SCR – Solvency Capital Requirement

The SCR – Solvency Capital Requirement - is the higher of the two capital requirements under Solvency II. The lower is the MCR. In most cases the Standard Formula is used to calculate the SCR. Once the SCR is calculated it is usually presented as a ratio of Own Funds. The five major components of the SCR is: Market Risk Underwriting risk for life, non-life and health Counterparty Default Risk…

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LAT – Liability Adequacy Test

International Financial Reporting Standard 4 required liability adequacy testing (LAT). In non-life insurance, the most important components of LAT are run off analysis for claims provisions and unexpired risk reserve (URR) calculation. URR is defined as a prospective assessment of the amount that needs to be set aside in orders to provide for the claims and expenses which will emerge from unexpired risks and which is over and above the unearned premium reserve…

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Q&A on Regulation

EIOPA has published a new set of Q&A on the Solvency II regulation. Among the content is: (EU) No 2015/2450 with regard to the templates for the submission of information to the supervisory authorities 29-Jun-2017 Commission Delegated Regulation (EU) 2015/35 supplementing Directive 2009/138EC Have a look at the link at the top in this post for the latest updates on regulation from EIOPA.

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IFRS Reserving – Life

Life insurance reserves are generally longer term than non-life reserves. It is also common that they include a savings element. Meaning that the future liabilities are offset by for instance the value in a fund, accounted for on the asset side of the balance sheet. Savings contracts Withing life insurance there are many different kinds of contracts. For instance the straight forward 1-year deaths policies or longer contracts as the…

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Unallocated or Allocated

ULAE vs. ALAE Definition Loss adjustment expense is the cost incurred by the insurer at the time of settling claims. Description These expenses arise since insurers need to prove the truthfulness of the event that has caused the insured to ask for claim. Insurers then need to investigate and verify the event before settling claims. This is a pivotal component as the absence of such a mechanism can lead to…

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Embedded Value – EV

Embedded Value (EV) or Market Consistent Embedded Value (MCEV) describes the value embedded in the business. This is typically mostly used in the life business because of the longer term of the insurance contracts. The traditional measures are not always accurate. Hence the need for MCEV. Balance sheet The balance sheet measure assets & liabilities. Because of that it does not really take into account unrealised gains and losses. Profit…

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Solvency II – Day 1

Definition The 1 January 2016 is referred to as Solvency II Day 1. The European wide regulation is in-force ever since. Find the summary here. Concept The concept of Day 1 reporting is described below. All firms that have a company year-end falling on or between 31 December 2015 and 29 June 2016 are required to submit opening Solvency II information, commonly referred to as Day 1 reporting. Firms with…

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IAS 19 – Employee Benefits

Introduction The accounting standard IAS 19 Employee Benefits prescribes rules for recognition of various types of benefits that employers provide to employees. Purpose Main objective of IAS 19 is accounting and disclosure for employee benefits. IAS 19 requires recognition of: a liability when an employee provides their service (work) in exchange for employee benefits (e.g. pension), paid in the future an expense when the entity consumes the economic benefit arising from service…

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IFRS Reserving – Non-Life

Introduction Insurance is about sharing risk. At the balance sheet of any insurance company the technical provisions is likely to be an important item. Both in terms of size and in terms of uncertainty. Increasing or decreasing technical provisions has a direct impact on the company’s result. Since setting reserves is about estimating future events there will always be uncertainty involved and the process will at some stage require the…

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Events Not In Data

The concept of Events Not In Data - ENID - is new in terms of terminology. It has also been called Binary Events. It refers to events that may happen in the future and then have a negative impact on the companies loss-ratio. The Low Frequency High Severity events is likely to be included here. Asbestos was an example of a typical ENID. Nowadays since these are in the data…

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