The standard formula of Solvency II: a critical discussion (original) (raw)
Related papers
This paper aims to analyze Solvency II quantitative impact study made under conditions of undergoing legislative changes in the insurance market of European Union, called Solvency II regime. The main contribution of this paper is to present the analysis of quantitative and qualitative requirements, which insurers will have to meet under new Solvency II regime, how to escape mistakes during implementation period. Implementation into practice Solvency II Directive will help to increase the international competitiveness of EU insurance industry as they could reallocate own funds according the results of potential decrease or increase in solvency requirement relative to the standard formula.
Solvency II Assumptions for Increasing the International Competitiveness of EU Insurance Industry
Procedia - Social and Behavioral Sciences, 2014
This paper aims to analyze Solvency II quantitative impact study made under conditions of undergoing legislative changes in the insurance market of European Union, called Solvency II regime. The main contribution of this paper is to present the analysis of quantitative and qualitative requirements, which insurers will have to meet under new Solvency II regime, how to escape mistakes during implementation period. Implementation into practice Solvency II Directive will help to increase the international competitiveness of EU insurance industry as they could reallocate own funds according the results of potential decrease or increase in solvency requirement relative to the standard formula.
Financial management of insurance companies in the context of the new regime Solvency II
Proceedings of the International Conference on Business Excellence, 2017
The new solvency regime Solvency II represents a solid and harmonized prudential framework applicable by insurance companies in the European area. Solvency II was implemented in the European Union by adopting Directives 2009/138/EC respectively 2014/51/EU, replacing existing directives regulating solvency former regime, known as Solvency I. Thus, the new European legislation in insurance, applicable from 1 January 2016, was aimed at unifying the main European insurance market and ensuring consumer protection. The responsible authority at EU level with the implementation of the new solvency regime is EIOPA - European Insurance and Occupational Pensions Authority, which dealt in previous periods of testing the European market insurance through organizing quantitative impact studies (last exercise - QIS5, organized in 2011). The main standards derived from Solvency II and also the new IFRS accounting provisions, intended to increase the transparency of risk management and investment, i...
Solvency II: changes within the European Single insurance Market
2006
The changing global economy makes the European single market to be urgently reformed and adjusted to the new trends. It is of the special importance for the financial sectors determining a competitive development within the common structures. To respond successfully the Member States decided to reconstruct financial services in a way to make them much more flexible and better reacting towards the wider economic alterations. Therefore, the banking and insurance markets are undergoing revolutionary reforms in order to create a level playing field for the prudential supervisors and the companies by the same time fostering the integration processes within the EU.
Facing the Implementation Challenges of the Solvency II Directive
Revista Economica, 2014
This paper aims to bring together different perspectives and challenges that insurance companies will have to face when the Solvency II Directive will have to be implemented in January 1 st 2016. Starting with the quantitative requirements described in Pillar 1 of the Directive, a good risk management to support the insurers strategy and decision-making process and the implementation of the supervisory reporting, through partially or fully automated processes, this will all lead to a fundamental reform in insurance supervision and reach a new level of transparency, both for the authorities and the public.
The Challenge of Solvency Reform for European Insurers
The Geneva Papers on Risk and Insurance - Issues and Practice, 2006
The process of the European insurance companies' solvency reform has entered into an extremely active phase. The European Commission drafted a Framework to guide the process, which it amended over the summer of 2005. In parallel with the release of this Framework, the Commission launched three waves of consultations. To understand what is at stake with this reform, it is useful to begin by reviewing the reasons that led the Commission to initiate Solvency II in the first place, upon completion of Solvency I, and the conditions under which the process should be conducted. Then, we will turn to the principal orientations of the reform, with particular emphasis on six of them. Finally, we discuss seven of the most salient economic and financial issues at this point in the discussion. The fact that the Commission's work was not preceded by in-depth technical work, as was the case for the Basel Committee when it undertook banking solvency reform, gives us some idea of the magnitude of the task facing the Commission, which must not only invent new legislation better adapted to the realities of the European insurance industry, but also resolve a number of technical, economic and financial matters for which little or no consensus exists today.
Impacts of Solvency II Regulations on the Insurance Companies and their Operations
Scandic Journal Of Advanced Research And Reviews
To run a market smoothly, regulations are very important. These regulations worked as set of parameters for all business operators, managers and their key stakeholders of a specific domain to work under certain rules so that every business has equal opportunity to earn and expand their operations. In Europe since mid of 18th century several legislations were introduced to regulate the market to protect the rights of investors, business and their stakeholders and also to create a free and fair market for all. Insurance companies and their managers were facing a problem with dissymmetry of information which means that they either they do not share important information to each other or either the access to the information was a way costly for them. There was a need of monitoring the economic activities and setting certain requirements for licensing. Regulations, ethics and rules were being introduced since 1800s. after the mid of 20th century, a series of regulations were introduced t...
Theoretical Economics Letters
The Solvency II regulatory framework has been implemented as of January 1st, 2016 and among other things it introduced economic risk-based capital requirements across all EU Member States for the first time, applicable for insurance and reinsurance undertakings. Similar to Basel II whose scope is banks, the Solvency II directive provides a new regime based on three pillars for insurers and reinsurers: 1) pillar 1: harmonized valuation and risk based capital requirements, 2) pillar 2: harmonized governance and risk management requirements and 3) pillar 3: harmonized supervisory reporting and public disclosure. The Solvency Capital Requirement (SCR) should correspond to the Value-at-Risk of the basic own funds of an insurance or reinsurance undertaking subject to a confidence level of 99.5% over a one-year period. The Solvency II directive provides a range of methods to calculate the SCR. This allows insurance or reinsurance undertakings to choose a method that is proportionate to the nature, scale and complexity of the risk that is measured. In order to calculate the SCR, an insurance undertaking can use a fully internal model, the standard formula and a partial internal model, the standard formula with undertaking-specific parameters, the standard formula as it is or a simplification. When introducing a simplification, the SCR estimate could deviate from the calculation without the simplification. A simplification could lead in important/crucial information missing from the SCR calculation. In some occasions the SCR is overestimated and in some others it is underestimated. It is therefore of interest to find the range of this deviation, potential bounds-if any and the effect it can have on the required capital. In this paper we attempt to measure this deviation for simplifications pertaining to the interest rate risk for insurance companies.
Recent developments in the insurance regulation emphasize risk management. The European regulators are going to implement the new capital requirements that are directly based on the risk taken by insurance companies. This framework is called Solvency II and it is expected to be implemented in Europe in the next few years. In the paper we describe various approaches to risk measurement and management in insurance, and describe the potential implications of Solvency II on the Israeli insurance companies in terms of capital and their risk appetite. Our results are based on QIS2 study, and they indicate that under the new regulations Israeli insurance companies will be required to keep much more capital (or change their risk exposure). We provide some international comparison and try to send an early warning signal to the relevant parties (regulators and insurers).