Relative onerousness of Pillar 1 peaks for a realistic basis life firm

Does the onerousness under Pillar 1 Peak 1 equal to MR + LTICR + WPICC (ie. the amount of capital the company is required to hold) while the onerousness of Peak 2 is equal to RL + RCM? Or does onerousness refer to the "extra" capital required to be held ie. LTICR + WPICC vs. RCM respectively? Or is the term used loosely to refer to both?
thanks for any help people

 

Though it may be perfectly fine, it sounds a "mouthful" to me saying for example Mathematical Reserves or Realistic Liabilities is getting onerous. I guess it could be used in relation to the value of admissible(or realistic) assets.

But I think the thrust of Pillar 1 are the capital requirements (i.e. the MCR, ECR and CRR) and it sounds easier to say for example:

• Peak 1 or Peak 2 Capital Requirements is getting onerous,
• Peak 1 Capital Requirements is more onerous than Peak 2 Capital Requirement and vice versa. Recall, if Peak 1 is more onerous, then Peak 2 "does not matter" and there is no WPICC.

A subtle thing to note;
LTICR + WPICC defines Capital Resource Requirement (CRR) under the whole Pillar I (i.e. Peak 1 and Peak 2 interaction) and not Peak 1 alone as may be implied in your text. Peak 1 alone will be just LTICR (subject to BCRR) for a Realistic Basis firm.

These are my thoughts and it will be good to hear from other folk.

Cheers

 

thanks very much for the reply so for a realistic basis firm the Pillar1 Peak1 CRR on its own is the LTICR (which technically is an ADDITIONAL capital requirement) but then we (possibly) add a WPICC to this LTICR which we only introduce by comparing vs. Peak2 at which point we're now looking at the overall Pillar1 ADDITIONAL capital requirement.
I still don't follow what we are comparing when we are looking to see which Peak is more onerous. I presume that MR and RL are involved though as these are capital required by the company and hence are "onerous" to the company.
I really do wish they would use more formulae in this section and make it clear

 

Compare Peak 1 surplus(AA -MR-LTICR) to Peak 2 surplus(RA-RL-RCM), before interaction of the Peaks. If Peak 1 surplus is less than Peak 2 then Pk1 is more onerous and no extra capital in the form of WPICC is required. WPICC will be required in the opposite scenario when Pk2 is rather onerous.

 

Aha now I got it I hope - knew it was simple. Why couldn't ActEd just put in the line: "the less onerous Peak is the Peak with the higher surplus when comparing the non-restricted regulatory surplus versus the realistic surplus." (the WPICC issue is a really just side issue ie it doesn't impact the relative onerousnesses but instead is a resultant of the relative onerousnesses) simple, no ambiguity, easy to understand! Alternatively, to someone who understands the calc of WPICC (which I did all along - it was clearly explained in the notes - formulae et al ) the presence of WPICC tells us Peak 1 is the more onerous the absence of WPICC tells us Peak2 is the more onerous.
I really hope thats it
Big thanks for your help again

 

I had to look up the dictionary meaning of "onerous" in order to TRY apply it to this context.

Adjective

1. (of a task, duty, or responsibility) Involving a burdensome amount of effort and difficulty.

2. Involving heavy obligations.

Synonyms are burdensome - heavy - weighty - difficult - laborious

So what we are saying is : IFF peak 1 regulatory surplus/free assets are onerous, they are less(???) than Peak 2 realistic surplus, then Peak 2 realistic surplus is more than sufficient and we do not need to do anything and should not hold WPICC?? On the other hand if Peak 1 surplus is more than Peak 2 surplus (i.e. peak 2 surplus is onerous/less???) then peak 2 surplus is not sufficient and we must hold additional capital WPICC whose purpose will be to bring the peak 2 surplus upto the same level as peak 1 regulatory surplus?

Is my understanding of onerous correct in this context or just confused?

 

Genesiss, I think it's the other way round? It sounds to me that the provisions under Pillar I seem more concerned about the Regulatory Peak (Pk 1), rather than the Realistic Peak (Pk 2). Some companies are even exempt from Pk2 but you can't get away with Pk1.

I interpret it as that the Pk2 (where it applies) serves as bounds for Pk1 which I think is reasonable in that the truer test on capital resources/solvency should be "Realistic" and not "artificially" stringent requirements as under Pk1.

From this, there seems to be a "burden" to make sure that Pk1 does not give a less onerous position (to the company) than Pk2. So if Pk1 surplus is lower then "we don't care" about Pk2 because it's within the bound. If however Pk1 surplus is greater (more favorable than Pk 2), then restrict it by an amount (WPICC) so that it stays within the bound. Hopefully I am not getting the incorrect interpretation, may be other folk can chip-in if there are contra thoughts.

Minor point -
I think the word "onerous" is really a matter of choice and may be we are over emphasize it? ...... what about "biting", "adverse", "strain" etc?

 

Im going to look into this some more later - I would like to thank the good people at ActEd for failing to make such a simple A + B vs. C + D issue soo ambiguous. Maybe I'll be in a better mood later