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Solvency II

A two-day workshop offering an in-depth review of the rationale, application and implications of the EU Solvency II directive. A case study based workshop focusing on risk based capital management, supervisory early warning signal triggers, eligible capital and corporate governance implications.


Course Objectives

The overall goal of this two day workshop is to review the impact of Solvency II regulation on the business and capital strategy, risk management and financial standing of insurance companies.

Specifically the workshop will address the following topics:

  • Recognise the key vulnerabilities of insurance companies that Solvency II is aiming to address and how this will fit into an early warning system for supervisors, creditors and investors
  • Understand the key proposals of the EU Solvency II Directive (minimum capital requirements, supervisory review process and public disclosure) and appreciate how these will be applied
  • Understand how both general and product-specific risks faced by life and non-life insurers and reinsurers will be addressed by Solvency II requirements
  • Anticipate the impact of Solvency II on company strategy and on risk and capital management.

Target Audience

Insurance professionals, analysts, risk managers, regulators, bankers, and auditors, but is also appropriate for a broader audience who wish to gain insight into changing solvency rules for insurance companies. The course is targeted at an intermediate level and assumes a basic understanding of insurance business lines and risks as well as accounting.

FitchTraining has a number of other workshops which address related topics. Our analytic workshops are all complementary to the Solvency II and can be taken either before or after. The workshops: Introduction to Insurance Financial Statements, Insurance Company Analysis and Early Warnings signals in Insurance are targeted respectively at an introductory, intermediate and advanced level. Related workshops on the banking side include Basel II and III: Bank Capital Adequacy and Risk Management in Banks and the Capital Implications.

Pre Course
Review of insurance products
  • Non-life: short-tail vs. long-tail lines; personal vs. commercial insurance; proportional vs. non-proportional reinsurance
  • Life products paying on death, survival or ill health; lump sum vs. income benefits
  • Investment bases for life contracts: unit-linked, with profits, guaranteed, interest-sensitive.

Content

RISK OVERVIEW

The goal of this section is to review the challenges Solvency II is aiming to address: namely the key areas of heightened risks faced by different types of insurer.

  • Minimum guaranteed benefits and options under unit-linked (variable) contracts.
Risk profile of insurers
  • Business risks of life and non-life insurers
  • Financial risk: ability to withstand heightened levels of liquidity and solvency risk
  • Contagion risk vs. diversification benefits.
Signs of distress
  • Common themes in troubled insurance companies: rapid growth, over-concentration in volatile markets, asset and liability mismatching, excessive investment risk
  • Exercise: Causes of distress.
SOLVENCY II OVERVIEW

The goal of this section is to understand the key provisions of the Directive and how these compare with existing regulatory regimes in major insurance markets.

Existing solvency regulation:
  • Overview of current regulatory regimes in EU, US and Asia
  • Total financial resources required of insurers: technical provisions vs capital requirements
  • Levels of prudence in technical provisions
  • Stress and scenario testing
  • Solvency II timescale.
Solvency II: Pillars 1, 2 and 3
  • Minimum capital requirement (MCR) vs. solvency capital requirement SCR; internal models vs. factor-based approach proposed; correlated and non-correlated risks; confidence levels and time horizon
  • Principle of proportionality in regulation
  • Contract boundaries
  • Overview of pillars II and III: supervisory review and market discipline.
Solvency II: technical provisions
  • Key liabilities for life and non-life insurers
  • Total financial resources: expected vs. unexpected losses
  • Discounting of liabilities; allowance for uncertainty
  • Treatment of investment guarantees and discretionary benefits in life contracts
  • Market-consistent liabilities and risk margin: hedgeable vs. non-hedgeable risks; comparison with IFRS accounting rules.
Eligible capital
  • Types of capital: shareholder, regulatory and economic capital
  • Quality of capital: financial leverage; double leverage; intangible vs. tangible net worth; dependence on hybrid capital; fungibility of capital
  • Solvency II: Basic Own Funds and Ancillary Own Funds; definitions of Tiers I, II and III.
  • Treatment of future profits from in-force business.
Financial risk case study:

Insurance company with low quality capital

SOLVENCY II RISK MODULES

The goal of this section is to review the risk calculations of the Solvency II regulations both under the standardised and internal models approach.

Underwriting and reserving risks
  • Key challenges: paucity of relevant data; competitive pressures; macro-economic factors; catastrophes; and litigation trends
  • Pillar 1: proposed underwriting risk modules
  • Risk mitigation: impact of ceded reinsurance and securitisation (eg catastrophe bonds and ISPVs) on capital requirements
  • Pillar 2 - Risk management processes: catastrophe risks and portfolio mix; non-life reserving techniques; collateralising reinsurance recoverables.
Case study:

insurance company with high underwriting and reserve risk

Investment risk (market, credit and interest rate risk)
  • Key asset and liability management challenges: paucity of appropriate assets in emerging markets; balancing investment performance and backing contractual obligations; policyholder optionality; over-exposure to issuers and sectors; asset valuation challenges
  • Pillar 1: proposed investment risk modules; loss absorbency of technical provisions
  • Pillar 2: risk management processes: asset/liability management; investment concentrations; credit quality; duration matching; hedging of options and guarantees; stochastic modelling.
Case study:

Insurance company with high investment risk

Liquidity risk
  • Sources of liquidity and potential drains on liquidity
  • Pillar 2: Cash flow management; avoiding liquidity risk in product designs and financial transactions; managing life policy persistency.
Operational risk
  • Key operational risks faced by insurance companies
  • Factor based and internal models approaches to quantification
  • Processes and systems required to measure and mitigate operational risk.
CORPORATE GOVERNANCE

The goal of this section is to review the key elements of Pillars II and III of Solvency II and understand how they will be used to improve both corporate governance and internal risk management in insurance companies.

Risk management
  • Enterprise risk management: IAIS guidance
  • Significance of company's strategy and ownership.
Case study:

Evidence of weak management and lack of integrity

Pillar 2 requirements
  • Key components of Own Risk Solvency Assessment: risk appetite; risk identification and assessment; risk measurement; risk reporting; link to business strategy; stress testing; governance structure
  • Supervisory reviews
  • Capital add-ons.
Group issues
  • Contagion risk
  • Group supervisor; group support regime; Solvency II equivalence.
Case study:

Lessons learned for group solvency and supervision from a failed insurance group

Pillar III: disclosure
  • Public disclosure: solvency and financial condition report
  • Disclosure to regulator: report to supervisors.
IMPLICATIONS OF SOLVENCY II
  • Impact of Solvency II on insurance company strategy: group structures; capital, enterprise wide risk management, risk mitigation, product design and investment strategy
  • QIS 5 Results: the countries, types of insurer and lines of business which will be most challenged
Case study:

Impact of Solvency II on a large EU insurer.

Workshop Times

Below are typical timings for our courses; upon registration we shall advise you if these have changed.

Breakfast: 8.30am
Course Start: 9.00am
Course End: Between 5.00pm and 5.30pm
Lunch starts between 12.30pm and 1.00pm, and lasts no longer than 1 hour.
Short breaks of 10 - 15 minutes are taken mid morning and mid afternoon.


Please make your course selection
London - £1,995 + 20% VAT
8 - 9 October, 12
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The majority of Fitch Training programmes are offered at an intermediate and advanced level. There are no specific prerequisite courses to attend our programmes, however some topic knowledge maybe required. Please refer to the target audience on the course page for more details.

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The majority of Fitch Training programmes are offered at an intermediate and advanced level. There are no specific prerequisite courses to attend our programmes, however some topic knowledge maybe required. Please refer to the target audience to see what level of prior knowledge is required for a specific course.

The pre-course reading materials will be sent to each participant in preparation for their attendance on the course.

Client Comments
"A thoroughly enjoyable and very hands-on experience."
- Marta Hughes
- European Investment Bank
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