1.The standard deviation for non-life premium and reserve risk shall be equal to the following:
\sigma_{\mathrm{nl}} = \frac{1}{V_{\mathrm{nl}}} \cdot \sqrt{\sum_{\mathrm{s,t}} \mathrm{CorrS}_{(\mathrm{s,t})} \cdot \sigma_{\mathrm{s}} \cdot V_{\mathrm{s}} \cdot \sigma_{\mathrm{t}} \cdot V_{\mathrm{t}}}
where:
Vnl denotes the volume measure for non-life premium and reserve risk;
the sum covers all possible combinations (s,t) of the segments set out in Annex II;
CorrS(s,t) denotes the correlation parameter for non-life premium and reserve risk for segment s and segment t set out in Annex IV;
σs and σt denote standard deviations for non-life premium and reserve risk of segments s and t respectively;
Vs and Vt denote volume measures for premium and reserve risk of segments s and t, referred to in Article 116, respectively.
2.For all segments set out in Annex II, the standard deviation for non-life premium and reserve risk of a particular segment s shall be equal to the following:
\sigma_{\mathrm{s}}=\frac{\sqrt{\sigma_{(\mathrm{prem},\mathrm{s})}^{2} \cdot V_{(\mathrm{prem},\mathrm{s})}^{2}+\sigma_{(\mathrm{prem},\mathrm{s})} \cdot V_{(\mathrm{prem},\mathrm{s})} \cdot \sigma_{(\mathrm{res},\mathrm{s})} \cdot V_{(\mathrm{res},\mathrm{s})}+\sigma_{(\mathrm{res},\mathrm{s})}^{2} \cdot V_{(\mathrm{res},\mathrm{s})}^{2}}}{V_{(\mathrm{prem},\mathrm{s})}+V_{(\mathrm{res},\mathrm{s})}}
where:
σ(prem,s) denotes the standard deviation for non-life premium risk of segment s determined in accordance with paragraph 3;
σ(res,s) denotes the standard deviation for non-life reserve risk of segment s as set out in paragraphs 4 and 5;
V(prem,s) denotes the volume measure for premium risk of segment s referred to in Article 116;
V(res,s) denotes the volume measure for reserve risk of segment s referred to in Article 116.
3.For all segments set out in Annex II, the standard deviation for non-life premium risk of a particular segment shall be equal to the product of the standard deviation for non-life gross premium risk of the segment set out in Annex II and the adjustment factor for non-proportional reinsurance, where such non-proportional reinsurance is in place for that particular segment, or a factor of 100 % in other cases. For segments 1, 4 and 5 set out in Annex II the adjustment factor for non-proportional reinsurance shall be equal to 80 %. For all other segments set out in Annex II the adjustment factor for non-proportional reinsurance shall be equal to 100 %.
4.For all segments set out in Annex II, the standard deviation for non-life reserve risk of a particular segment shall be equal to the product of the standard deviation for non-life gross reserve risk of the segment set out in Annex II and the adjustment factor for non-proportional reinsurance, where such non-proportional reinsurance is in place for that particular segment, or a factor of 100 % in other cases.
Where the non-proportional reinsurance is an adverse development cover that meets the conditions set out in the third subparagraph, the adjustment factor for non-proportional reinsurance referred to in the first subparagraph shall be equal to the following:
Adjust(NP,s) = max(0;
\frac{V_{(\mathrm{net,res,s})} 3 \sigma_{(\mathrm{res,s,annex})} - \mathrm{ADC}_{(\mathrm{rec,s})} \mathrm{C} \Pr + \mathrm{Par}}{V_{(\mathrm{net,res,s})} 3 \sigma_{(\mathrm{res,s,annex})}}
)
where:
V(net,res,s) denotes the nominal best estimate of the insurance and reinsurance obligations in the segment after deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles of the adverse development cover;
\sigma_{\mathrm{res},\mathrm{s},\mathrm{annex}}
denotes the standard deviation for non-life reserve risk of segment s as set out in Annex II;
ADC(rec,s) denotes the adverse development cover recovery under the reserve risk scenario;
Par denotes the maximum of the additional reinsurance premium, or the equivalent thereof, and zero;
C denotes the cession to the reinsurer, expressed as percentage of the claim amounts between attachment and detachment points that the reinsurance covers;
Pr denotes the prudency factor, which shall be equal to 100 %.
The adverse development covers referred to in the second subparagraph shall meet the following conditions:
each adverse development cover is only applied to one specific group of policies with the same risk characteristics within the same segment, and has a separate and distinct attachment and detachment point;
the attachment point referred to in point (a) does not exceed the product of V(net,res,s) referred to in point (a) of the second subparagraph and the sum of 1 and σ(res,s, annex) referred to in point (b) of that subparagraph.
For non-proportional reinsurance other than those referred to in the second subparagraph, the adjustment factor shall be 100 %.
5.The adverse development cover recovery referred to in paragraph 4, second subparagraph, point (c) shall be equal to the following:
ADC(rec,s) = min [
V_{\mathrm{(net,res,s)}}
· (1 + 3 · σ(res,s,annex)) – R(ap); R(cs)]
where:
V(net,res,s) denotes the nominal best estimate of the insurance and reinsurance obligations in the segment after deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles of the adverse development cover;
σ(res,s,annex) denotes the standard deviation for non-life reserve risk of segment s as set out in Annex II;
R(ap) denotes the reinsurance structure attachment point;
R(cs) denotes the size of the adverse development cover that is available to the insurance or reinsurance undertaking.