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The Impact of Solvency II Türda Özmen Director The 2nd International Insurance Conference Istanbul, 30 September 2010
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Agenda The Road Ahead Where are Capital Ratios Headed under Solvency II? Impact on the Insurance Industry Implications for Ratings
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Agenda The Road Ahead Where are Capital Ratios Headed under Solvency II? Impact on the Insurance Industry Implications for Ratings
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3 Road Ahead 1 July 2010 Final QIS5 Specifications 31 Dec 2012 Solvency 2 in Force? 2010 April 2011 QIS5 Results 20112012 End 2010 Draft Level 2 Implementing Measures Aug–Nov 2010 QIS5 to Run Jun–Oct 2012 Final Level 2 Implementing Measures Adopted 2013
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Agenda The Road Ahead Where are Capital Ratios Headed under Solvency II? Impact on the Insurance Industry Implications for Ratings
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5 QIS 4 Results – Refresher Source: CEIOPS Comparison of Solvency Ratios, All QIS4 Participants
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6 UK Life Solvency Ratio Source: Milliman Breakdown from QIS 4 to Estimated QIS 5 (Draft Specifications) Calculated for a Notional Life Company Representing Market
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7 EU Life Solvency Ratios Source: Milliman, Autorité de Contrôle Prudentiel For a Notional Life Company Representing Whole Market Calculated for a Notional Life Company Representing Market
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8 Non-Life Underwriting Parameters Source: CEIOPS, EC Premium Risk Standard Deviations
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9 Internal Models – The Vision >Alternative to the standard formula >Tailored to business specifics >Calibrated to 99.5% VaR over 1 year
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10 Internal Models – The Reality Given that each insurer writes different business, has a different risk profile, a different corporate structure, different operational processes and a different risk management framework, each internal model will be different and used in a different way. (FSA DP 08/4) Photo Source: US Army
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11 Outstanding Issues >Grandfathering >Equivalence >(Relative) level of some standard capital charges >Tax
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Agenda The Road Ahead Where are Capital Ratios Headed under Solvency II? Impact on the Insurance Industry Implications for Ratings
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13 Impact on the Insurance Industry >Shift from capital-intensive to capital-lite products >Pricing for increased cost of capital >Asset reallocation >Increased de-risking >Industry consolidation >Implementation costs
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Agenda The Road Ahead Where are Capital Ratios Headed under Solvency II? Impact on the Insurance Industry Implications for Ratings
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Capital Req.s Up Means Leverag e Down Increase d Barriers to Entry Improve d Risk- Based Assess- ment Transparency and Comparability Up? Short- Term Implem- entation Risk Technica l Issues: Coupon Deferrals Threats to Some Product Lines Transparency and Comparability Down?
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The Fitch GroupFitch RatingsAlgorithmicsFitch Solutions Fitch Ratings www.fitchratings.com London 101 Finsbury Pavement London EC2A 1RS +44 20 7417 4222 New York One State Street Plaza New York, NY 10004 +1 212 908 0500 +1 800 75 FITCH
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