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SOLVENCY II and Reinsurance
General Overview
The 2nd International Istanbul Insurance Conference 30th of September 2010
Solvency II - Key Factors
• Risk based approach
• Fair value basis– Reinsurance assets will be valued on BE
basis allowing for an expected loss and accounting for reinsurer rating
• Mitigating effect of reinsurance
Solvency II - CommentsThe industry is still very much in favour
of Solvency IIWith each wave of papers published by CEIOPS, the
consultation peiod has become shorter, and
insurers and regulators have limited numbers of qualified senior personnel available to
respond appropriately.
But capital requirements under Solvency II have yet to
be finalised, and larger insurers are growing
concerned with the current proposed calibration
The industry is currently focusing
on the cost of getting ready for
Solvency II
The function of reinsurance as a source
of medium – and long term capital is clearly
coming to the forefront of many reinsurance
buying strategies.S&P sees reinsurers as being one of the
principle beneficiaries under Solvency II, at least in the first few
years of the new regime
We are supportive of the principles, but the devil
is in the detail.
Solvency II
Solvency II
• Best Estimate
– It must be calculated Gross and the BE ceded
• Proporcional -> Full Benefit
• XL : Adjustment net to gross– Direct and proporcional reinsurance
» Only XL per risk and per Segment
• New possibilities for proporcional reinsurance
Solvency II
• Cat Risks
– Natural catastrophe Perils
– Man Made (NEW)
Natural Perils
– Standardised scenarios
• Based on Perils per country and Cresta
zones (EQ, Storm, Hail…)
• EEUU scenarios
• It must be calculaded Gross and then
calculate the reinsurance
• Possibility of buying reinsurance for these
scenarios
Man Made Cat
Standardised Scenarios Conclusions
Fire (explosion of a refinery) – Highly complex
Motor (Mont Blanc tunel)– High volume of
information
Marine Aircraft Health
– Possibility to be reinsured for these specific scenarios (NEW)
Catastrophes
• Factor based Method
Fixed FactorsEvents Line of business affected Gross Factor
Storm Fire and property; Motor, other classes 175%
Flood Fire and property; Motor, other classes 113%
Earthquake Fire and property; Motor, other classes 120%
Hail Motor, other classes 30%
Major fires, explosion Fire and porperty 175%
Major MAT disaster MAT 100%
Major motor vehicle liability disasters Motor vehicle liability 40%
Major third party liability disaster Third party liability 85%
Credit Credit 139%
Miscellaneous Miscellaneous 40%
NPL Property NPL Property 250%
NPL MAT NPL MAT 250%
NPL Casualty NPL Casualty 250%
Next Steps
• Preparing the figures
Details
• Do we have the information?
• Where can we get the information from?
• In which format do we have it?
• Are the details reliable?
• Can we exploit that information?
• Do we have the information detailed by reinsurers and its ratings?
• …..
Details
• YES -> Determine correctly our SCR
• NO -> We will have many difficulties and we might be penalized by a major requirement of the capital
Examples of needed details
• Best Estimate (BEL)– Triangles with the major number of years for segment Solvency II
• Premiums• Paid claims• Incurred claims• Expenses
• Life – Accident– Variation of the net value of the least passive assets
for several risks (mortality, longevity …)
Examples of needed details
• Reinsurance Estructure
– Proporcional – very easy (Gross to Net)
– Xl for risk only for segment • Average cost for claim• Number of claims• Priority / Limit
– Balance and BE calculation for reinsurance and rating
What can reinsurers do?
• Proporcional reinsurance
•XL per risk per segment
•Cat Risks: Programs based on SII scenarios
•Reinsuracne Rating (Long Tail)
•Risk transfer
•Optimization of the use of reinsurance
Thank you very much
Teþekkür Ederim
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