Financial Intelligence Team Contact The link between a company's earnings and its share price is intuitive and well documented. Equally logical, although far less studied, is the correlation between the volatility of earnings and share price. The favorable impact of stable earnings on market valuation is intuitive considering market capitalization represents a view of future ... Continue Reading »
Iain Boyer
Update: Risk Profile, Appetite, and Tolerance: Fundamental Concepts in Risk Management and Reinsurance Effectiveness
Financial Intelligence Team Contact In April 2009, Guy Carpenter's Financial Intelligence Team published a briefing entitled Risk Profile, Appetite and Tolerance: Fundamental Concepts in Risk Management and Reinsurance Effectiveness. That briefing included definitions of Risk Profile, Appetite and Tolerance and how these concepts fit into an Enterprise Risk Management (ERM) ... Continue Reading »
Solvency II – Summary of CEIOPS March Consultation Papers: Allowance of Financial Mitigation Techniques
Financial Intelligence Team Contact CP31 sets out the principles an entity must adhere to in order to allow the recognition of financial mitigation techniques (e.g., financial derivatives) for Solvency Capital Requirement (SCR) purposes. It states the capital requirement should allow for an appropriate reduction to reflect the mitigation techniques in place while avoiding ... Continue Reading »
Solvency II – Summary of CEIOPS March Consultation Papers: Special Purpose Vehicles
Financial Intelligence Team Contact Special purpose vehicles (SPVs) are used to transfer insurance risks to the capital markets. This document addresses the authorization, regulatory requirements, and scope of supervisory review of SPVs under Solvency II. The requirements refer only to SPVs domiciled in the European Economic Area (EEA); SPVs established outside the EEA are not ... Continue Reading »
Solvency II – Summary of CEIOPS March Consultation Papers: Criteria for Approval of Ancillary Own Funds
Financial Intelligence Team Contact Own funds are comprised of "basic own funds" and "ancillary own funds." Ancillary own funds are only accepted as own funds under certain limited circumstances. Examples of ancillary own funds are unpaid common shares or letters of credit and guarantees. ... Continue Reading »
Solvency II – Summary of CEIOPS March Consultation Papers: Valuation of Assets and Other Liabilities
Financial Intelligence Team Contact Consultation Paper 35 sets out principles with regard to the valuation of assets and liabilities (other than Technical Provisions). The objective is to determine the economic (or fair) value of the assets and liabilities and the amount at which they could be exchanged between knowledgeable willing parties in an arm's length transaction. ... Continue Reading »
Solvency II – Summary of CEIOPS March Consultation Papers: Technical Provisions – Treatment of Future Premiums
Financial Intelligence Team Contact The first core principle is that a (re)insurance contract should be recognized as a contract when the entity becomes a party to it. The contract is deemed to have expired when its underlying obligations have expired. Any allowance for options (e.g., paying future premiums, increased cover) under a particular contract should only be taken into ... Continue Reading »
Solvency II – Summary of CEIOPS March Consultation Papers: Technical Provisions – Assumptions about Future Management Actions
Financial Intelligence Team Contact For Solvency II compliance, future management actions are primarily relevant in life insurance and should be reflected in the assessment of cash-flows (e.g., changes in asset allocations, bonus rates). The list of assumptions made on management actions provided by QIS 4 participants was deemed "to be indicative but not comprehensive or ... Continue Reading »
Solvency II – Summary of CEIOPS March Consultation Papers: Technical Provisions – Elements of Actuarial and Statistical Methodologies for the Calculation of the Best Estimate
Financial Intelligence Team Contact The best estimate is defined as "the probability-weighted average of future cash-flows, taking account of the time value of money (expected present value of future cash-flows) using the relevant risk-free interest rate term structure." It is to be calculated gross, with recoverables from reinsurance or special purpose vehicles (SPVs) ... Continue Reading »
Solvency II – Summary of CEIOPS March Consultation Papers: Technical Provisions – Lines of Business on the Basis of which (Re)insurance Obligations Are to Be Segmented
Financial Intelligence Team Contact (Re)insurance companies segment their obligations into homogeneous risk groups when calculating technical provisions. CEIOPS recommends a minimum level of segmentation for technical provisions and will continue developing its advice on segmentation, particularly with regard to health insurance. ... Continue Reading »
