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)
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
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
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
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
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
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
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
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