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Flashcards in Solvency II Deck (20):

What are the key objectives of SII?

1. Increase harmonisation of solvency regs across Europe
2. Protect policyholders
3. Introduce europe-wide capital requirements that are more sensitive to levels of risk being undertaken
4, Provide appropriate incentives for good risk management


What is the Solvency I requirement in UK? What makes it crap?

Only covers insurance risk. Not market/credit/ops


What are the gross premium income and gross technical provisions which mean SII will be required?

GPI = 5m euro
GTP = 25m euro


What are the 3 Pillars in Solvency II

1 = quantitative requirements
2 = qualitative requirements and supervisor review
3 = reporting, disclosure, market discipline


In pillar 1, what is calculated?

The following on a market consistent basis:
1. Balance sheet
2. SCR (standard formula or IMAP)
3. MCR


What must be held in addition to the SCR and MCR?

1. Technical provisions


What is Pillar 2 in SII like? What is calculated here?

1. It's like the ICG where supervisors may decide firm needs to hold additional capital above Pillar 1 calcs
2. An ORSA is required


What is an ORSA required to do? Which Pillar is the ORSA in?

1. Identify risks exposed
2. Identify risk management and controls processes
3. Quantify ongoing ability to meet SCR/MCR
4. It's in Pillar 2, but also required to be disclosed to regulator in Pillar 3


What functions is an insurer required to have under the Governence requirements of the Qualitative/supervisory Pillar

1. RM
2. Actuarial
3. Compliance
4. Internal audit
With clear segregation of responsibility


Describe what risks need to be assessed in ORSA?

1. All risks and their related management and controls
2. Includes some not in Pillar 1 e.g. reputational risk


Describe the solvency assessment in ORSA?

1. This is like the DCAT/Plan
2. Show can meet MCR/SCR over 3-5 years (business planning horizon) allowing for NB
3. No confidence level applies but should be at level company feels appropriate e.g. if targeting credit rating


In relation to the ORSA what will senior management have to prove?

It's used by senior management and considered in strategic decisions


What is solvency 2 pillar 3 about?

Disclosure and reporting requirements


What is privately reported under pillar 3 and how often?

The regular supervisory report including:
Qualitative information
Quantitative reporting templates (QRT)

Annual submission although under certain conditions summary of material changes may be submitted

Part of the QRT to support MCR calculation needed quarterly.


What might the QRT cover?

1. Balance sheet
2. Own funds (some quarterly)
3. SCR/MCR (quarterly)
4. Assets (some quarterly)
5. Technical provisions (some quarterly)
6. Reinsurance
7. Variation analysis


What information will be publicly disclosed under pillar 3? What is this report called?

Extracts from QRT unless confidential items
Some qualitiative information from RSR
It's called solvency and financial condition report (SFCR)


What is the QRT/RSR/SFCR and what kinds of things do they contain?

QRT = quantitative reporting template (balance sheet, SCR/MCR etc.)
RSR = regular supervisory report (includes QRT/qualitative info/orsa)
SFCR = solvency and financial condition report (contains public parts of QRT/RSR)


What are the group related solvency requirements under SII?

1. Each group must cover its overall group SCR - accounts for diversification between group is subject to a minimum SCR of the sum of the MCR's for the group
2. Each insurance subsidiary must cover its own SCR


What are the rules applying to subsidiaries or parent companies outside the EEA?

1. non-EEA parent (e.g. SLOC) = establish EU holding company
2. non-EEA subsidiary e.g. L&G Bermuda = SII requirements or SII equivalence if country has agreement


What will be the likely impacts on business culture and strategy of SII?

1. Risk management framework has implications for capital allocation, risk mitigation and performance management
2. Impacts optimal product mix and on design
3. Optimal asset mix changes, some assets to become better as lower capital requirement
4. Corporate structure changes and M&A's due to risk diversification benefits
5. MI to change to align with new metrics
6. External disclosures change/increase so knock on impact on market