Barrie & Hibbert

Research & Insights » Solvency II

Solvency II

With the implementation date set for January 2014, Solvency II is fast approaching and bringing with it a number of challenges. Many insurance companies are already preparing market consistent balance sheets and using economic capital to manage their business, but Solvency II will introduce a new level of rigour. Our products and services already help insurance companies demonstrate adequate financial resources and will be used to support Pillar 1 principals including:

• Technical Provisions (TP)
• Solvency Capital Requirements (SCR)
• Internal Models
•  Own Risk and Solvency Assessment (ORSA).

Our economic scenario generator, calibration services, and consultancy will be used as the foundation of many insurers’ Solvency II processes. Our focus on the capital and risk management needs of the insurance industry means we can offer a broad range of services to support the technical challenges that insurers face in implementing Solvency II. If you are interested in finding out how we can help you, please contact us.

Read our Research:

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  Alternative views on extrapolated yield curves: A fundamental question remains unanswered

  As a consequence of the move towards a market-based approach to valuation which underpins both the Solvency II regulations and the IFRS/FASB rules, the estimation and extrapolation of market yield curves has captured the attention of insurance firms, accountants and regulators. However, as John Hibbert explains, there is more than one approach to extrapolation.

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  The challenges of building yield curve stress scenarios for solvency capital assessment

   A summary of Barrie & Hibbert's high-level approach to modelling extreme movements in yield curves for the purposes of settings solvency capital within a VaR framework.

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  ESG and Solvency II in the Cloud

  Is it realistic and cost-effective to build a Solvency II platform on the cloud? Head of Development Matt Little investigates how insurers could use cloud computing to reduce costs when they need large computational power. 

  
  

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  Solvency II Schizophrenia

  When it comes to Solvency II, John Hibbert believes that regulators are allowing an extraordinary opportunity to slip away. But, he says, the vision of the whole project may yet be realised if only regulators would grit their teeth and develop a technically sound rulebook instead of just muddling through.

  In his article, John Hibbert examines the fundamental tensions of the current Solvency II framework and sheds light on some of its inerent contradictions.

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  Solvency II Fudges

  The process of transforming Solvency II from a set of high-level principles into a workable regulatory system now appear to have resulted in compromises in the emerging methodology. Craig Turnbull discusses.

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  Risk aggregation: generalising dependency in the Barrie & Hibbert ESG

  In the first of our Global insurance risk management reports, we describe a relatively straightforward way of changing dependency in Barrie & Hibbert’s ESG. This report looks at how dependency arises in the ESG, in particular how we can change dependency through changing the distribution of the random shocks used to drive the ESG models.

  
  

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  Solvency II for DB pension funds

  Could a suitably adapted Solvency II create a risk-based regulatory framework for DB schemes? Andrew Barrie discusses the issues.

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  1-year VaR assessment and dynamic management actions

  In this note, an illustrative case study is used to demonstrate the materiality of this effect in the context of dynamic management actions in with-profit business.

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  Nested Simulation for Economic Capital

  A common definition of an insurer‟s economic capital requirements is based around a 1-year Value at Risk (VaR) metric. This defines capital requirements in terms of some tail percentile (typically the 99.5th percentile) of the market-consistent value of the insurer‟s balance sheet in 1 year‟s time. The problem of estimating such a metric naturally leads to the concept of nested simulation.

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  Real-world Modelling for Solvency II SCR Internal Models: ‘Point-in-Time’ v ‘Through-the-Cycle’

  In this Insights we discuss the aim of our real-world projection: are we aiming to generate a forward-looking projection relevant to the coming year, or a projection that represents a typical year? This decision can have a significant impact on the size of the SCR and also the viability of any hedging and risk management strategies

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  Solvency II: Preparing your ESG for Internal Model Approval

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  Understanding the ESG requirements for Solvency II

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  CP39-42: the key implications

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  Market-Consistent Valuation: Judging the market

  Recent market turmoil has further highlighted the challenge the insurance industry faces when valuing their liabilities. Like the CRO Forum1, we believe the principal of market-consistent valuation is the right basis for this job. Whilst financial economics and mathematical models provide the intellectual technology for market-consistent valuation, its application to insurance liabilities can require significant judgement which must be applied within a good governance structure.

  In this note we consider how the need for judgement in the market-consistent valuation process arises and what it means for risk managers.