SOLVENCY II

Question 1

SECT C: SOLVENCY II

DESCRIPTION

Answer 1

• Principle-based solvency regulation system

* Links required capital to insurer’s risk profile

Question 2

SECT C: SOLVENCY II

PILLARS

Answer 2

1. Quantification – capital requirements for specific risk profile
   a. Solvency capital requirement (SCR) – threshold for regulatory intervention
   • Limit probability of ruin over the year to 0.5% (protect against 99.5% VaR)
   b. Minimum capital requirement (MCR) – threshold to cease operations
   c. Technical provision – fair value of liabilities
   d. Free surplus = Assets – Technical provisions – SCR
2. Governance – power to intervene
   a. Internal audit: controls and compliance with internal policies and procedures
   b. Actuarial: reasonable methods/assumptions underlying technical provisions
   c. Risk management: monitor and maintain agg view
   d. Compliance: with laws and regulation
   • Own risk and solvency assessment (ORSA) – process to identify, assess, monitor, manage and report the underlying risk and to determine company’s necessary to ensure that solvency needs are met
3. Transparency – supervisory reporting and public disclosures