Solvency II

Question 1

Three pillars of Solvency II

Answer 1

Quantification
Supervisory
Transparency

Question 2

SCR

Answer 2

Solvency Capital Requirement – companies with capital less than this are subject to regulatory intervention

Question 3

MCR

Answer 3

Minimum Capital Requirement – companies with capital less than this are not permitted to operate

Question 4

SCR determination

Answer 4

99.5% VaR

Question 5

Solvency II: Liability and Surplus division

Answer 5

Technical provisions (fair value of liabilities)
MCR
SCR (includes MCR)
Free surplus

Question 6

SCR calculation

Answer 6

Standard formula
Internal models (need approval)

Question 7

Solvency II: Internal audits

Answer 7

Produced at least annually about deficiencies in internal controls and compliance

Question 8

ORSA

Answer 8

Own Risk and Solvency Assessment, Pillar 2 – should contain solvency need, compliance with capital requirements, extend to which profile deviates from assumptions underlying SCR

Question 9

Solvency II: Pillar 3

Answer 9

Provides means by which capital and regulatory position derived from pillars 1 and 2 are reported to markets

Question 10

ORSA definition

Answer 10

Internal assessment of solvency need based on risk profile; defined as entirety of process and procedures employed to identify… short and long term risk faced or may face and determine solvency need

Question 11

Solvency II risk margin discount rate

Answer 11

Equal to sum of risk free rate and illiquidity premium

Question 12

Solvency II required assets, formula

Answer 12

PV(Payments + Risk Margin) + SCR

Question 13

Differences between RBC and Solvency II

Answer 13

Required capital: S2 requires 99.5% VaR, RBC not based on modeled results
Reserves: Not discounted under RBC
Formulas: RBC consistent for all companies
Basis: S2 principle, RBC rules