Solvency II Flashcards
What are the objectives of Solvency II
To enhance policyholder protection and create a safer, more resilient insurance sector
Solvency II was created in accordance with what process
Lamfalussy Four level Process
What does the Lamfalussy 4 level process consist of?
Level 1: Framework Principles
Level 2: Implementing Measures
Level 3: Guidance
Level 4: Enforcement
Solvency II consists of how many Pillars, name them also
Pillar 1 - Financial Requirements (SCR + MCR)
Pillar 2 - Governance and Supervision (ERM)
Pillar 3 - Reporting and Disclosure (Insurers are required to publish risks facing the, capital adequacy and risk management)
Solvency Pillar 1
Financial Requirements
- Market-consistent valuations
- Assets and liabilities represent current
- SCR
- MCR
- Capital adequacy
Capital Adequacy is part of what pillar and consists of what?
Capital Adequacy relates to the tiers of capital a company can hold, these are:
-Tier 1 - Shareholders Equity and shared earnings
-Tier 2 - Subordinated debt (loans and borrowing)
-Tier 3 - Lowest quality and has limited absorbing power
SCR
Solvency capital requirement
Quantity of capital that is intended to provide protection against unexpected losses
MCR
Minimum capital requirement
level which denotes a level below which shareholders would be exposed to an unacceptable level of risk
Solvency Pillar 2
Governance and Supervision
-This includes an effective risk management system and prospective risk identification through the Own Risk Solvency Assessment (ORSA)
- Also includes the process that the supervisory authority use when reviewing insurance and reinsurance undertakings ensuring compliance.
Solvency Pillar 3
Reporting and disclosure
Insurers are required to publish details of the risks facing them, capital adequacy and risk management.
