Article 338 for groups, of Delegated Regulation (EU) 2015/35, known as “Level 2”.
Finally, the content of the application and the various stages in the approval procedure are laid down in Implementing Regulation (EU) 2015/498 establishing Implementing Technical Standards (ITS) regarding the procedures to be used by supervisory authorities to approve the use of undertaking-specific and group-specific parameters.
Content of the application
The minimum content of the application is defined in Article 1 of the aforementioned implementing regulation.
In summary, the application must contain the following:
- a formal letter of application stating the desired date of use, a full list of the parameters in the standard formula that the institution wishes to modify together with their new values at the date of use, and the method used in the case of a standard deviation for reserve risk
- a memorandum explaining, segment by segment, why the institution’s or the group’s choice to use or not use USPs or GSPs and the associated methods is relevant given the institution’s or the group’s risk profile, including for segments falling outside the scope of the application
- calculation sheets reproducing the calculation containing, parameter by parameter, the data used, the calculation steps undertaken in accordance with regulatory methods, and the value of the new parameters resulting from the calculations
- documentation demonstrating compliance with the data quality requirements laid down in Articles 19 and 219 and Annex XVII of the Delegated Regulation; in particular, the application must include the following:
- the items listed in point (e) of Article 219 of the Delegated Regulation, including a directory of the data listed in Annex XVII
- a description of governance arrangements concerning data quality (any committee procedures, internal control system, sign-off processes, etc.)
- data quality improvement plans for any data found not to meet the required criteria
Issuance of authorisations
Applications should be sent by post to the following address, as well as by e-mail to the inspection team responsible for the institution or group:
Secrétariat général de l’Autorité de contrôle prudentiel et de résolution
Brigade de contrôle des organismes d’assurance
61, rue Taitbout
75436 Paris Cedex 09
The ACPR will reach its authorisation decision on the full or partial use of specific parameters within a maximum of six months from receipt of the completed application.
Consequences for the group
The use of specific parameters for calculating solvency at individual level by an institution and on a consolidated or combined basis by a group are two distinct and independent measures from an administrative perspective.
A group that calculates its regulatory capital requirement on the basis of consolidated or combined financial statements cannot take into account any specific parameters approved for individual institutions. If the group wishes also to use specific parameters, it must seek prior authorisation from the ACPR, taking into account the risk profile of the entire group, under the same procedure as that used for individual institutions.
Similarly, the authorisation of a group to use group-specific parameters to calculate its adjusted solvency does not constitute authorisation for the group’s individual member institutions.
Updated on: 06/07/2018 15:12