SOLVENCY II and Reinsurance

General Overview

The 2nd International Istanbul Insurance Conference 30th of September 2010

Solvency II - Key Factors

• Risk based approach

• Fair value basis– Reinsurance assets will be valued on BE

basis allowing for an expected loss and accounting for reinsurer rating

• Mitigating effect of reinsurance

Solvency II - CommentsThe industry is still very much in favour

of Solvency IIWith each wave of papers published by CEIOPS, the

consultation peiod has become shorter, and

insurers and regulators have limited numbers of qualified senior personnel available to

respond appropriately.

But capital requirements under Solvency II have yet to

be finalised, and larger insurers are growing

concerned with the current proposed calibration

The industry is currently focusing

on the cost of getting ready for

Solvency II

The function of reinsurance as a source

of medium – and long term capital is clearly

coming to the forefront of many reinsurance

buying strategies.S&P sees reinsurers as being one of the

principle beneficiaries under Solvency II, at least in the first few

years of the new regime

We are supportive of the principles, but the devil

is in the detail.

Solvency II

Solvency II

• Best Estimate

– It must be calculated Gross and the BE ceded

• Proporcional -> Full Benefit

• XL : Adjustment net to gross– Direct and proporcional reinsurance

» Only XL per risk and per Segment

• New possibilities for proporcional reinsurance

Solvency II

• Cat Risks

– Natural catastrophe Perils

– Man Made (NEW)

Natural Perils

– Standardised scenarios

• Based on Perils per country and Cresta

zones (EQ, Storm, Hail…)

• EEUU scenarios

• It must be calculaded Gross and then

calculate the reinsurance

• Possibility of buying reinsurance for these

scenarios

Man Made Cat

Standardised Scenarios Conclusions

Fire (explosion of a refinery) – Highly complex

Motor (Mont Blanc tunel)– High volume of

information

Marine Aircraft Health

– Possibility to be reinsured for these specific scenarios (NEW)

Catastrophes

• Factor based Method

Fixed FactorsEvents Line of business affected Gross Factor

Storm Fire and property; Motor, other classes 175%

Flood Fire and property; Motor, other classes 113%

Earthquake Fire and property; Motor, other classes 120%

Hail Motor, other classes 30%

Major fires, explosion Fire and porperty 175%

Major MAT disaster MAT 100%

Major motor vehicle liability disasters Motor vehicle liability 40%

Major third party liability disaster Third party liability 85%

Credit Credit 139%

Miscellaneous Miscellaneous 40%

NPL Property NPL Property 250%

NPL MAT NPL MAT 250%

NPL Casualty NPL Casualty 250%

Next Steps

• Preparing the figures

Details

• Do we have the information?

• Where can we get the information from?

• In which format do we have it?

• Are the details reliable?

• Can we exploit that information?

• Do we have the information detailed by reinsurers and its ratings?

• …..

Details

• YES -> Determine correctly our SCR

• NO -> We will have many difficulties and we might be penalized by a major requirement of the capital

Examples of needed details

• Best Estimate (BEL)– Triangles with the major number of years for segment Solvency II

• Premiums• Paid claims• Incurred claims• Expenses

• Life – Accident– Variation of the net value of the least passive assets

for several risks (mortality, longevity …)

Examples of needed details

• Reinsurance Estructure

– Proporcional – very easy (Gross to Net)

– Xl for risk only for segment • Average cost for claim• Number of claims• Priority / Limit

– Balance and BE calculation for reinsurance and rating

What can reinsurers do?

• Proporcional reinsurance

•XL per risk per segment

•Cat Risks: Programs based on SII scenarios

•Reinsuracne Rating (Long Tail)

•Risk transfer

•Optimization of the use of reinsurance

Thank you very much

Teþekkür Ederim