Mini Case Study on Mini Case Study on Insurance Core Principles Insurance Core Principles - ICP23 Capital Adequacy and - ICP23 Capital Adequacy and Solvency - Solvency - Insurance Training Seminar IAIS - ASSAL Buenos Aires, Argentina, 1-4 November 2005 Makoto Okubo – Member of the Secretariat
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Mini Case Study on Insurance Core Principles - ICP23 Capital Adequacy and Solvency - Insurance Training Seminar IAIS - ASSAL Buenos Aires, Argentina, 1-4.
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Mini Case Study on Insurance Core PrinciplesMini Case Study on Insurance Core Principles- ICP23 Capital Adequacy and Solvency -- ICP23 Capital Adequacy and Solvency -
Insurance Training Seminar IAIS - ASSALBuenos Aires, Argentina, 1-4 November 2005Makoto Okubo – Member of the Secretariat
International Association of Insurance Supervisors (IAIS)
Mini Case Study Mini Case Study on Insurance on Insurance
Core Principles – Core Principles – ICP23 Capital ICP23 Capital Adequacy and Adequacy and
SolvencySolvency
2 November 2005Makoto Okubo
Definition of Solvency – IAIS glossaryDefinition of Solvency – IAIS glossary
Definition of Solvency – IAIS glossary
Ability of an insurer to meet its obligations (liabilities) under all contracts at any time
Mini Case Study Mini Case Study on Insurance on Insurance
Core Principles – Core Principles – ICP23 Capital ICP23 Capital Adequacy and Adequacy and
SolvencySolvency
3 November 2005Makoto Okubo
Definition of Solvency – IAIS glossaryDefinition of Solvency – IAIS glossary
• To remain solvent an insurer must:
– Manage its risks
– Ensure asset cash flows are available to meet liabilities when payable
– Maintain a safety margin of assets over liabilities
Ability of an insurer to meet its obligations (liabilities) under all contracts at any time
Mini Case Study Mini Case Study on Insurance on Insurance
Core Principles – Core Principles – ICP23 Capital ICP23 Capital Adequacy and Adequacy and
SolvencySolvency
4 November 2005Makoto Okubo
ICP23 Capital adequacy and solvencyICP23 Capital adequacy and solvency
The Supervisory authority requires insurers to comply with the prescribed solvency margin
This regime includes capital adequacy requirements
and requires suitable forms of capital
that enable the insurer to absorb significant unforeseen losses
Mini Case Study Mini Case Study on Insurance on Insurance
Core Principles – Core Principles – ICP23 Capital ICP23 Capital Adequacy and Adequacy and
SolvencySolvency
5 November 2005Makoto Okubo
Elements of a Solvency RegimeElements of a Solvency Regime
EC a : Solvency regime addresses in a consistent manner:
• valuation of liabilities, including technical provisions and the margins contained herein
• quality, liquidity and valuation of assets
• matching of assets and liabilities
• suitable forms of capital
• capital adequacy requirements
Mini Case Study Mini Case Study on Insurance on Insurance
Core Principles – Core Principles – ICP23 Capital ICP23 Capital Adequacy and Adequacy and
SolvencySolvency
6 November 2005Makoto Okubo
Allowance for risk mitigation or transferAllowance for risk mitigation or transfer
EC b: Allowance for risk mitigation or transfer considers its effectiveness and the security of counterparty
• Any allowance for reinsurance should consider:– the effectiveness of the risk transfer– the likely security of the reinsurance
counterparty
• See ICP19 – Insurance activities
Mini Case Study Mini Case Study on Insurance on Insurance
Core Principles – Core Principles – ICP23 Capital ICP23 Capital Adequacy and Adequacy and
SolvencySolvency
7 November 2005Makoto Okubo
Suitable Forms of CapitalSuitable Forms of Capital
EC c: Suitable forms of capital are defined• Assessing the Suitability of Capital:
– Ability of supervisors to restrict its distribution– Freedom from encumbrances and security
interests– Freedom from requirements or incentives to
redeem or repay the funds– Freedom from mandatory fixed charges
against earnings– Legal subordination to the rights of
policyholders and other creditors
Mini Case Study Mini Case Study on Insurance on Insurance
Core Principles – Core Principles – ICP23 Capital ICP23 Capital Adequacy and Adequacy and
SolvencySolvency
8 November 2005Makoto Okubo
Capital Adequacy RequirementsCapital Adequacy Requirements
EC d : Capital adequacy requirements are sensitive to:
• size, complexity and risk of an insurer’s operations
• accounting requirements that apply to the insurer
This presentation is prepared based on the Insurance Core Curriculum Module 23A – Solvency Principles and Structures (Authors: Michael Hafeman and Craig Thorburn, July 23, 2004)