In simple terms reinsurance is insurance for insurance companies. Solvency ii value assets c0010 r0030 r0040 r0050 r0060 r0070. Solvency ii set to accelerate broking market developments september 2010 increasing speed the impact of solvency ii on brokers, including greater transparency and the extra demands on information and risk. Also the amount of surplus relief granted will depend. The impact of non proportional reinsurance in the standard formula the standard formula uses the value at risk at the 99. Reinsurance matters for capital solvency ii example. A reinsurance contract takes place between the reinsurer, or assuming company, and the reinsured, or ceding company. Cat reinsurance under solvency ii solvency ii catastrophe risk is a key driver. Our solvency ii capabilities comprise asset management, reinsurance and capital market solutions covering life, nonlife and health insurance.
This paper tries to bridge main pitfalls of both versions. The crucial role of reinsurance in solvency ii gen re. R0 gross nonproportional reinsurance accepted 0 r0140 reinsurers share 6 1,473 57,664 221,949 281,699 r0200 net 4,783 16,420 153,334 65,763 240,300 premiums earned. Fundamentals of risk management and reinsurance in practice. Therefore, this paper proposes an extended reinsurance structure that, under solvency ii, brings the capital requirement back to the level of that required under solvency i. Nonproportional reinsurance10 excess of loss reinsurance. A revision of solvency ii standard formula article pdf available in risks 62. Gross nonproportional reinsurance acceptedreinsurers share 737 294 110 62 19,175 196 1,107 21,755 net 73,760 69,151 590 41,192 25,730 21 89,071 7,369 14 11,659 2,055 1,672 322,285 changes in other technical provisions gross direct businessgross proportional reinsurance accepted gross nonproportional reinsurance accepted. Solvency ii introduction casualty actuarial society. Reinsurance management at a glance guidewire reinsurance management, a part of guidewire insurancesuite, delivers the automation needed to effectively manage ceded reinsurance processes.
Reinsurance as capital optimization tool under solvency ii. It is a means by which an insurance company can protect itself from risks. Treatment of reinsurance in the solvency ii capital requirement. The solvency and financial condition report sfcr of credendo shortterm noneu risks hereafter credendo stn or the company has been prepared according to the requirements of the solvency ii legislation as laid down in the commission delegated regulation 201535 and the belgian. As numerical results show, this proposal appears to be a feasible and much more consistent approach to describe the effect of non proportional reinsurance on premium risk. For ease of navigation, we have included these changes under six main headings. Impact of non proportional reinsurance on solvency ii capital 25. Solvency ii with aspects for credit insurance march 2014. For risk excess of loss and nonproportional facultative contracts, undertakings should only use this nonproportional reinsurance under the standard formula if the gross event allows identification of the known policies of the underlying policies exposed. Solvency ii has superseded the previous insurance directives and the reinsurance directive. Solvency ii standard formula provides a methodology to recognise the riskmitigating impact of excess of loss reinsurance treaties in premium. Jun 25, 2019 reinsurance companies offer insurance to other insurers in case the original insurer does not have enough money to pay claims. Aegon solvency and financial condition report qrts 2017. Providing the capability to handle proportional as well as nonproportional treaty and facultative reinsurance agreements across underwriting and.
Solvency ii standard formula provides a methodology to recognise the riskmitigating impact of excess of loss reinsurance treaties in premium risk modelling. No insurer in europe can escape the grasp of the solvency ii project. Impact of reinsurance structures can be measured and optimised solutions to these issues example. To encourage insures, reinsures and supervisors to prepare the introduction of solvency ii and to identify areas where internal processes, procedures and infrastructure may need to be. The book is written for researchers with an interest in reinsurance problems, for graduate students with a basic knowledge of probability and statistics as well as for reinsurance practitioners. Nonproportional nonlife reinsurance obligations 25 nonproportional health reinsurance obligations included in lines of business 1 to 3. Compare the results with the situation under solvency i to check that the technical specifications are aligned with the principles and calibration targets in the level 1 directive to encourage insures, reinsures and supervisors to prepare the introduction of solvency ii and to identify areas where. Solvency ii amendments published deloitte united states.
The valuation of insurance liabilities under solvency 2 introduction. Within the solvency i framework, insurers mainly used quotashare reinsurance, as this was the only solution able to significantly reduce their solvency requirements. For risk excess of loss and non proportional facultative contracts, undertakings should only use this non proportional reinsurance under the standard formula if the gross event allows identification of the known policies of the underlying policies exposed. In this sense, reinsurance is the technical way to optimise the risk portfolio of. Reinsurance under solvency ii an exceptional source of capital 17. Credendo xs or the company has been prepared according to the requirements of the solvency ii legislation as laid down in the commission delegated regulation 201535 and the belgian law on the statute and supervision of insurance and reinsurance undertakings of march 2016. For nonproportional reinsurance, the capital saving effect is less immediately.
Solvency and financial condition report disclosures. As this report concerns the first reporting period since the date of application of the mentioned. Reinsurance constitutes a basic part of the insurance activity. Actuarial and statistical aspects provides a survey of both the academic literature in the field as well as challenges appearing in reinsurance practice and puts the two in perspective. Reinsurance matters for capital requirements solution. Consideration of nonlife reinsurance under solvency ii, insurers have a choice of which methods they use to assess. We show how the solution provided by solvency ii is not consistent with collective. A revision of solvency ii standard formula gian paolo clemente id department of mathematics, finance and econometrics, universita cattolica del sacro cuore, largo gemelli 1. Polish chamber of insurance polska izba ubezpieczen. Nonproportional reinsurance transfers losses beyond a certain threshold retention from cedants to reinsurers, be it for single losses per risk excess of loss. Significant delays arose in the implementation of solvency ii.
Risk transfer greater individual risks than its size offer higher limits of. Capital reinsurance strategy under solvency ii 12 may 2011 current issues in general insurance p. Solvency ii requirements to approve the ma spv and on this basis to 12 s. As solvency regimes become more risk based, cedants will be looking to reinsure their peak tail risks that are consuming a lot of capital. Optimal nonproportional reinsurance under var semantic scholar. To meet the requirements set by the new solvency framework, many entities will therefore have. It is widely recognised that sophisticated modelling tools are needed to demonstrate the impact of non proportional reinsurance, but proportional reinsurance also requires careful consideration as its benefits should not be assumed to be directly proportional e. In contrast to this, nonproportional reinsurance treaties are not adequately considered, and therefore insurance companies often do not receive. Fundamentals of risk management and reinsurance in practice peter liebwein version 20. Nonproportional reinsurance purpose and techniques of modern ri to some extent. Nonproportional reinsurance international actuarial.
Guideline 20 nonproportional reinsurance per risk 1. The solvency ii da was also updated to ensure consistency with this framework the sts. Under solvency ii, reinsurance can be taken into account when. Solvency ii legislation as laid down in the commission delegated regulation 201535 and the belgian law on the statute and supervision of insurance and reinsurance undertakings of march 2016. However, solvency ii directive explicitly refers to reinsurance separately from insurance e. Non proportional health reinsurance non proportional casualty reinsurance non proportional marine, aviation and transport reinsurance non proportional property reinsurance c0110 c0120 c0 c0140 c0150 c0160 c0170 c0180 technical provisions calculated as a whole r0010 total recoverables from reinsurancespv and finite re after. Guidewire reinsurance management, a part of guidewire. Nonproportional reinsurance is a very flexible risk mitigation instrument that allows for the transfer of a specific portion of the risk from an insurer to a rein. Nonproportional reinsurance cash flows may indeed be quite difficult to single out in some cases.
We analyse the proposals of both quantitative impact study 5 and commission delegated regulation highlighting some inconsistencies. Annual 2015 urs user group forum capital modelling in a solvency ii framework. In the sections below, we highlight some of the more significant changes to the solvency ii delegated acts, under this amending regulation. Providing the capability to handle proportional as well as non proportional treaty and facultative reinsurance agreements across underwriting and. The company who requests for the cover is called the cedant and the reinsurer is called the ceded. Sapiens reinsurance is a comprehensive business and accounting solution designed to support the entire range of reinsurance contracts and activities for all lines of business. A european union directive, it is intended to make sure that insurance companies have sufficient capital set aside to cover all the claims they are likely to receive at a given risk level. The benefit from reinsurance was proportional, but limited to 50% of the premiums and 15% of the reserves. The valuation of insurance liabilities under solvency 2. Solvency ii, the swiss solvency test sst, and other internal economic and rating. Technical standards solvency ii implementing regulations laying down implementing technical standards its adopted during 2015 and 2016 amendments submitted to ec july 2017. Iaa risk book chapter 6 nonproportional reinsurance michael eves alexander fritsch eberhard muller.
Nonproportional property reinsurance r0170 945,619. In this sense, reinsurance is the technical way to optimise the risk portfolio of an insurance company. This additional capital will vary depending on the solvency rating of the reinsurer. Consultation paper on proposals for solvency ii 2020. Reinsurance strategy against pure investment strategy the weight of the balance sheet, as well as the available capital as of end 2009 will remain constant. A reinsurance software solution enabling insurers and reinsurers to handle all reinsurance activities on a single platform with full financial control and auditing support. Introduction to reinsurance rodolfo wehrhahn definition reinsurance is a financial transaction by which risk is transferred ceded from an insurance company cedant to a reinsurance company reinsurer in exchange of a payment reinsurance premium. Guideline 20 non proportional reinsurance per risk 1. These guidelines are addressed to supervisory authorities under solvency ii.
While in the past risk measures were already adopted at the deposit of credit and shareholders equity, the approach now generates two hybrid decision models and applies them to the reinsurance business. Segmentation of nonproportional reinsurance property business casualty. Capital modelling in a solvency ii framework new york may 7th, 2015 a member of. S2metrica a new tool for a new world of regulation 34. Solvency ii value assets c0010 r0030 r0040 r0050 r0060. Insufficient profitability of underwriting compensated by taking high investment risks. Over the past years, risk measurement and therewith risk measures became more and more important in economics.
A reinsurance software solution enabling insurers and. Solvency ii is to increase reinsurance protection, which will reduce the net retained risk exposure and hence also the solvency capital requirement. Solvency ii and economic capital frameworks reward diversification between risks, and a central reinsurance mixer entity is being seen as a practical way to significantly increase the diversification realised in entities across the group and. The book is written for researchers with an interest in reinsurance problems, for graduate students with a basic knowledge of probability and. Capital modelling in a solvency ii framework new york may 7th. Providers of reinsurance are professional reinsurers which are entities exclusively. Gross non proportional reinsurance acceptedreinsurers share 737 294 110 62 19,175 196 1,107 21,755 net 73,760 69,151 590 41,192 25,730 21 89,071 7,369 14 11,659 2,055 1,672 322,285 changes in other technical provisions gross direct businessgross proportional reinsurance accepted gross non proportional reinsurance accepted. This issue will deserve special attention for both insurance entities and. Undertakings should then estimate the exposure to the highest peril in this region and the number of events specified as in the relevant aggregating catastrophe events that. In the last part of the first chapter, five principles are reported as a technical guidance for the recognition of reinsurance as a risk mitigation technique, under solvency ii standard formula. Second, one of the very first purposes of solvency 2 is to encourage insurance and reinsurance entities to reach a better knowledge of their risks and liabilities. Undertakings should apply the max method for the non. Excess of loss xl reinsurance transfers losses beyond a certain threshold retention from.
Optimising nonlife reinsurance strategy under riskbased. Solvency ii reporting workshop central bank of ireland. Impact of nonproportional reinsurance on solvency ii capital 25. Nonproportional reinsurance international actuarial association. As the industry rapidly approaches implementation, solvency ii revealed aims to provide insurers with a fresh view. Solvency ii will create stateofthe art risk management and bring. The two introduced models implement a convex combination of risk measures. Hybrid decision models in nonproportional reinsurance. Guidance on the approval and supervision of special. Non proportional property reinsurance r0170 945,619. The nonproportional xl excess of loss reinsurance is chosen in the way that the companys net retention due to proportional reinsurance is protected up to the. Typical proportional and nonproportional nonlife reinsurance coverage.
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