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Solvency II

Solvency II. Finansinspektionen 2007-05-22 Carina Andersson. Solvency II. Measure risk Manage risk Allocate capital to risk exposures Measure, manage and allocate in a transparent manner. Solvency II – riskbased model. Pillar 1: Quantitative capital req. Pillar 2: Qualitative req

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Solvency II

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  1. Solvency II Finansinspektionen 2007-05-22 Carina Andersson

  2. Solvency II • Measure risk • Manage risk • Allocate capital to risk exposures • Measure, manage and allocate in a transparent manner

  3. Solvency II – riskbased model Pillar 1: Quantitative capital req Pillar 2: Qualitative req Assessment of risk Profile, risk- management ”Use test” of Internal models Actions - Qualitative req or Capital add-on Pillar 3: Information Annual report or Other financial reporting About material Risks and RM Internal controls, governance and Capital to cover the risks Market risk Counterparty Default risk Insurance risk Operational risk Standard model Internal model

  4. SCR EL BSCR SCR SCR cred op SCR SCR SCR SCR SCR SCRhealth nl cred mkt def life Life Life NL Mkt mort pr eq lapse Life Mkt Life NL Mkt conc exp long cat sp Mkt Life Life int dis cat Life Mkt rev prop Mkt fx Risk modules – Standard model 1

  5. Quantitative requirements 1 • Market value of assets and liabilities • Full balance sheet approach • Recognition of risk mitigation and diversification • Two solvency levels, solvency capital requirement (SCR) and minimum capital requirement (MCR)

  6. Calculation Net present value of cash flow from insurance liabilities No extra margins No extra prudence Consequences? Adaption in IT-systems And processes Best estimate of technical provisions 1 1

  7. Simplified balance sheet 1 Assets Liabilities SCR MCR Risk marginal Best Estimate FTA

  8. Internal models 1 • Company specific for quantification of risks • Should cover all relevant quantifiable risks • Should be able to refer to the Standard model • Should pass a use test • Approval by Finansinspektionen

  9. Qualitative req. 2 • ORSA (Own Risk and Solvency Assessment) • A strategy for solvency • Internal assessment of solvency • SRP – Supervisory review process

  10. Qualitative req. 2 • Adequate system for Internal controls • Efficient strategies and processes for identification, monitoring, assessment and reporting • Holistic risk management

  11. Finansinspektionen 2 • SRP (Supervisory Review Process) • Insurance undertakings’ internal risk and capital assessment requirements • Supervisors’ evaluatation procedures • Harmonised supervisors’ powers and tools, including pillar II capital add-on

  12. Supervision 2

  13. Interaction between P1 and P2 2 • Investment strategy- Investment guidelines - Limits - Risk reporting of exposures - Riskcontrol that exposures are within limits and according to quidelines • Capital req for market risk

  14. Information 3 • Relevant information to market/policy holders on, technical reserves, capital and risk management • Accounting standards • Supervisory reporting requirements

  15. Challenges for the industry • Enhanced Risk Management (RM) • Risk and capital strategies • Operational risks should be managed + allocation of capital • Integration in operations of RM, e. g. product development, ALM, reinsurance management • Public information in annual report about RM and capital • Reporting to Finansinspektionen

  16. More… • New competence mix • Enhanced communication between management, RM, Asset management and actuaries

  17. Summing up • Are processes and structures of enough quality? • Is the assessed solvency level adequate?

  18. European structure ECOFIN Council European Commission European Parliament Lamfalussy Level 1 High level strategic advice Lamfalussy Level 2 “Regulatory Committees” Economic and Financial Committee Financial Stability Table EBC¹ (Banking) EIOPC¹ (Insurance, Pensions) ESC¹(Securities) FCC¹ (Financial Conglomerates) Lamfalussy Level 3 “Supervisory Committees” Level 3 coordination Financial Services Committee1 CEBS² (Banking) CEIOPS3 (InsurancePensions) CESR3 (Securities) ¹ Finance ministries ² Supervisors and Central Banks3 Supervisors EBC European Banking Committee EIOPC European Insurance and Occupational Pensions Committee ESC European Securities Committee FCC Financial Conglomerates Committee CEIOPS Committee of European Insurance and Occupational Pensions Supervisors CESR Committee of European Securities Regulators

  19. Time schedule Solvency 2

  20. Frågor? • Carina Andersson – solvens 2 övergripande/pelare 2 carina.andersson@fi.se tfn 08- 787 80 78 • Katarina Höller-QIS 3 pelare 1 katarina.holler@fi.se tfn 08- 787 82 21 • Jonas Danielsson -QIS3 pelare 1 jonas.danielssson@fi.se tfn 08- 787 83 64 • Greta Wennerberg – redovisning/pelare 3 greta.wennerberg@fi.se tfn 08-787 81 23 www.fi.se www.ceiops.org

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