SOLVENCY II and
Reinsurance
General Overview
The 2nd International Istanbul Insurance Conference
30th of September 2010
Solvency II - Key Factors
• Risk based approach
• Fair value basis
– Reinsurance assets will be valued on BE
basis allowing for an expected loss and
accounting for reinsurer rating
• Mitigating effect of reinsurance
Solvency II - Comments
The industry is still
very much in favour
of Solvency II
The industry is
currently focusing
on the cost of
getting ready for
Solvency II
With each wave of papers
published by CEIOPS, the
consultation peiod has
become shorter, and insurers
and regulators have limited
numbers of qualified senior
personnel available to
respond appropriately.
S&P sees reinsurers
as being one of the
principle beneficiaries
under Solvency II, at
least in the first few
years of the new
regime
We are
supportive of
the principles,
but the devil
is in the
detail.
But capital requirements
under Solvency II have yet to
be finalised, and larger
insurers are growing
concerned with the current
proposed calibration
The function of
reinsurance as a source
of medium – and long
term capital is clearly
coming to the forefront
of many reinsurance
buying strategies.
Solvency II
Solvency II
• Best Estimate
– It must be calculated Gross and the BE ceded
• Proporcional -> Full Benefit
• XL : Adjustment net to gross
– Direct and proporcional reinsurance
» Only XL per risk and per Segment
• New possibilities for proporcional reinsurance
Solvency II
• Cat Risks
– Natural catastrophe Perils
– Man Made (NEW)
Natural Perils
– Standardised scenarios
• Based on Perils per country and Cresta
zones (EQ, Storm, Hail…)
• EEUU scenarios
• It must be calculaded Gross and then
calculate the reinsurance
• Possibility of buying reinsurance for these
scenarios
Man Made Cat
Standardised Scenarios
Conclusions
 Fire (explosion of a refinery)
– Highly complex
 Motor (Mont Blanc tunel)
– High volume of
information
 Marine
 Aircraft
 Health
– Possibility to be
reinsured for these
specific scenarios (NEW)
Catastrophes
• Factor based Method
Fixed Factors
Events
Line of business affected
Gross Factor
Storm
Fire and property; Motor, other classes
175%
Flood
Fire and property; Motor, other classes
113%
Earthquake
Fire and property; Motor, other classes
120%
Hail
Motor, other classes
30%
Major fires, explosion
Fire and porperty
175%
Major MAT disaster
MAT
100%
Major motor vehicle liability disasters
Motor vehicle liability
40%
Major third party liability disaster
Third party liability
85%
Credit
Credit
139%
Miscellaneous
Miscellaneous
40%
NPL Property
NPL Property
250%
NPL MAT
NPL MAT
250%
NPL Casualty
NPL Casualty
250%
Next Steps
• Preparing the figures
Details
• Do we have the information?
• Where can we get the information from?
• In which format do we have it?
• Are the details reliable?
• Can we exploit that information?
• Do we have the information detailed by
reinsurers and its ratings?
• …..
Details
• YES -> Determine correctly our SCR
• NO -> We will have many difficulties and
we might be penalized by a major
requirement of the capital
Examples of needed details
• Best Estimate (BEL)
– Triangles with the major number of years
for segment Solvency II
•
•
•
•
Premiums
Paid claims
Incurred claims
Expenses
• Life – Accident
– Variation of the net value of the least passive assets
for several risks (mortality, longevity …)
Examples of needed details
• Reinsurance Estructure
– Proporcional – very easy (Gross to Net)
– Xl for risk only for segment
• Average cost for claim
• Number of claims
• Priority / Limit
– Balance and BE calculation for reinsurance
and rating
What can reinsurers do?
• Proporcional reinsurance
•XL per risk per segment
•Cat Risks: Programs based on SII
scenarios
•Reinsuracne Rating (Long Tail)
•Risk transfer
•Optimization of the use of reinsurance
Thank you very much
Teþekkür Ederim