Solvency II
Finansinspektionen
2007-05-22
Carina Andersson
Solvency II
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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
Market risk
Counterparty
Default risk
Insurance
risk
Standard model
Internal model
Operational
risk
Pillar 2:
Pillar 3:
Qualitative
req
Information
Assessment of risk
Profile, riskmanagement
”Use test” of Internal
models
Actions Qualitative req or
Capital add-on
Annual report or
Other financial reporting
About material
Risks and RM
Internal controls,
governance
and
Capital to cover the
risks
Risk modules – Standard model
SCR
EL
SCRnl
BSCR
SCR
SCRcred
mkt
NLpr
Mkteq
NLcat
Mktsp
Mktint
Mktprop
Mktfx
SCRdef
Mktconc
1
SCR
SCRcred
op
SCRhealth
SCRlife
Lifelapse
Lifemort
Lifeexp
Lifelong
Lifedis
Lifecat
Liferev
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)
Best estimate of technical provisions
 Calculation
- Net present value of cash
- flow from insurance
liabilities
- No extra margins
- No extra prudence
1
 Consequences?
- Adaption in IT-systems
- And processes
Simplified balance sheet
Assets
1
Liabilities
SCR
MCR
Risk marginal
Best Estimate
FTA
Internal models
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
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
Qualitative req.
2
 ORSA (Own Risk and Solvency Assessment)
– A strategy for solvency
– Internal assessment of solvency
– SRP – Supervisory review process
Qualitative req.
2
 Adequate system for Internal controls
 Efficient strategies and processes for
identification, monitoring, assessment and
reporting
 Holistic risk management
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
Supervision
2
Supervision - actions
and assesments
Identification of risks
Quantification
Integration of RM
Interaction between P1 and P2

Investment strategy
- Investment
guidelines
- Limits
- Risk reporting of
exposures
- Riskcontrol that
exposures are within
limits and according
to quidelines

Capital req for
market risk
2
Kapitalkrav
för aktiekurs fall
på y %
Kapitalkrav
för koncentration
över x %
Intern hantering
av aktieprisrisk och
koncentrationsrisk
genom t ex interna
limiter
Information
3
 Relevant information to market/policy holders
on, technical reserves, capital and risk
management
 Accounting standards
 Supervisory reporting requirements
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
More…
 New competence mix
 Enhanced communication between management,
RM, Asset management and actuaries
Summing up
 Are processes and structures of enough
quality?
 Is the assessed solvency level adequate?
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)
Lamfalussy Level 3
Level 3 coordination
Financial
Services
Committee1
CEBS²
(Banking)
CEIOPS3
(Insurance
Pensions)
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
FCC¹
(Financial
Conglomerates)
“Supervisory Committees”
CESR3
(Securities)
¹ Finance ministries
² Supervisors and Central Banks
3 Supervisors
Time schedule Solvency 2
2006
2007
2008
2009
20102011..?
Directive
development
Directive
proposal
(Commission)
10/7
Directive
adoption
(Council and
parliament)
Directive
adoption?
Implementation
(member
states)
CEIOPS work
on Pillar 1,2
and 3+ QIS 2
QIS 3
CEIOPS/Comi
ssion
work on
implementing
measures
QIS 4?
CEIOPS
work on
implementing
measures
Supervisory
convergence
Supervisory
convergence
Frågor?
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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