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Overview Of Solvency Ii Ashley Patel ( Global Fpollp)

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Transcript

  • 1. Ashley Patel
  • 2.
    • The challenges in preparing for Solvency II
    • Adequate financial resources
    • Supervisory Review Process
    • Disclosure
    • Timeline
    • Questions for you
  • 3. Solvency II – Three-pillar approach New focus for supervisor Level of harmonisation Group supervision More pressure from capital markets, investors and shareholders Market-consistent valuation of assets and liabilities Economic Capital Validation of internal models
    • Quantitative capital requirements
      • Technical provisions
      • Minimum capital requirement (MCR)
      • Solvency Capital Requirement (SCR)
    • Qualitative supervisory review process
      • Corporate Governance
      • Principles for internal control and risk management
      • ORSA
      • Capital add-ons?
    • Disclosures
      • Enhance market discipline through public disclosures
      • Annual FCR and Solvency reports
      • Provide additional (non-public information to the supervisors
    Pillar 1: Pillar 2: Pillar 3:
  • 4.
    • Governance – ORSA, Risk Management, Systems.
    • Supervision of insurance firms – Risk based, prospective approach, proportionality
    • Burden of Proof
    • Demonstrating Adequate Financial Resources – Pillar 1
    • Use and Approval of Internal Models – Use Test, Data
    • Disclosure
  • 5.
    • Technical Provisions
      • Best estimate
      • Risk margin
    • Solvency Capital Requirement (SCR):
      • Firms should hold capital to cover a 1/200 event (99.5% confidence level) over a 1 year horizon
      • Enables undertakings to absorb significant losses
      • Breach -> supervisory action
    • Minimum Capital Requirement (MCR):
      • Unacceptable capital level below this point
      • Should result in a proportion of the SCR (25-45%)
      • High quality capital
      • Breach -> potential withdrawal of licence
  • 6.  
  • 7.  
  • 8.
    • Pillar 2 is very important from a supervisory perspective
    • SII seeks to promote high and consistent risk management standards
    • Art 43 requires firms to
      • Have effective risk management systems
      • Consider all risk exposures, both current and possible
      • Have a risk management system that is fully integrated into the organisation
    • It is not just about the SCR!
  • 9.
    • Own Risk and Solvency Assessment (ORSA):
      • Art. 44 requires firms to assess the level of risk in their business and the level of solvency required to mitigate those risks
    • Other issues :
      • Outsourcing (Art. 38)
      • Responsibility of management body (Art.40)
      • General Governance – Requirements set out (Art. 41)
      • Fit & Proper – Requirements set out (Art. 42)
      • Internal control system requirement (Art. 46)
      • Internal Audit requirement (Art. 46)
      • Actuarial Function requirement (Art. 47)
  • 10.
    • Adoption of new information and control infrastructure
    • Embedding this new infrastructure in the business
    • Verifying and documenting the new procedures
    • Demonstrating to the Financial Regulator that the internal model is used in the governance, risk and capital management processes of the firm (Use Test)
    • Doing the above for a small firm
  • 11.
    • Harnessing market discipline for supervisory purposes
    • Supervisory Disclosure (Art. 31, 52)
      • Laws, regulations
      • SRP methodologies
      • Exercise of options
      • Capital Add-ons
    • Company Disclosures (Art. 51,53-56,256)
      • Solvency and Financial Condition Report
      • Very detailed report
  • 12.
    • Risk Based Approach – Probability vs Impact
    • Off-site and On-Site Review
    • Emphasis on On-Site Review
      • Convergence in approach
      • Directly assess compliance
      • Presentations, interviews, file review
      • Supervisory Actions
    • Stress Testing
  • 13.  
  • 14.  
  • 15.
    • Do you really understand what Solvency II is about?
    • Have you completed your gap analysis?
    • What operational, business and strategic issues does Solvency II create?
    • Will your firm be ready for Solvency II?
    • What questions will the Financial Regulator ask you?
    • What clarity do you need on Solvency II?
  • 16.
    • Many challenges in preparation for Solvency II
    • Preparations should not focus on Pillar I requirements
    • Pillars II and III are very important
    • Different approach to supervision
    • Undertakings should ensure clarity on Solvency II
  • 17. Thank you Thank you