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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 appreciate why insurers get into distress and how the EU Solvency II Directive aims to prevent failures, and to identify the impact of the Directive 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
  • Understand the key proposals of the EU Solvency II Directive (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 risk 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 Insuranceare 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

A review of the challenges Solvency II aims to address: namely the key areas of heightened risk faced by different types of insurer.

Risk profile of insurers
  • Business risks of life and non-life insurers
  • Current issues in the operating environment
  • Exercise: vulnerable lines of business
  • Financial risk: poor quality and quantity of capital and liquidity risk
  • Internal vs external factors
  • Contagion risk vs. diversification benefits.
Signs of distress
  • Common themes in troubled insurance companies: growth, over-concentration in volatile markets, asset and liability mismatches, excessive investment risk
  • Symptoms of a company's deteriorating credit standing: financial and non-financial indicators.
SOLVENCY II OVERVIEW

The key differences between Solvency II and existing regulatory regimes, and the way in which capital and liabilities will be defined by Solvency II.

Existing solvency regulation:
  • Overview of current regulatory regimes in EU, US and Asia
  • Levels of prudence in technical provisions
  • Stress and scenario testing
  • Solvency II timescale.
Solvency II: Pillars I, II and III
  • 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
  • Exercise: Risk correlations
  • Principle of proportionality in regulation
  • The need to avoid pro-cyclicality
  • Supervision of groups; treatment of non-EU operations
  • Overview of pillars II and III: supervisory review and market discipline.
Technical provisions
  • Key liabilities for life and non-life insurers
  • Total financial resources: expected vs. unexpected losses
  • Discounting of liabilities; allowance for uncertainty; the "matching premium" and "counter-cyclical premium"
  • 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; fundability of capital
  • Solvency II: Basic Own Funds and Ancillary Own Funds; definitions of Tiers 1, 2 and 3.
Case study:

Insurance group with a risky capital structure

SOLVENCY II RISK MODULES

Relates the key risks faced by insurers to the risk charges as calculated under the proposed Solvency II standardised approach.

Underwriting and reserving risks
  • Key challenges: paucity of relevant data; competitive pressures; macro-economic factors; catastrophes; and litigation trends
  • Exercise: Nonlife pricing challenges
  • Exercise: impact of poor persistency for life insurers
  • 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 companies with high underwriting and reserving risks

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 and counterparty 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 companies with high investment risk

Operational risk
  • Key operational risks faced by insurance companies
  • Factor-based operational risk charges under Solvency II
CORPORATE GOVERNANCE

Explains how the key elements of Pillars 2 and 3 of Solvency II are intended to improve both corporate governance and internal risk management in insurance companies and groups.

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

Evidence of weak management and lack of integrity

Group issues
  • Contagion risk; correlation of ancillary businesses
  • Group supervisor; group support regime; Solvency II equivalence.
Case study:

Impact of investment risk and contagion risk on a major insurance conglomerate

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.
Liquidity risk
  • Sources of liquidity and potential drains on liquidity
  • Cash flow management; avoiding liquidity risk in product designs and financial transactions; managing life policy persistency
  • Treatment of liquidity risk in Solvency II.
Pillar 3: 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: capital, enterprise wide risk management, risk mitigation, product design and investment strategy
  • Exercise: Impact of SCR Risk Charges on key life insurance products
Case study:

Impact of Solvency II on a large European insurer.

Workshop Times

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: 10-15 minutes are taken mid morning and mid afternoon.
Please make your course selection
Frankfurt - £1,995 + 19% VAT
2 - 3 December, 13
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London - £1,995 + 20% VAT
2 - 3 October, 13
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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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Client Comments
"Very good, professional and great material. Teacher was very patient and took questions throughout the course. Very good."
- Reena Patel
- Royal Bank of Scotland
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