| Survival guide to Solvency II |
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With the race to fully implement the EU’s insurance directive, Solvency II, by 2012, attention is turning towards the insurance industry.
Following on from Samia Ahmed-Hossain’s article on page 8, the following is a brief list of necessary insurance terms. |
Asset-liability management (ALM): The management of an insurer’s assets with specific reference to the characteristics of its liabilities so as to optimise the balance between risk and return.
Best estimate: The probability-weighted average also referred to as the mean. The estimation process is unbiased and based on all currently available information including information of currently observable trends, but excluding effects from events not yet occurred.
Eligible capital: Also termed available solvency margin. Capital (either on or off-balance sheet) which, under regulatory rules, may be taken into account (fully or partially) in determining the insurer’s available capital for solvency purposes.
Hedgeable risk: A risk associated with an asset or an obligation that can be effectively neutralised by buying or selling a market instrument whose value is expected to change in such a way as to offset the change in value of the asset or liability caused by the presence of the risk.
Insolvency: The point at which under national bankruptcy procedures the owner looses ownership rights andor the policyholders are not longer entitled that the contracts are orderly settled.
Minimum capital requirement (MCR): The capital level representing the final threshold that triggers ultimate supervisory measures in the event that it is breached.
Risk Margin: A generic term, representing the value of the deviation risk of the actual outcome compared with the best estimate expressed in terms of a defined risk measure
Solvency capital requirement (SCR): The amount of capital to be held by an insurer to meet the Pillar I requirements under the Solvency II regime.
Supervisory review process (SRP): In the context of Solvency II, described the process that enables the supervisory authority to evaluate, on an ongoing basis, that the undertaking fulfils all relevant regulatory requirements.
Surplus capital: Term commonly used to refer to that part of the available solvency margin that is held by an insurer in excess of the Solvency Capital Requirement.
Technical provision: The amount needed under a certain measurement of a present obligation to meet that obligation adequately. The term ‘technical provision’ is a part of the provision separated for presentation purposes, referring to parts subject to uncertainty.
Total balance sheet approach: Principle which states that the determination of an insurer’s capital that is available and needed for solvency purposes should be based upon all assets and liabilities, as measured in the regulatory balance sheet of the insurer and the way they interact.
Source: The Comit? Europ?en des Assurances (CEA) and the Groupe Consultatif Actuariel Europ?en (Groupe Consultatif). |
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| Article appeared in the October 2007 issue.
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