Solvency II

Question 1

What is Solvency II

Answer 1

A principles based insurance regulatory system in EU

Question 2

Three pillars

Answer 2

Quantitative:
Set SCR and MCR on a total balance sheet approach
SCR = 99.5% VaR based on standard or approved internal model

Governance:
Require adequate governance on
- Internal audit (report failure)
- Actuarial ( ensure reasonability for DAM when calculating provisions)
- Risk management ( perform ORSA to identify unique risk)
- Compliance (report failure to comply with regulation)

Transparency
Everything should be fully disclosed, to increase market discipline, to reduce regulator intervention

Question 3

Difference between RBC and Sol II

Answer 3

RBC is rule based approach while Sol is principle based
ORSA allow calculation to be tailored while RBC has standard formulas for all insurers
Sol uses discounted reserve+margin while RBC use undiscounted reserve
Sol use IFRS asset while RBC use SAP asset
Sol result is based on model result while RBC doesn’t use model
Sol 2 levels and RBC has 4 levels
Sol required more info to be disclosed while RBC’s calculation is not ( result is public)