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Solvency II

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  • 1. SOLVENCY II
    September, 2010
  • 2. Solvency II
  • 3. Risk = Capital
    Assets
    (Detailed
    Rules or
    Market
    Value)
    Free
    Capital
    Insurancerisk
    Operational risk
    SCR
    Market risk
    Capital Requirement
    Credit risk
    Other risks
    MCR
    Technical Provisions
  • 4. The Influence of Solvency II According to IBM
  • 5. SOLVENCY IIThe Three Pillars
    September, 2010
  • 6. Solvency II Three Pillars - Pillar I
    The focus of the Pillar I framework is capital adequacy and how to calculate it
    Technical Provisions
    Represents the current amount a company would have to pay for an immediate transfer of its obligations to a third party
    Future cash-flows from obligations towards policyholders and beneficiaries of insurance contracts valued using best estimate assumptions
    Solvency Capital Requirement (SCR)
    Capital to be held by the company in order to ensure that ruin occurs no more often than once in every 200 cases
    Corresponds to the Value-at-Risk of the net assets of the firm subject to a confidence level of 99.5% over a one-year period
    Can be calculated:
    Standard formula given by the regulators
    Internal model developed by the company
    MCR
    Level of capital below which authorisation could ultimately be withdrawn
    MCR = Max(absolute MCR, calculated MCR)
  • 7. Solvency II Three Pillars - Pillar II
    Pillar 2 focus are the requirements for governance, risk management and supervision
    Overall Governance
    Internal controls and risk management
    Enterprise-wide visibility to key information
    Consistent risk management
    Development of a risk strategy
    Definition of risk tolerance and risk appetite
    ORSA own risk and solvency assessment
    SRP Supervisory Review Process
  • 8. Solvency II Three Pillars - Pillar III
    The focus of Pillar 3 is transparency
    Regulatory reporting
    Transparent market disclosure
    Providing consistent information on a timely basis
  • 9.
  • 10. Vision Definition
    Our goals, how do we intent to implement the compliance requests
    Risk appetite and risk tolerance definition
    What are the issues we expect to have a positive impact on the business
    In which subjects we want to limit ourselves to pure and simple compliance
    The main question: Standard formula or internal models
    How much will it cost us the past of internal models
    How much it will cost us not to use internal models
  • 11. SOLVENCY IIConsultation Papers andDirectives
    September, 2010
  • 12. Consultation Papers – First wave
  • 13.
  • 14. Consultation Papers – Third wave
    Submitted Papers 2004-2009
  • 15.
  • 16. RISKS
    • Shares Risk
    • 17. Interest-rate Risk
    • 18. Exchange-rate Risk
    • 19. Real-estate Risk
    Market Risks
    Concentration Risk
    Credit Risks
    Operational Risks
    Liquidity
    Professional Negligence
    Fraud
    Portfolio Retention
    Asset – Liabilities Risk
    Recession
    Financial and Economical Situation
    Investment Risk
    Underwriting Risk
    Mortality Risk
    Morbidity Risk
    Longevity
    Disability Risk
    Lapse Risk
    Catastrophe
  • 20. SOLVENCY II Governance
  • 21. Clear definition of:
    Roles
    Responsibilities
    Accountability
    Board members, sub-committees of the board, senior management
    ‘Fit’ and ‘Proper’ requirements
    Regular internal review of governance
    Structure
    Documentation
    Governance
  • 22. Governance structure must include SII-prescribed functions
    Risk Management
    Internal Control
    Compliance
    Internal Audit
    Actuarial
    Pillar II Governance Structure
  • 23. Documentation required of governance policies and processes
    Emerging risks – processes to identify and manage
    Loss events - record, monitor, report and analyse trends
    Key risks - measure, track, manage and report all key risks
    Own Risk Self Assessments (ORSA) through Risk & Control Self Assessments
    Audits - automatic generation and distribution of audits, record audit findings, create actions, monitor and track progress
    Data - collection of quality and consistent data for all reporting purposes
    Pillar II Governance Documentation
  • 24. THANK YOU