Only the solvency capital requirement scr will be discussed in this note, and it will emerge in section 3 that solvency ii proceeds through a recursion over an oriented graph. The european commission has, through the solvency ii project, initiated a. Solvency il cover ratios own funds over scr in descending order by hy18 ratio. Insurers have entered a new risksensitive world and are managing to navigate it quite well. Part of this process means that insurers will have to think seriously about their product range.
The statutory accounting framework is based on overarching statements of concepts. In his function as chief executive director, he was involved in the critical phase of the negotiations surrounding solvency ii. The european council announced this month, june 21, 2011, a proposal to delay implementation of solvency ii to january 1, 2014, subject to european parliament approval. Solvency ii that requires institutions to understand the solvency of their portfolios has merits in principle. The solvency ii directive adopted on 25 november 2009 solvency ii directive, as amended by the omnibus ii directive adopted on 11 march 2014 omnibus ii directive and together with the solvency ii directive, directive is applicable to the european unions insurance industry. A read is counted each time someone views a publication summary such as the title, abstract, and list of authors, clicks on a figure, or views or downloads the fulltext. Many of them are based on the provisions applicable to individual.
Introduction contents 2 introduction scope of the report solvency and financial condition. The consolidation under solvency ii is set out in more detail in chapter d. Bafin will as a rule adhere to and apply all eiopa guidelines on solvency ii published so far. Directive 20098ec of the european parliament and of. The purpose of this paper is to describe the main features of the solvency ii standard formula. The amount of information to be reported under solvency ii is a significant increase. Cbi solvency ii matters 7 may consultation open until 19 june. The project aims to create a more harmonised, riskorientated solvency regime, resulting in capital requirements that are reflective.
Primarily this concerns the amount of capital that eu insurance companies must hold to reduce the risk of insolvency. Alm in a solvency ii world 5 2 summary of solvency ii by way of background, we provide a brief overview of the regulatory environment proposed under the draft solvency ii regulatory guidelines. Solvency ii standard formula and naic riskbased capital. Solvency ii is being implemented in 2016 and the new ifrs will follow 2 to 3 years later. However, the practical implementation of this framework poses considerable challenges that as yet, have not been fully resolved. Solvency ii glossary acceptable assets accident insurance adjusted solvency capital requirement admitted assets af. Ye17 160% 153% 240% 220% eligible own funds scr surplus ye17 surplus 230% 233% 229% 205% 75. Solvency ii cover ratios own funds over scr in descending order by hy18 ratio. The views expressed in this paper are those of the authors and. Solvency ii technical provisions for general insurers. This article focuses on the available capital according to sii, also referred to as own funds. How we were for thirty years, until december 2015, the amount of the solvency margin was determined following the rules of solvency i. Us and eu us solvency eu solvency ii principles or rules principles are included in numerous naic handbooks.
Geldwaschepravention, mifid ii, kreditvergabe, solvency ii. An introduction page 1 european insurance and occupational pensions authority eiopa quantitative impact study 5 qis5 page 5 think outside of the pillars solvency ii strategic considerations page 8 on april 22, 2009, the european parliament approved the solvency ii framework directive, due to come into force january 1, 20. Although solvency ii is not a macroprudential framework, it contains several elements that may have financial stability impact. Solvency ii will create stateofthe art risk management and bring greater transparency. Solvency ii reporting is required every quarter and annually. The purpose of the guidelines is to adopt a consistent and convergent approach to solvency ii preparation across europe and to mitigate the risk that supervisors will adopt their own approaches at a national level. Enhancing the macroprudential dimension of solvency ii february 2020 executive summary 5. Solvency ii the matching adjustment and implications for. This consultation paper cp seeks feedback on a draft supervisory statement which sets out the prudential regulation authoritys pra expectations with regards to article 275 of the commission delegated regulation eu 201535 the solvency ii regulation. The comparison is conducted against the background of the industries characteristics and the objectives of regulation. Solvency ii own funds tier 1 and tier 2 requirements. One among many solvency ii is one of the myriad of postcrisis reforms that are. Solvency ii own funds the economics of market consistent.
Status on solvency ii and its challenges for actuaries the directives requirements the latest consultation papers why harmonisation of technical provisions across europe is difficult the current discussion between ceiops and groupe consultatif best. Whitepaper solvency ii and asset data november 2014. Solvency ii, the european rulebook for insurance supervision that came into force just over a year ago, also makes demands of insurers. Cp1123, solvency ii and linked longterm insurance business cp1125, distribution of retail investments rdr adviser charging and solvency ii cp1127, quarterly consultation paper no. Solvency ii, magnum opus of european insurance supervision, came into force at. The 2016 sfcr of aegon group has been prepared and disclosed under the responsibility of the executive board. The reporting baseline of accounting requirements are included in the naics accounting practices and procedures manual. Status on solvency ii and its challenges for actuaries the directives requirements the latest consultation papers why harmonisation of technical provisions across europe is difficult the current discussion between ceiops and groupe consultatif best estimate papers discussion on actuarial function. Ps158 solvency ii in this policy statement we report on the main issues arising from the following fsa consultation papers. Was eine gute aufsicht kennzeichnet, erklarte bafinprasident felix hufeld. Solvency ii standard formula and naic riskbased capital rbc report 3 of the cas riskbased capital rbc research working parties issued by the rbc dependencies and calibration working party dcwp abstract. Solvency ii in life insurance universitetet i oslo. Solvency ii became fully applicable on 1 january 2016, aiming to introduce a modernised riskbased prudential and supervisory regime for insurance and reinsurance undertakings in the european union. Provided that a riskbased quantitative framework is implemented, hufeld said he would, in principle, also be in favour of an own risk and solvency assessment orsa requirement for pension funds, similar to those under solvency ii.
Directive 20098ec of the european parliament and of the council of 25 november 2009 on the takingup and pursuit of the business of insurance and reinsurance solvency ii text with eea relevance. Party on solvency ii technical provisions for general insurers was established in 2009 for the purpose of providing education to the wider actuarial community on the solvency ii requirements and informing the debate in the wider reserving community as to how the requirements should be implemented for general insurance undertakings. The survivors guide to solvency ii has been prepared by subject matter experts from. It therefore expects undertakings to comply with the statutory requirements under solvency ii in a manner that is consistent with the interpretations of such requirements provided by the guidelines. It has been a year since solvency ii was introduced, and one thing is clear. Ceiops last year issued its formal advice on classification and eligibility of own funds and on 5 july the commission issued technical. Wellprepared asset managers that offer solvency ii adapted products and reporting could gain a competitive advantage. Eiopa therefore strongly advises changingthe way the capital requirements for interest rate risk are calculated in the delegated regulation. Quick ratio this ratio, also called acid test or liquid ratio, considers. This complements our approach of integrated risk management as well as effective assetliability matching. Bafin has published its findings from the figures reported for the individual classes of insurance for the first time since the new supervisory regime, solvency ii, entered into force on 1 january 2016. The solvency ii directive 2009 8ec is a directive in european union law that codifies and harmonises the eu insurance regulation. The central bank of ireland cbi has finalised its requirements for the external audit of solvency ii regulatory returns public disclosures, which were originally outlined in consultation paper cp 104.
Solvency ii and asset data introduction in 2015, insurers will begin preparatory solvency ii reporting, followed by full reporting in 2016 when they will move from the planning and testing phases of their solvency ii programs into the world of live reporting. Solvency capital requirement solvency ii requires that all but the smallest insurers across europe hold sufficient own funds to cover an appropriate solvency capital requirement scr that reflects more of that insurers particular profile of risks than under many current regimes. This paper examines the consequences for a life annuity insurance company if the solvency ii solvency capital requirements scr are calibrated based on expected shortfall es instead of valueat. The solvency ii regulatory framework has different layers at supranational level. Enhancing the macroprudential dimension of solvency ii. Solvency ii reporting services for investment funds. Solvency ii finds unique application in all member states of the european economic area eea. Solvency ii own funds tier 1 and tier 2 requirements and grandfathering 11062010 introduction under solvency ii, capital is referred to as own funds. Pdf solvency ii solvency capital requirement for life. Knowledge is power, and now, more than ever, as we see our global community broadening to an extent heretofore unknown, insurers who are out in front at the table with the framers of solvency ii will maintain competitive advantage by. It is expected that many insurers will choose to use. The eu have collected all the central directives which covers the insurance and reinsurance businesses into one directive. Solvency ii reporting services for investment funds deloittes integrated solution servicing worldclass asset managers solvency ii directive 20098ec is a european reform applicable to insurance and reinsurance undertakings which came into effect on 1 january 2016.
Speech by felix hufeld president of the federal financial supervision authority bafin on 10 january 2017 in frankfurt am main. Solvency ii regarding calculating required capital, demonstrating strong. Risk management under solvency ii spotlight on internal. Neefa, lloyd williams b, dag raabe anorwegian computing center bsparebank 1 forsikring abstract a key aspect of the solvency ii regulatory framework is to compute the best estimate of the liabilities. One of the main goals of solvency ii is to ensure the protection of. The approach of modelling cashflows, as encouraged by solvency ii, brings the two areas into the same modelling space. In both handbooks deloitte authors contributed on the theory and practical implications that insurers need to consider when comparing the valuation of insurance liabilities under solvency ii to the forthcoming new ifrs 4 phase ii requirements. There is also a question as to whether allocating an entity level assessment to annual groups provides a relevant risk. Dr frank grund on contemporary insurance supervision. Solvency iis three pillars and four implementing measures. Solvency ii introduction casualty actuarial society. Karl whelan ucd liquidity and solvency spring 20201216. Rather than a rigid, rulebased approach, solvency ii uses a riskbased assessment of the assets and liabilities, based on economic principles.
In the first two articles in our series on solvency ii sii, we looked at reasons for being cautious about interpreting solvency ratios and pointed out the pitfalls in analyzing the sii required capital. However, in the banking context, the same exposures are treated with the full capital charge for credit risk. No pressing need for changes to pension fund capital. The new solvency ii regulation will promote an integrated, three pillar approach to risk management. The matching adjustment and implications for longterm savings 3 solvency ii was initiated by the european commission in 2000 and represents a fundamental change to european insurance regulations. Interest rate model comparisons for participating products. The new solvency regulation introduces a number of fundamental changes. Interest rate model comparisons for participating products under solvency ii kjersti aasa, linda r. Investment strategy under solvency ii 1 october 2018 introduction and background for many insurers the introduction of solvency ii created challenges that focused on successful implementation and ensuring compliance.
However, it is clear that the undertakings will need to be given time to make the necessary adjustments. The solvency ii handbook deloitte financial services. Introduction to solvency ii tim edwards gavin dunkerley 24th september 2008 introduction the primary purpose of this presentation is to explain what solvency ii is and why it is important we also hope to challenge the way you think about your personal role within your firm, the role of actuaries within your firm, and the role of the. That was good news, considering how complex the new regime was, said bafin president hufeld. Solvency ii is the prudential regime for insurance and reinsurance undertakings in the eu at the core of the new regulatory framework solvency ii is an economic riskbased approach, which should enable the assessment of the overall solvency of insurance and reinsurance undertakings through quantitative and qualitative measures. Solvency ii delegated regulations 1 on 18 june 2019 the european commission published final changes to the solvency ii delegated regulation which will come into effect from 8 july 2019 with a few from 1 january 2020, in order to avoid disruptions to the nonlife and health insurance market.
One type of capital motivated reinsurance under solvency ii will be when this company cedes annuity business i. Please refer to each of those sections in their entirety, including in each case the materials incorporated by reference therein. Solvency and financial condition report 2016 axa i 5 summary pursuant to the solvency ii regulations, the following is a summary overview of each of the sections required in the report. The insurer will thereby reduce its capitalisation by a relatively large amount, and will. Solvency ii euwide insurance regulatory regime, particular focus on capital requirements and rules relating to own funds enacted via directive 20098ec of the european parliament and of the council november 25, 2009. All risks will be considered as part of the calculation for capital adequacy. Geldwaschepravention, mifid ii, kreditvergabe, solvency ii bafin. Solvency ii sets new demands on insurance companies regarding for example capital requirement, risk management. Ii nonlegislative acts regulations commission delegated regul ation eu 201535 of 10 october 2014 supplementing directive 20098ec of the european parliament and of the council on the takingup and pursuit of the business of insurance and reinsurance solvency ii. Drawing on our research and work with clients, the guide covers areas that are causing the greatest difficulties for insurers or may have been missed altogether.
The deadlines for reporting are challenging and get tighter each year during the transition period. Activity with respect to solvency ii is increasing in the united. While some insurers have undoubtedly made significant progress. Jul 31, 2015 the solvency ii directive the directive contains important new provisions to strengthen the supervision of insurance groups. Revision of the solvency ii standard formula approach. Solvency ii4 solvency ii time line on april 22, 2009, the european parliament approved the solvency ii framework directive, due to become effective january 1, 20. There is also a question as to whether allocating an entity level assessment to annual groups provides a relevant risk allowance at this lower level. The european committee ec has now finalized several changes of. Revision of the solvency ii standard formula approach highlights and implications for european insurers the standard formula approach under solvency ii is used by many european insurance companies to calculate the required solvency capital.
Aufsichtsregime solvency ii ins leben gerufen, hat sich. The focus is on the practicalities rather than the technicalities. Solvency ii, naic solvency modernization initiative and. Bafinchef hufeld wurde publicprivatepartnershipprojekte. Reinsurance and solvency ii hannover re supports you preparing for the new regulatory system solvency ii replaces the previous solvency regime solvency i from 2016 onwards. Solvency ii, magnum opus of european insurance supervision, came into force at the beginning of 2016. As chairman of the cea solvency ii steering group, i am delighted to be presenting the study solvency assessment models compared produced jointly by cea and mercer oliver wyman in cooperation with all european insurance markets. Solvency ii takes a broad, holistic approach to risks, whereas basel ii is focused on credit risk, operational risk and market risk. The upcoming european solvency ii regime and the existing swiss solvency test in switzerland exemplify this trend. The insurance industry s response to solvency ii standard % poors believe that solvency ii will result in more than 25% of europes 5,000 insurers being faced with major.
Introduction to solvency ii institute and faculty of actuaries. Felix hufeld has been the top german insurance industry supervisor since the beginning of 20, and represents bafin on the management board of the european insurance supervisory authority eiopa. Appendix 2 describes the initial development of the risk margin under solvency ii, and in particular indicates why the costofcapital method was selected ahead of alternative methods. However, noneuropean jurisdictions may choose to achieve. It represents approximately twothirds of the basic solvency capital requirement bscr for a life solo insurance undertaking, onethird for a nonlife solo undertaking, and. These requirements add to the complexity of the ifrs 17 calculations. Solvency ii permits approved internal models for all risks, but basel ii only permits internal models for operational risk and market risk related to. Solvency ii an overview of the challenges for insurers. The mechanisms in solvency ii to address procyclical behaviour lack the symmetry needed to build up reinsurers resilience during times of excessively rising market prices, and have shortcomings in the way they apply to internal models. A comparative assessment of basel iiiii and solvency ii.
354 340 1516 865 848 560 348 344 447 532 361 478 1474 1296 841 665 322 908 1445 1515 436 1295 1490 611 1002 1297 913 829 1254 1389 1170 1005