Many Companies and Advisors are starting to take a more serious look at internal Company models as a result of the forthcoming introduction of Solvency II. This is indeed a welcome development because it will give further impetus to the analytical assessment of risks that face insurance and reinsurance companies and therefore help managers and all stakeholders in these businesses to run them more efficiently.
Solvency II About Capital Efficiency
Under the old Solvency I regime, the formulas applied to Premiums and Claims to come up with a Minimum Solvency Requirement (together with all the asset admissibility rules) resulted in the creation of a number that did not really reflect the risks and volatility within a (re)insurance operation.
However under Solvency II, many of the factors that give rise to volatility in such companies are specifically allowed for and therefore can be expected to produce more realistic risk measures in the form of Standard Capital Requirements ("SCR") and Minimum Capital Requirements ("MCR").
After its introduction, Companies with the following can hope to have potentially reduced capital and solvency requirements under Solvency II:
- well designed and appropriate reinsurance structures
- reinsurance places with strong and well rated reinsurers
- diversified lines of uncorrelated business
- appropriate types of assets with respect to liability profiles
- matched assets with respect to the currency of liabilities
- demonstrated the use of the internal model in day to day operations
While some of these benefits may accrue via the use of a Standard Solvency II formula (which is being tested under the QIS series (1 through 5) it is likely that a full internal capital model will be the vehicle that can demonstrate the full effect of the savings available under the points mentioned above.
To date, many larger companies have been developing these models in preparation for demonstrating their results to regulators, rating agencies and other stakeholders. A few have relied on their own internal development teams but most are getting commercially available software from providers such as Ultimate Risk Solutions.Risk Explorer Meets Solvency II Standards for:
- Specifying functionality
- Programming & Coding
- Re-specifying following Industry and Market Changes
- Integration with IT Systems
- Maintaining legacy products and backwards compatibility
- Specific Enhancements
- Interfacing with new Operating & Network Systems
This is all that URS does so contact us for your Company's internal modeling requirements to comply with Solvency II.