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Flashcards in Solvency II Deck (13)
1

Three pillars of Solvency II

Quantification
Supervisory
Transparency

2

SCR

Solvency Capital Requirement -- companies with capital less than this are subject to regulatory intervention

3

MCR

Minimum Capital Requirement -- companies with capital less than this are not permitted to operate

4

SCR determination

99.5% VaR

5

Solvency II: Liability and Surplus division

Technical provisions (fair value of liabilities)
MCR
SCR (includes MCR)
Free surplus

6

SCR calculation

Standard formula
Internal models (need approval)

7

Solvency II: Internal audits

Produced at least annually about deficiencies in internal controls and compliance

8

ORSA

Own Risk and Solvency Assessment, Pillar 2 -- should contain solvency need, compliance with capital requirements, extend to which profile deviates from assumptions underlying SCR

9

Solvency II: Pillar 3

Provides means by which capital and regulatory position derived from pillars 1 and 2 are reported to markets

10

ORSA definition

Internal assessment of solvency need based on risk profile; defined as entirety of process and procedures employed to identify... short and long term risk faced or may face and determine solvency need

11

Solvency II risk margin discount rate

Equal to sum of risk free rate and illiquidity premium

12

Solvency II required assets, formula

PV(Payments + Risk Margin) + SCR

13

Differences between RBC and Solvency II

Required capital: S2 requires 99.5% VaR, RBC not based on modeled results
Reserves: Not discounted under RBC
Formulas: RBC consistent for all companies
Basis: S2 principle, RBC rules