In consideration of the recommendations, the pra announced that they will accept the following delays to the solvency ii directive reporting timetable. Solvency ii does not assume any specific joint distribution for the risk factors. The solvency ii standard formula consists of a number of risk modules whose outcomes are aggregated step by step to reach a single capital requirement. Revisiting calibration of the solvency ii standard formula. There is no mass lapse submodule in the standard formula for nonlife.
With the solvency ii implementation date looming, firms must make sure their processes are ready to meet the requirements. Solvency ii sets out regulatory requirements for insurance firms and groups, covering financial resources, governance and accountability, risk assessment and management, supervision, reporting and public disclosure. Solvency ii market overview of 6 insurance groups diverse position of major players after many years of deliberations, 2016 was the first year in which insurance companies had to report their solvency on solvency ii standard. It is anticipated that some companies will rely on the standard formula once the solvency ii framework is implemented. The purpose of this paper is to describe the main features of the solvency ii standard formula. While the standard formula has many strengths, there are also several issues that require improvement.
The european committee ec has now finalized several changes of the standard formula, which has an impact on all insurers which do not apply an internal model. The main aims of this research paper are to examine what insurers are currently doing and what has changed from solvency i, to identify assets and strategies that may be attractive to insurers in terms of expected return compared to their capital requirements focusing on the standard formula. Calibration recommendation for the market risks in the. Solvency ii describes two ways for an insurer to calculate the scr for longevity risk. Pdf the solvency ii standard formula, linear geometry.
Solvency ii value assets c0010 intangible assets r0030 deferred tax assets r0040 6,335 pension benefit surplus r0050. We explore how a standard formula solvency capital requirement calculation tool can be made as simple as possible for the end user. Calibration recommendation for the correlations in the solvency ii standard formula. The standard formula approach under solvency ii is used by many european insurance companies to calculate the required solvency capital. Considering the solvency ii standard formula from the viewpoint of linear geometry, we immediately find that it defines a norm and therefore provides a homogeneous and subadditive tool for risk. Pillar 1 of solvency ii requires businesses to calculate their solvency. The ec has now finalised several important changes to the standard formula relating to the treatment of unrated debt, unlisted equity and. Aggregation of capital requirements in solvency ii standard formula conference, scor sweden re, 201710. For credit derivatives, the cp70 capital charge was determined as the change in the value of the derivative i. Credit ratings data and lookthrough information credit ratings are crucial for calculation of spread and default risk capital charges in relation to the scr. Solvency ii impacts on the investment policy of insurers. Solvency ii own risk and solvency assessment orsa what is orsa.
Main problems of the standard formula and possible. The calculation of the capital requirements with the standard formula aims to take. The underlying assumptions in the standard formula for the. The nonlife underwriting risk module includes a nonlife lapse risk in article 118 dr which in substance assumes a mass lapse event. This briefing note covers the standard formula scr, in particular. Impacts of solvency ii on the investment policy of insurers with the final translation, in september 2015, of the second. Solvency ii value assets c0010 r0030 r0040 r0050 r0060. The standard formula approach under solvency ii is used by most european insurance companies to calculate their required solvency capital. A risk management standard solvency ii is a risk management standard the system of governance articles precede those on the calculation of regulatory capital requirements article 43.
Under the standard formula, the spread risk capital charge calculation depends on cqs. Technical specification of the information request on the. Volume measure for premium risk 2 december 2017 the impact, on the volume measure calculated as at time t, of the proposed definition change is illustrated in the charts in figures 1 to 3. Bafin therefore welcomes the fact that the european commission has launched the first reassessment of the standard formula only shortly after solvency ii came into force. The standard formula is the risk measurement 1 medium sized and large insurance companies are those whose gross premium income exceeds eur 5 million.
When calculating the spread charge for structured products, a cap of 100% and a floor of 10% of market value was also applied. Revision of the solvency ii standard formula approach. Three pillar approach measurement of assets, liabilities and capital eligible capital technical provisions capital requirements. Pdf an analysis of solvency ii standard formula for calculation of. Solvency and financial condition reports for undertakings with a yearend on or after 31 december 2019 but before 1 april 2020 sfcr reporting. In its letter of 12 june 2009, the european commission requested ceiops to provide final, fully consulted advice on the vast majority of solvency ii level 2 implementing measures for october 2009 and agreed on a third set to be finalized by january 2010 on other areas where changes had been made to the level 1 text in the last stages of negotiation.
The solvency capital requirement standard formula is intended to reflect the risk profile of most insurance and reinsurance undertakings. The european commission has, through the solvency ii project, initiated a. Automating the solvency capital requirement calcualtion. 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. The scr can be calculated using a prescribed standard formula. Whitepaper solvency ii and asset data november 2014. The amount of necessary capital can be calculated using a standard formula or an. Pdf solvency ii solvency capital requirement for life insurance. Solvency ii standard formula and naic riskbased capital. The standard model of solvency ii explicitly assumes a gaussian distribution for.
More changes expected this year, next year and after that. Purpose solvency ii framework regulates how much capital the european union insurance companies must hold. Introduction this regulation amends regulation eu 201535 commonly known as the solvency ii delegated acts. Standard formula calculations made simple blog barnett.
Solvency ii will transform not just insurance but capital markets, too the economist, 7. The outcome of a risk module is usually determined by calculating how a prescribed scenario would affect the insurers balance sheet. Capital requirement scr, using either the standard formula determined by the regulator. The cashflows of this stress event should be provided. Solvency ii benchmark a comparison of the dutch insurance.
Under solvency ii, insurers have a choice of which methods they use to assess risk and capital. By application of the standard formula stipulated for corporate bonds in the spread risk submodule, the. Applying a stochastic model for an internal approach, they identify the correlation matrix in the life module of the solvency ii standard model as not appropriate, leading to an overestimation for the underlying german data set. Solvency ii standard formula on average delivers an adequate capital requirement, however, we also highlight particular situations where it could understate or overstate portfolio speci. Aggregation of capital requirements in solvency ii. Actuarial improvements of standard formula for nonlife. Semantic scholar extracted view of an analysis of solvency ii standard formula for calculation of scr, possible corrections and a comparison with an internal. Data management do you know the data requirements generated by the solvency ii standard formula internal models developed by your clients. Review of the solvency ii implementing measures european. Quantifying credit and market risk under solvency ii.
Do you plan to develop a solvency ii training approach to support your commercial forces. This whitepaper explores how the solvency ii solvency capital requirement scr calculation process can be automated to facilitate efficient and timely regulatory reporting. 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. While the cro forum had expected an increase in capital requirements for market risks in comparison to qis4 capital. Undertaking specific parameters may also be applied to the standard formula in certain limited circumstances. The solvency ii directive is a new regulatory framework for the european insurance industry that adopts a more dynamic riskbased approach and implements a nonzero failure regime, i.
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