Solvency II - Risk Management Strategies for Insurance Businesses

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1 Solvency II - Risk Management Strategies for Insurance Businesses A 1 or 2 Day programme for Insurance professionals This course can also be presented in-house for your company or via live on-line webinar The Banking and Corporate Finance Training Specialist

2 Course Overview Solvency II Solvency II is a legislative programme that has introduced harmonised insurance regulatory regimes in Europe and has two key objectives. Firstly, improved consumer protection by introducing a uniform and enhanced level of policyholder protection. It is envisaged that this will give policyholders greater confidence in the products of insurers. Secondly, modernised supervision by shifting supervisors focus from compliance monitoring and capital, to evaluating Course Overview insurers risk profiles and the quality of their risk management and governance systems. Solvency II has imposed the same three pillars on the insurance market that already apply to the banking industry. Pillar 1 covers Financial Requirements, Pillar 2 Governance & Supervision, Pillar 3, Reporting & Disclosure Delivery Style This two day workshop style course will explore and explain the main principles of the new procedures which came into force from January 2016 across Europe. It considers the implications of the enhanced prudential regulation of insurers and the greater and more granular application of risk based capital management. Who Should Attend Insurance professionals, analysts, risk managers, regulators, bankers, and auditors, but is also appropriate for a broader audience who wish to gain insight into changing solvency rules for insurance companies. The course is targeted at an intermediate level and assumes a basic understanding of insurance business lines and risks as well as accounting. Learning Objectives Understand what Solvency II is and the implications for insurance companies of this new European Commission legislation Understand the key terminology used Understand the regulatory expectations and objectives Describe the component parts - the building blocks of Solvency II Explain the key terminology - the language of Solvency II Explore the key role of the capital model - the Use Test Understand how risk control and governance interacts with capital requirements Course Content Session 1 Introduction understanding the risks Why the need for Solvency II Why has it taken so long to implement What are the business risks of both life and non-life insurers Non life: short-tail vs. long-tail lines; personal vs. commercial insurance; proportional vs. non-proportional reinsurance Life products paying on death, survival or ill health; lump sum vs. income benefits Investment bases for life contracts: unit-linked, with profits, guaranteed, interestsensitive. Financial risk: poor quality and quantity of capital and liquidity risk Total financial resources: expected vs. unexpected losses Internal vs external factors & Contagion risk

3 Session 2 Signs of Distress Common themes Troubled insurance companies Growth challenges Over concentration Volatile markets Asset and liability mismatches Excessive investment risk How does Solvency II address these? Session 3: Solvency II Existing solvency regulation Pillars 1,2 & 3 Technical provisions Key liabilities, Discounting liabilities, Uncertainty, Matching adsustment Investment guarantees & discretionary benefits in life contracts Market consistent liabilities & risk margin, hedgeable versus non hedgeable risks Eligible capital Session 4: Solvency II Structure Role of the 3 Pillars MCR Minimum Capital Requirements SCR - Solvency Capital Requirement Differences between MCR & SCR Internal models Factor based approach Correlated and non-correlated risks Confidence levels and time horizon Proportionality Session 5: Solvency II - Capital Eligible capital Types of capital: shareholder, regulatory and economic Quality of capital: financial leverage; double leverage; intangible vs. tangible net worth; dependence on hybrid capital; fundability of capital SCR Solvency Capital Requirement Basic Own Funds Ancillary Own Funds Session 6: Solvency II Liquidity Risk Sources of liquidity Impacts on liquidity potential drains Liquidity management Product design and liquidity Liquidity and financial transactions Life policy persistency

4 Session 7: Solvency II Underwriting and Reserving Risks Data challenges Competitive pressures Economic factors, disasters and catastrophes, Catastrophe Bonds & ISPV s Ceded re-insurance - Litigation risks Session 8: Solvency II - Investment risk - market, credit and interest rate risk Key challenges with assets and liabilities Emerging market difficulties appropriate assets may be scarce or illiquid Investment performance versus contractual obligations Policies with options Issuer and sector exposure risks Market risk measurement asset valuation challenges Investment and counterparty risks under :Pillar 1 Loss absorbancy Derivatives in risk mitigation Session 9: Operational risk Failures in people, processes, systems and external events Impact and frequency Op risk heat map Key insurance op risks Factor-based operational risk charges under Pillar 1. Session 10: Risk Management Improving corporate governance& internal risk management The concept of group supervision Combatting contagion risk Risk responsibilities and processes for managing investment, underwriting and counterparty risks ERM Strategy & Ownership The tone from the top & The three lines of defence model Warning signs of weak management The importance of integrity especially the lack of it Session11: Pillar 2 Requirements Own Risk Solvency Assessment Risk Appetite Risk identification and assessment Risk measurement Risk reporting Risk and business strategy Stress testing Governance structure Supervisory reviews Capital add ons

5 Session 12: Group Issues Supervision of groups Treatment of non EU operations as a guide Contagion risk Correlation of ancillary businesses Group supervisor Group support regime Solvency II equivalence Session 13: Pillar 3 Disclosure Public disclosure Solvency & Financial Condition report Disclosure to regulator Report to supervisors Course Conclusion & Wrap Up Open forum Tailored Learning All of our training courses can be tailored to suit your company s exact training needs. We will work closely with you to help develop a training programme with content that is unique for your organisation. Please us on enquiries@redcliffetraining.co.uk for more information E-Learning This course can also be presented as a bespoke e-learning programme created by you to fit your exact requirements. enquiries@redcliffetraining.co.uk +44 (0)