Commission Delegated Regulation (EU) 2015/35Dangos y teitl llawn

E. Revision risk method U.K.

Input data and method-specific data requirements U.K.

(1) The data for estimating the undertaking-specific increase in the amount of annuity benefits shall consist of annual amounts of annuity benefits of annuity insurance obligations where the benefits payable could increase as a result of changes in the legal environment or in the state of health of the person insured (annuity benefits), separately for consecutive financial years and each beneficiary. U.K.

(2) The following method-specific data requirements shall apply: U.K.

(a)

the data are representative for the revision risk that the insurance or reinsurance undertaking is exposed to during the following twelve months;

(b)

data are available for at least five consecutive financial years;

(c)

the annuity benefits are gross, without deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles;

(d)

the annuity benefits shall include the expenses incurred in servicing the annuity obligations;

(e)

the data are consistent with the following assumptions about the stochastic nature of increases in the amount of annuity benefits:

i.

the annual number of annuity increases follows a negative binomial distribution, including in the tail of the distribution;

ii.

the amount of an annuity increase follows a lognormal distribution, including in the tail of the distribution;

iii.

the annual number of annuity increases and the amounts of the annuity increase are mutually stochastically independent.

Method specification U.K.

(3) For the purpose of paragraphs 4-8, the following notation shall apply: U.K.

(a)

the financial years are denoted by consecutive numbers starting with 1 for the first financial year for which data are available;

(b)

T denotes the latest financial year for which data are available;

(c)

A_(i,t) denotes the annuity benefits of beneficiary i in financial year t;

(d)

D_(i,t) denotes the change of annuity benefits after financial year t, being equal to the following difference:

(4) The undertaking-specific increase in the amount of annuity benefits shall be equal to the following: U.K.

where:

(a)

c denotes the credibility factor set out in section G;

(b)

denotes the expected value of annuity increases set out in paragraph 5;

(c)

VaR _0,995(R) denotes the 99,5 % quantile of the distribution of annuity increases set out in paragraph 6;

(d)

S is equal to 3 % where the calculation is done for the purpose of the revision risk sub-module set out in Article 141 and equal to 4 % where the calculation is done for the purpose of the health revision risk sub-module set out in Article 158.

(5) The expected value of annuity increases shall be equal to the following: U.K.

where:

(a)

denotes the estimated average change in annuity benefits, restricted to those changes in of annuity benefits that are larger than zero;

(b)

denotes the estimated average number, per financial year, of changes in annuity benefits that are larger than zero.

(6) The annuity increases shall be equal to the following: U.K.

where:

(a)

N denotes the annual number of annuity increases and follows a negative binominal distribution with an expected value that is equal to the estimated number of changes in annuity benefits set out in point (b) of paragraph 5 and with a standard deviation that is equal to the estimated standard deviation of the number of changes in annuity benefits set out in paragraph 7;

(b)

X_k denotes the amount of an annuity increase and follows a lognormal distribution with an expected value that is equal to the estimated average change in annuity benefits set out in point (a) of paragraph 5 and with a standard deviation that is equal to the estimated standard deviation of changes in annuity benefits set out in paragraph 8;

(c)

the annual number of annuity increases and the amounts of the annuity increase are mutually stochastically independent.

(7) The estimated standard deviation of the number of changes in annuity benefits shall be equal to the following: U.K.

where:

(a)

N_t denotes the number of changes in annuity benefits in financial years t that are larger than zero;

(b)

denotes the estimated average change in annuity benefits set out in point (b) of paragraph 5.

(8) The estimated standard deviation of changes in annuity benefits shall be equal to the following: U.K.

where:

(a)

the sum includes only those beneficiaries i and financial years t for which D_(i,t) is larger than zero;

(b)

n denotes the number of summands of the sum referred to in point (a);

(c)

denotes the estimated average change in annuity benefits set out in point (a) of paragraph 5.