1. September, 2010

2. Solvency II
Solvency is a set of directives for insurance companies
involving the companies’ vision, their risk appetite, governance
methodology, data quality and new rules of risk management
that is translated to Capital Requirements
Solvency II is a big shift in the management culture of the
Insurance Industry. It places risk management at the core of
insurance companies activities.
Solvency II is a modus vivendi, not just one set of reports. It is
a give and take way of doing business between companies and
regulators.
It will be dynamic and will be developed with time.

3. Risk = Capital
Assets
(Detailed
Rules or
Market
Value)
Technical
Provisions
SCR
Free
Capital
MCR
Insurance risk
Market risk
Credit risk
Other risks
Capital Requirement
Operational risk

4. The Influence of Solvency II According to IBM

5. September, 2010

6. Solvency II Three Pillars - Pillar I
• The focus of the Pillar I framework is capital adequacy and how to calculate it
 Technical Provisions
• Represents the current amount a company would have to pay for an immediate
transfer of its obligations to a third party
• Future cash-flows from obligations towards policyholders and beneficiaries of
insurance contracts valued using best estimate assumptions
 Solvency Capital Requirement (SCR)
• Capital to be held by the company in order to ensure that ruin occurs no more
often than once in every 200 cases
• Corresponds to the Value-at-Risk of the net assets of the firm subject to a
confidence level of 99.5% over a one-year period
• Can be calculated:
– Standard formula given by the regulators
– Internal model developed by the company
• MCR
– Level of capital below which authorisation could ultimately be withdrawn
– MCR = Max(absolute MCR, calculated MCR)

7. Solvency II Three Pillars - Pillar II
• Pillar 2 focus are the requirements for governance, risk management and supervision
• Overall Governance
 Internal controls and risk management
 Enterprise-wide visibility to key information
 Consistent risk management
• Development of a risk strategy
 Definition of risk tolerance and risk appetite
 ORSA own risk and solvency assessment
• SRP Supervisory Review Process

8. Solvency II Three Pillars - Pillar III
• The focus of Pillar 3 is transparency
 Regulatory reporting
 Transparent market disclosure
 Providing consistent information on a timely basis

9. Task Definition and Timetable
Roles, Responsibilities and Accountability
Governance
Project Schedule
Gap Analysis
Vision Definition
Goals
Internal Models or
Standard Formula
Risk Appetite
Risk Tolerance
Solvency II Directives

10. Vision Definition
• Our goals, how do we intent to implement the compliance requests
• Risk appetite and risk tolerance definition
• What are the issues we expect to have a positive impact on the
business
• In which subjects we want to limit ourselves to pure and simple
compliance
• The main question: Standard formula or internal models
 How much will it cost us the past of internal models
 How much it will cost us not to use internal models

11. September, 2010

12. Consultation Papers – First waveTitle of Consultation Paper (CP) # of CP # of
Pages of
CP
Pillar # of feed
back papers
Technical Provisions – Elements of actuarial and statistical
methodologies for the calculation of the best estimate
26 13 I 24
Technical Provisions – Lines of business on the basis of which
(re)insurance obligations are to be segmented
27 10 I 23
SCR Standard Formula – Counterparty default risk module 28 29 I 23
Own funds – Supervisory approval of ancillary own funds 29 15 I 18
Technical Provisions – Treatment of future premiums 30 11 I 24
SCR Standard Formula – Allowance of financial mitigation
techniques
31 12 I 21
Technical Provisions – Assumptions about future management
actions
32 11 I 22
System of Governance 33 67 II 32
Transparency and Accountability 34 16 III 17
Valuation of assets and “other liabilities” 35 37 I 23
Special Purpose Vehicles 36 34 II 15
The procedure to be followed for the approval of an internal
model: General provisions and some specificities related to
partial internal model
37 50 II 27

13. Title of Consultation Paper (CP)
# of CP # of Pages of
CP
Pillar
Procedure to be followed for the approval of a group internal model 37A 21 II
Technical Provisions - Best Estimate 39 67 I
Technical Provisions - Risk Free Interest Rate 40 45 I
Technical Provisions - Calculation as a whole 41 12 I
Technical Provisions - Risk Margin 42 54 I
Technical Provisions - Standards for Data Quality 43 20 I
Technical Provisions - Counterparty Default Adjustment 44 10 I
Technical Provisions - Simplifications 45 55 I
Own Funds - Classification and Eligibility 46 42 I
SCR Standard Formula - Market Risk 47 41 I
SCR Standard Formula - Non-life Underwriting Risk 48 49 I
SCR Standard Formula - Life Underwriting Risk 49 51 I
SCR Standard Formula - Health Underwriting Risk 50 52 I
SCR Standard Formula - Counterparty Default Risk 51 36 I
SCR Standard Formula - Reinsurance Mitigation 52 13 I
SCR Standard Formula - Operational Risk 53 20 I
SCR Standard Formula - Loss Absorbing Capacity of Technical Provisions 54 38 I
SCR Standard Formula - MCR calculation 55 20 I
Tests and Standards for Internal Model Approval 56 202 II
Capital add-on 57 73 II
Supervisory Reporting and Disclosure 58 143 III
Remuneration 59 14 II
Group Solvency Assessment 60 56 II
Intra-group Transactions and Risk Concentration 61 16 II
Cooperation and Colleges of Supervisors 62 39 II

14. Consultation Papers – Third wave
Title of Consultation Paper (CP)
# of CP # of Pages of
CP
Pillar
Repackaged loans investments 63 23 I
Extension of Recovery Period 64 20 I
Partial Internal Models 65 105 I
Group Solvency for Groups with centralised risk - management 66 30 I
Treatment of Participations 67 29 I
Treatment of ring fenced Funds 68 25 I
Design of the Equity risk sub-module 69 47 I
Calibration of the market risk sub-module 70 51 I
Calibration of the non-life underwriting risk 71 I
Calibration of the health- underwriting risk 72 I
Calibration of the MCR 73 15 I
Correlation parameters 74 28 I
Undertaking Specific Parameters for SCR 75 72 I
Simplifications for Technical Provisions 76 110 I
Simplification for SCR 77 31 I
Simplifications for Captives 79 24 I
Submitted Papers 2004-2009

15. Date Document title
12.10.2010 3L3 Task Force Report on PRIPs
31.08.2010 CEIOPS Cover letter / CEIOPS Advice to the European Commission - Equivalence assessments to be undertaken in relation to Articles 172, 227 and 260 of the
Solvency II Directive
02.08.2010 CEIOPS general message as to EC Green Paper on Pensions
30.06.2010 JCFC Letter to EC on Annual notification of Financial Conglomerates / List of financial conglomerates (June 2010)
15.06.2010 CEIOPS Cover letter on Catastrophe Task Force Report / CEIOPS Catastrophe Task Force Report on Standardised Scenarios for the Catastrophe Risk Modudule
in the Standard Formula
15.04.2010 CEIOPS main background document for Level 2 advice as to calibration
08.04.2010 CEIOPS Cover Letter on final set of Solvency II final L2 advice to EC / CEIOPS Feedback statement on the final set of Solvency II final L2 advice to EC
CEIOPS' Advice for L2 Implementing Measures on SII: Calibration of the MCR / CEIOPS' Resolutions on Comments Received
CEIOPS' Advice for L2 Implementing Measures on SII: Calibration of Health Underwriting Risk / CEIOPS' Resolutions on Comments Received
CEIOPS' Advice for L2 Implementing Measures on SII: Calibration of Non-life Underwriting Risk / CEIOPS' Resolutions on Comments Received
01.04.2010 CEIOPS Cover Letter to EC / CEIOPS' Advice for L2 Implementing Measures on SII: Technical Criteria for assessing 3rd country equivalence in relation to art.
172, 227 and 260 / CEIOPS' Resolutions on comments received
03.03.2010 Task Force Report on the Liquidity Premium / CEIOPS Cover Letter
29.01.2010 CEIOPS Cover Letter on 3rd set of Solvency II final L2 advice to EC / CEIOPS Feedback statement on the 3rd set of Solvency II final L2 advice to EC
CEIOPS' Advice for L2 Implementing Measures on SII: Simplifications/Specifications for captives / CEIOPS' Resolutions on Comments Received (former
Consultation Paper no. 79)
CEIOPS' Advice for L2 Implementing Measures on SII: Simplified calculations in the standard formula/ CEIOPS' Resolutions on Comments Received (former
Consultation Paper no. 77)
CEIOPS' Advice for L2 Implementing Measures on SII: Simplified methods and techniques to calculate technical provisions / CEIOPS' Resolutions on Comments
Received (former Consultation Paper no. 76)
CEIOPS' Advice for L2 Implementing Measures on SII: Undertaking specific parameters / CEIOPS' Resolutions on Comments Received (former Consultation Paper
no. 75)
CEIOPS' Advice for L2 Implementing Measures on SII: SCR Standard Formula - Correlations / CEIOPS' Resolutions on Comments Received (former Consultation
Paper no. 74) Annex - IA
CEIOPS' Advice for L2 Implementing Measures on SII: Calibration of Market Risk Module / CEIOPS' Resolutions on Comments Received (former Consultation
Paper no. 70)
CEIOPS' Advice for L2 Implementing Measures on SII: Equity risk sub-module / CEIOPS' Resolutions on Comments Received (former Consultation Paper no. 69)
Annex - IA
CEIOPS' Advice for L2 Implementing Measures on SII:Ring-Fenced Funds / CEIOPS' Resolutions on Comments Received (former Consultation Paper no. 68)
CEIOPS' Advice for L2 Implementing Measures on SII: Treatement of participations / CEIOPS' Resolutions on Comments Received (former Consultation Paper no.
67)
Annex - IA
CEIOPS' Advice for L2 Implementing Measures on SII: Supervision of Group Solvency for Groups with Centralised Risk Management/ CEIOPS' Resolutions on
Comments Received (former Consultation Paper no. 66)
CEIOPS' Advice for L2 Implementing Measures on SII: Partial internal models / CEIOPS' Resolutions on Comments Received (former Consultation Paper no. 65)
Annex - IA
CEIOPS' Advice for L2 Implementing Measures on SII: Extension of the Recovery Period / EIOPS' Resolutions on Comments Received (former Consultation Paper
no. 64)
Annex - IA
CEIOPS' Advice for L2 Implementing Measures on SII: Repackaged Loans Investment / CEIOPS' Resolutions on Comments Received (former Consultation Paper
no. 63)

16. RISKS
Market Risks
Credit
Risks
Operational
Risks
Liquidity
Professional
Negligence
Fraud
Concentration
Risk
Portfolio
Retention
Catastrophe
Asset –
Liabilities
Risk
Recession
Financial and
Economical
Situation
Investment
Risk
Underwriting
Risk
Mortality
Risk
Morbidity
Risk
Longevity
Disability
Risk
Lapse
Risk
•Shares Risk
•Interest-rate Risk
•Exchange-rate Risk
•Real-estate Risk

18. • Clear definition of:
 Roles
 Responsibilities
 Accountability
• Board members, sub-committees of the board, senior management
• ‘Fit’ and ‘Proper’ requirements
• Regular internal review of governance
• Structure
• Documentation
Governance

19. • Governance structure must include SII-prescribed functions
 Risk Management
 Internal Control
 Compliance
 Internal Audit
 Actuarial
Pillar II Governance Structure

20. • Documentation required of governance policies and processes
 Emerging risks – processes to identify and manage
 Loss events - record, monitor, report and analyse trends
 Key risks - measure, track, manage and report all key risks
 Own Risk Self Assessments (ORSA) through Risk & Control Self
Assessments
 Audits - automatic generation and distribution of audits, record audit
findings, create actions, monitor and track progress
 Data - collection of quality and consistent data for all reporting purposes
Pillar II Governance Documentation

21. THANK YOU