Quantitative Solvency Requirements: technical and capital provisions Carlos Montalvo Rebuelta Guayaquil, 23-IV-2012 Pilar 1 The foundation of Solvency II Supervision of solo undertakings and groups Pillar 1 Expected losses Unexpect ed losses Quantitative requirements Technical provisions (BE and risk margin) 2 capital requirements (MCR and SCR – SF/IM) Prudent person investment rule Own funds (3 tiers) Total balance sheet approach Market-consistent valuation Approval of internal models Pillar 2 Qualitative requirements Internal control and risk management (incl. ORSA) Supervisory review process (qualit. & quant - Add-ons) Focus on firm’s responsibility Convergence of supervisory practices Pillar 3 Reporting Supervisory reporting Public disclosure Market discipline Convergence of supervisory reporting More pressure from rating agencies, capital markets Cuando el dinero sale por la puerta, el amor salta por la ventana! Insurance liabilities (Technical provisions) Capital requirements (Covered by own funds) Flujos de entrada Flujos de Salidas Overall approach to solvency assessment The Solvency II balance sheet Free assets Own funds Solvency Capital Requirement (SCR) Minimum capital requirement (MCR) Assets for covering technical provisions and SCR Risk margin Technical provisions Best estimate Fondos Propios Circular por dentro de la carretera y evitar los baches es la mejor opción para que el coche sobreviva al siguiente kilometro, pero una adecuada amortiguación es en todo caso necesaria. MCR/SCR Dime que coche tienes y por donde piensas circular y te diré los amortiguadores que necesitas. • No todos los baches se pueden evitar 99.5 • El coste de un sistema con “riesgo cero” lo pagarían los tomadores 23 April 2012 9 Thank you 23 April 2012 10