Solvency 2 (S2) balance sheet and eligible own funds (EOF) – present value of asset and liability cash flows
S2 discount curve – swap rate, last liquid point, Ultimate Forward Rate (UFR), credit risk adjustment, matching adjustment, volatility adjustment
Case Study 3 – Illustrative calculation of S2 balance sheet and EOF resulting from a term life insurance policy, annuity and motor policy, arriving at Best Estimate of Liabilities by discounting estimated policy costs at S2 discount curve
Solvency Capital Requirement (SCR), Minimum Capital Requirement (MCR) and their calibration. S2 ratio
Case Study 4 – S2 ratios of major European insurance companies
Case Study 5 – What happens when insurance companies S2 ratios decline close to SCR? Delta Lloyd and Ethias
Overview of key SCR risk modules (market risks, life / non-life / health underwriting risks, counterparty default risk, operational risk)
Case Study 6 – SCR composition by risk module of major European insurance companies
Case Study 7 – Illustrative calculation of SCR for Case Study 3 balance sheet under standard formula
Case Study 8 – Sensitivity to market and underwriting variables of S2 EOF and S2 ratio in Case Study 3. Sensitivity to credit spreads, interest rates, equity prices, mortality risk, longevity risk, expense inflation and non-life underwriting risk
S2 EOF – eligibility criteria, components and limits. Restricted Tier 1, Tier 2 and Tier 3
Case Study 9 – S2 EOF composition of major European insurance companies
Standard formula v internal models (full and partial)
Case Study 10 – Which European insurance companies are using standard formula and which using internal model?
Diversification benefits
Implications of breaching SCR/MCR
S2 internal capital generation. New business profit. UFR drag
Case Study 11 – How material is UFR drag for life / life-heavy composite groups?
Case Study 12 – How much S2 capital is internally generated per annum by major European insurance companies?
Case Study 13 – How to read a Solvency Financial Condition Report (SFCR)
Own Risk and Solvency Assessment (ORSA)
Changes in latest Solvency 2 Review
In each case, which risks and products create a need for SCR? What stresses and correlations are applied to these risks under standard formula?
Underwriting SCR – Life – mortality, longevity, morbidity, expense, lapse, CAT and revision risks
Non-life – premium, reserve and CAT risks
Business adaptation – How S2 altered attractiveness of writing different life insurance products for insurance companies (IRRs and paybacks on traditional guaranteed savings, unit-linked and protection business across different countries); changes in Asset-Liability Management (ALM); in-force initiatives; hybrid products
Case Study 14 – Prudential Plc – Designing products in favour of higher IRR / shorter payback products
Capital mitigation options – How is reinsurance treated under S2 from cedant’s perspective? Insurance-Linked Securities (ILS) as an alternative to reinsurance and treatment under S2
Case Study 15 – Delta Lloyd – Longevity swaps with Reinsurance Group of America Inc to bolster S2 ratio
Interest rate risk – stresses applied across different durations under standard formula
Case Study 16 – S2-related interest rate risk management at a range of European insurance companies
Case Study 17 – How changing investment portfolio interest rate duration changes S2 interest rate risk SCR for illustrative business in Case Study 3
Credit spread risk – stresses applied across different ratings grades and durations under standard formula
Case Study 18 – How changing investment portfolio credit portfolio composition changes S2 credit spread risk SCR for illustrative business in Case Study 3
Equity, property, counterparty credit and FX risks – stresses applied
Harvesting illiquidity premia – the role of direct loans, infrastructure, project finance
Operational risk – what operational risk do insurance companies face?
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