Undertaking specific parameter
Replacement, subject to supervisory approval, of a standard SCR parameter by one calibrated on the undertaking's own data, for the submodules and methods the regulation lists exhaustively.
Between the standard formula, which applies the same premium and reserve standard deviations to everyone, and an internal model, which costs years of validation, the regulation opens a middle road. The undertaking specific parameter lets certain standard parameters be replaced by an estimate from the company's own data. That covers premium risk, reserve risk, and the effect of non-proportional reinsurance on premium risk, and nothing else. The calibration methods are themselves prescribed by the regulation, with a credibility factor limiting the weight given to own history. At least five years of data are needed, often ten for full credibility. Approval is required in advance and the supervisor may also impose it. The benefit is real for an insurer whose claims experience is markedly less volatile than its line's market average, the typical case of a specialist on a homogeneous segment; it is nil, even adverse, for a book more volatile than the standard.
French legal expenses specialist, application filed with the ACPR in 2025. The line's standard premium risk standard deviation is 8.3%; calibration on fifteen years of own data returns 5.1%, kept as is, credibility being full at that horizon. Non-life underwriting SCR falls by 12%, that is 14M EUR of capital released, in exchange for a calibration and validation file running to several hundred pages.
- Commission Delegated Regulation (EU) 2015/35, Annex II, as amended by Delegated Regulation (EU) 2019/981 (segment 7, legal expenses)
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