IFRS Seminar – Solvency II.pptVIP

IFRS Seminar – Solvency II Topics Introduction of Solvency II Capital What is and why develop Solvency II? Case Study – Management of Economic Capital Example – EC of a Traditional Life Insurer Practical Considerations How to Manage it? Summary Topics Introduction of Solvency II Capital What is and why develop Solvency II? Case Study – Management of Economic Capital Example – EC of a Traditional Life Insurer Practical Considerations How to Manage it? Summary Introduction – Why Solvency II is needed? Solvency I Capital Different from company’s economic capital requirement Undefined level of prudence Limited recognition on diversifying benefits Greater prudence in technical provisions lead to increased solvency margin for life companies Different insurers have different interpretation of valuation of liability Limited credit on risk management quality Introduction – Why Solvency II is needed? Introduction – Pros and Cons? Aims of EU Regulator: Improved consumer protection Uniform standards for all EU entities Market integration with other financial institutions (Basel II) Better risk management by insurers Pros: Reduced capital requirements for insurers with good risk management Improved share price performance for better disclosure Cons: Extensive reporting and administrative requirements Methodology not consistently well-suited to all insurance markets Still under development, with effect from 2012 Introduction - What is Solvency II? Basic architecture Pillar 1: Quantitative requirements Minimum capital level Pillar 2: Qualitative requirements Need to integrate capital management with day-to-day operations Rigorous processes for identifying, measuring and managing risk Pillar 3: Disclosure requirements Regular publication of solvency information to regulators and the public Introduction – What is Solvency II? Pillar 1 Minimum capital level Value at risk concept Introduction – What is Solvency II? Pillar 1 Minimum capital level Required capital to