1.The standard deviation for NSLT health premium and reserve risk shall be equal to the following:
\sigma_{\mathrm{NSLTh}} = \frac{1}{V_{\mathrm{NSLTh}}} \cdot \sqrt{\sum_{s,t} \mathrm{CorrHS}_{(s,t)} \cdot \sigma_s \cdot V_s \cdot \sigma_t \cdot V_t}
where:
VNSLTh denotes the volume measure for NSLT health premium and reserve risk;
the sum covers all possible combinations (s,t) of the segments set out in Annex XIV;
CorrHS(s,t) denotes the correlation coefficient for NSLT health premium and reserve risk for segment s and segment t set out in Annex XV;
σs and σt denote standard deviations for NSLT health 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 Annex XIV, respectively.
2.For all segments set out in Annex XIV, the standard deviation for NSLT health 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 NSLT health premium risk of segment s determined in accordance with paragraph 3;
σ(res,s) denotes the standard deviation for NSLT health 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 147;
V(res,s) denotes the volume measure for reserve risk of segment s referred to in Article 147.
3.►M13For all segments set out in Annex XIV, the standard deviation for NSLT health premium risk of a particular segment shall be equal to the product of the standard deviation for NSLT health gross premium risk of the segment set out in Annex XIV 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 all segments set out in Annex XIV the adjustment factor for non-proportional reinsurance shall be equal to 100 %.
4.For all segments set out in Annex XIV, the standard deviation for NSLT reserve risk of a particular segment shall be equal to the product of the standard deviation for NSLT gross reserve risk of the segment set out in Annex XIV 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 fourth 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 net 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 NSLT health reserve risk of segment s as set out in Annex XIV;
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 the second subparagraph, point (a), 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 net of the amounts recoverable from reinsurance contracts and special purpose vehicles of the adverse development cover;
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;
\sigma_{\mathrm{res},\mathrm{s},\mathrm{annex}}
denotes the standard deviation for NSLT health reserve risk of segment s as set out in Annex XIV.