KPMG Solvency II Flashcards

1
Q

What is Solvency II?

A

New regulatory framework for the European insurance industry that adopts a more dynamic risk-based approach and implements a non-zero failure regime (0.5% probability of failure)

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2
Q

Intents of Solvency II?

A
  • Alignment of economic and regulatory capital
  • Freedom to choose their own risk profile and match it with appropriate level of capital
  • Early warning system for deterioration in solvency
  • Better aligning risk and capital management
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3
Q

List 3 goals of the 3 pillars

A
  • Promote capital adequacy
  • Provide greater transparency in the decision-making process
  • Enhance the supervisory review process
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4
Q

List advantages of Solvency II

A
  • Consistent regulation in all territories
  • Improve solvency of industry, thus means better protection for consumers
  • Better capital management by aligning solvency with risk profile
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5
Q

Discuss pillar 1 of Solvency II

Quantitative requirements

A
  • Aims to ensure firms are adequately capitalized with risk-based capital
  • All valuations are to be done in a prudent and market-consistent manner
  • Cies may use either the Standard Formula or an internal model approach (subject to prior supervisory approval) to calculate regulatory capital requirements using its own internal model
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6
Q

Discuss pillar 2 of Solvency II

Qualitative requirements

A
  • Impose higher standards of risk management and governance within a firm’s organization
  • Gives supervisors greater powers to challenge their firms on risk management issues
  • Includes the ORSA ,requiring a firm to do its own forward-looking-self-assessment of risk
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7
Q

Discuss pillar 3 of Solvency II

Disclosure requiremets

A
  • Aims for greater levels of transparency
  • Private AR to supervisors, and a public solvency and financial condition report that increases the level of disclosure required by firms
  • Any current returns will be completely replaced by reports containing core information that firms will have to make to the regulator on a quarterly and annual basis
  • Ensures that a firm’s overall financial position is better represented and includes more up-to-date information
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8
Q

What are the three general levels of capital?

A
  • Technical provisions to match insurer liabs (best estimate of liabs + Market value margin)
  • Regulatory capital requirements (MCR + SCR + Capital add-on)
  • Surplus capital
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9
Q

Contrast Pillar I between Basel II and Solvency II

A
  • Basel II applies separate models for investment, credit and operational risks
  • Solvency II applies an integrated approach taking into account dependencies between risk categories

BaseI II concentrates on the ASSETS / Solvency II applies to both ASSETS and LIABILITIES

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