Chapter 10 v.w Flashcards
Who invites rating agency in?
The board, themselves
Who appoints the external auditor
The insurer
Who pays for the rating agency
Themselves
Do the PRA or FCA require you to have a rating?
No
What is rating used for
A marketing tool
What does rating show you
How financially secure you are. Assess ability to pay customer claims.
What is AAA rating
Highest rating
Will A - outperform a BBB
Yes
Is a C or D rating bad?
Yes
Which rating do people start investing?
BB onwards
Why do insurers used rating agencies?
Better you are shows you are secure, can charge more as financially secure
What is the rating process
2 people attend the insurer and go through everything. They create a report to put it to the ratings committee who will come up with your letter
Can you challenge the rating process
Yes but only once
What nine things do they use to come up with rating
- Economic and industry risk - looks at the sector you are in
- Competitive position - look at you compared to your competitors
- Management corporate strategy - do they like the poeple that run the company
- ERM - like the way you assess and control risk
- Operating ratio - look at your ratios
- Investments
- Enough spare capital to meet solvency II requirement
- Liquidity - have enough cash
- Financial flexibility -Ability to get guaranteed money - bank loans
What are solvency margins
What you have to put aside to be able to survive if bad things happen - think a cushion
What is solvency I called
The minimum capital requirement. So low must not go below it.
Why is solvency II and solvency I different
Solvency II is a lot higher limit
What are the three pillars of Solvency II
Pillar one: Financial requirements
Pillar two: Government and supervision
Pillar three: Reporting and disclosure
What is the Solvency Capital requirement under pillar one
Run a set of risks and can show your regulator to meet your 1 in 200 year scenario
What is Solvency Capital confidence level under pillar one
99.5%
1 in 200 year floods. 1 in 200 year recessions
What do UK insurers use to work out their requirement to have new solvency margins under pillar one
Internal model - work out their own formula. EU offers external.
What is the USED test
Pillar one - the regulator who have a lot of acturies themselves sign of that its fit for purpose
Is an actuary compulsory under pillar one
Yes. It’s compulsory
What are pillar two
Own risks and solvency assessments (ORSA)
What do you do under pillar two
The ORSA test - flow chart every bit of risk you do. You do your ORSA. Show regulator you have control of your business.
What is pillar three under Solvency II
Public disclosure - having transparent relationship with your regulator
What do you need to do under Pillar three
Have to publish solvency and financial condition report to the regulator - includes how you use your internal model, where you not been compliant with solvency requirements
Where do you do the solvency and financial condition report
PILLAR THREE
What is pillar one:
Solvency capital requirement. 1 in 200 years. USED test - means if you use your own model it needs to be signed off.
What is pillar two:
ORSA - flow chart everything you do.
