EIOPA Stress Test 2018-2019

EIOPA plans to release a stress test report in January 2019. Regular tool Stress tests are one of the regular supervisory tools used to assess the resilience of the insurance sector. 2018 Test The 2018 exercise is tailored to assess the vulnerability of the European insurance sector to specific adverse scenarios and will be based on a sample of 42 insurance groups. The scenarios encompass a wide range of risks,…

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Solvency Ratios – SCR, MCR

The Solvency Capital Requirements and the related solvency ratios (SCR Ratio) describes the concept of having assets available to cover your liabilities. In other words, if you have more assets than liabilities then you are solvent. The requirement itself is an amount in the company's functional currency. The ratio is a percentage. Solvency Capital Requirement Since Solvency II came into force at 1 January 2016 the rules for required capital…

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Q&A on Regulation

EIOPA has published a new and updated Q&A on Solvency II regulation. It covers both the 2015/35 and 2015/2450. Contents as per below, Answers to (EU) No 2015-35 supplementing Directive 2009-138. Answers to (EU) No 2015-2450 - templates for the submission of information to the supervisory authorities. Answers to (EU) No 2015-2451 - templates and structure of the disclosure of specific information by supervisory authorities. Answers to guidelines on valuation…

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Risk Free Rate

The Risk Free rate is considered the interest rate that can be achieved without risk, typically from government bonds. The actual rate varies depending on maturity and currency. In recent years it has been a low-rate environment in general which is reflected in the latest interest rates too. This low interest rate is generally a challenge for the insurance companies since part of their business model involves investment income. EIOPA…

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MCR – Minimum Capital Requirement

The concept of the MCR (Minium Capital Requirement) is rather straightforward. Under the Solvency II regime it is the minimum capital requirement for an insurance company to write business. If the SCR (Solvency Capital Requirement) is breached it is a serious matter. If the MCR is breached it is even worse. Find out how it is calculated below. Calculation The calculation of the MCR follows 5 steps. 1)  Calculate the…

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Binary Events

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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Quantitative Reporting Templates

Since implementation of Solvency II on 1 January 2016 insurance companies (in the wider sense) should report QRTs (Quantitative Reporting Templates) quarterly to their supervisor. Some of templates only has to reported yearly. The main templates are: S.02  Balance sheet S.23  Own Funds S.25  SCR S.28  MCR S.12/S.17  Technical Provisions The templates are available here, and through several software programs. Detailed rules are available in the Commission Implementing Regulation, please…

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Non-Life Technical Provisions – Solvency II

Introduction A previous post focused on IFRS reserves. This post is focusing on Solvency II reserves. Some of the Solvency II requirements for technical provisions are challenging compared to the IFRS requirements. The regulation is spread over the Directive – Level 1 and Level 2 and 3. The aim of this text is to provide tidy and useful insights on the subject. The Why Technical provisions are usually the largest…

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Audit – explained in 5 steps

For a financial statement audit the overall objective is to gather enough audit evidence to be able to issue an opinion, on management assertions.   Phases of the work Management Assertions One way to describe these are through the below six items, PCAOB/ASB Key Question Procedures Completeness All transactions recorded? In the right period? Inspection, tracing/vouching Existence Assets really exist? Transactions really occurred? Inspection Accuracy Transactions recorded accurately? Inspection Valuation…

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