Posts Tagged ‘Solvency II’



February 9th, 2016

Meeting the Challenges: Regulatory Advisory

Posted at 1:00 AM ET

In realizing the goal of profitable growth, (re)insurers require a trusted partner to help them manage a rapidly evolving regulatory and rating agency environment.

Regulatory Advisory

The regulatory issues facing insurers and reinsurers today often require highly specialized expertise that may not be readily accessible to clients - from taking credit for reinsurance on financial statements to complying with regulatory requirements in contract wordings to shepherding new products through the approval process. Guy Carpenter Strategic Advisory℠ has a team of professionals whose deep expertise and knowledge can help companies navigate the regulatory realm.

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February 3rd, 2016

Solvency Regimes: Third-Country Equivalence

Posted at 1:00 AM ET

Current capital requirements in the United States are set at a legal-entity level. Yet there are currently no global requirements for companies that operate in more than one country, and calculation formulas for capital requirements typically vary in each jurisdiction. Solvency II is the closest to mandating a group standard. Solvency II uses the concept of “equivalence” to deal with differing capital regimes between the European Union and the rest of the world including the United States, instead of forcing Solvency II standards on a third country.

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February 2nd, 2016

Addressing Own Risk and Solvency Assessment/Enterprise Risk Management and Insurance Capital Standard Globally

Posted at 1:00 AM ET

In accordance with the objectives of the National Association of Insurance Commissioners (NAIC) and European Insurance and Occupational Pension Authority (EIOPA), Own Risk and Solvency Assessment (ORSA) is “people and risk-centric,” primarily employing a principles-based approach, as opposed to a rules-based approach. This means that decisions on matters related to risks are largely based on the judgment of individuals relying on underlying facts, as opposed to decisions being made mostly by following intricate sets of rules. This is similar to the principles-based approach taken by International Financial Reporting Standards (IFRS). Although the calculation of the Solvency Capital Requirements (SCR) under Solvency II is rules based, like Insurance Capital Standard (ICS), Solvency II can be a “one size fits all” rules-based approach to capital, especially if the standard formula is used. (Re)insurers will need to find a way to incorporate ICS into their ORSA processes and the vehicle to accomplish this may be through the internal model.

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January 27th, 2016

Gaining Optimum Value from ORSA

Posted at 1:00 AM ET

Own Risk and Solvency Assessment (ORSA) was first introduced as a regulatory requirement as a result of Solvency II. (Re)insurers would be wise to take note of the many similarities between Solvency II and the National Association of Insurance Commissioners’ (NAIC) ORSA and, where possible, avoid reinventing the wheel when trying to implement them. Now, and especially with the introduction of the Insurance Capital Standard (ICS), it is increasingly important for (re)insurers to avoid unnecessary, redundant and duplicative activity in the attainment of regulatory satisfaction by striving for a uniform framework to establish risk management and controls, corporate governance, transparency and disclosures across borders. In so doing, (re)insurers will gain optimum value from their ORSA.

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January 26th, 2016

Managing the Demands of Global and Domestic Regulation

Posted at 1:00 AM ET

There is very little doubt that (re)insurers face and will continue to face growing regulation and scrutiny both domestically and internationally. Therefore, (re)insurers should seek the most effective and efficient way to meet the growing demands of increased global regulation. What follows below is a brief discussion of the overlap of some of these new global regulatory requirements and thoughts on how (re)insurers might go about approaching them.

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January 21st, 2016

China Risk Oriented Solvency System (C-ROSS)

Posted at 1:00 AM ET

The China Insurance Regulatory Commission (CIRC) is instituting sweeping changes through its three-tiered China Risk Oriented Solvency System (C-ROSS) framework that will dramatically impact how (re)insurers conduct business. It will strengthen capital requirements, risk management and transparency disclosures - bringing China in line with, and in some cases overtaking, global standards. The C-ROSS framework is similar to Solvency II: three tiers focusing on quantitative, qualitative and disclosure requirements.

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January 19th, 2016

Developments in Asia Pacific: Overview, Part I

Posted at 1:00 AM ET

Asia Pacific is a diverse mix of countries encompassing nearly one-third of the earth’s landmass and more than one half of its population. Given the broad spectrum of economic and regulatory sophistication across the region, the approach to insurance regulation has varied on a country-by-country basis as each regime adapts solvency principles to their own needs and political realities.

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January 13th, 2016

Developments in Europe: Challenges for European Companies

Posted at 1:00 AM ET

Apart from still open Solvency II third-country equivalence issues, which will be discussed in detail later, European insurance companies struggle with different interpretations of the European Insurance Occupational Pension Authority (EIOPA) guidelines and rules. For example, while sovereign debt is considered risk-free in the Standard Formula, EIOPA recommended in April 2015 that internal model firms need to consider the spread risk of sovereign debt. However, local supervisors have not interpreted this guidance in the same way - the United Kingdom’s Prudential Regulatory Authority, France’s Autorité de contrôle prudentiel et de résolution and Germany’s Federal Financial Supervisory Authority are asking their internal model firms to fully risk-weight sovereign bonds at the group level. Other supervisors are proposing a “light” approach of risk-weighting of sovereign debt, while Italy and Spain maintain the position that sovereign bonds should remain risk-free under Pillar 1.

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January 5th, 2016

Guy Carpenter Reports Stable Capital at January 1, 2016 Renewals

Posted at 11:30 PM ET

2016-gc-renewal-report-sm4Guy Carpenter & Company reports that overall capital levels dedicated to reinsurance have stabilized, showing no growth for the first time in several years.  In a highly competitive environment, companies assessed broader opportunities and the rate of incoming capital slowed. However, moderate loss experience kept capacity at abundant levels for the January 1, 2016 renewals. The continued scarcity of costly catastrophe losses and more than adequate capacity led to reinsurance pricing reductions, although there are signs the rate of descent is slowing as compared to 2015.  

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December 30th, 2015

Developments in Europe: Solvency II, Part II

Posted at 1:00 AM ET

The Own Risk and Solvency Assessment (ORSA) requirements are the key element of the Pillar 2 qualitative risk management requirements. The purpose of an “own risk assessment” by each company is to prove the appropriateness of the standard formula or internal model results if the company has applied for a certified internal model. While the Pillar 1 solvency capital requirement is calculated on a one-year basis to show that a company has enough capital to avoid insolvency through the end of the year in a 1-in-200 year event, the focus in Pillar 2 ORSA is the forward-looking assessment of solvency capital adequacy. Companies need to provide a projection of the risk and capital position for the entire planning period (at least three years), which has to be consistent with the business case balance sheet and profit and loss projection. The aim of ORSA is to demonstrate that there is an adequate level of capital available to support the business plan for a longer period. Based on this planning projection of the risk and capital position, (re)insurers need to define meaningful stress tests and scenarios to show they would be adequately capitalized in adverse scenarios as well. If a company would face solvency issues in certain stress scenarios, it needs to show it has countermeasures in place in order to reach the strategic targets of the corporate and risk strategy again.

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