Solvency II: three new fact sheets

Three new Swiss Re fact sheets provide insight into the relationship between reinsurance and Solvency II.

The fact sheet Recognition of reinsurance under Solvency II explains how reinsurance is fully recognised as a risk mitigation technique for the first time under Solvency II. The new regulatory regime sets clear principles that govern the recognition of risk mitigation techniques and this fact sheet addresses those related to the standard formula. The difference in treatment of re/insurance by the International Financial Reporting Standards and Solvency II is also discussed.

Each insurance company must decide whether to calculate capital requirements under Solvency II using the standard formula, internal model or partial internal model. As illustrated in the fact sheet How reinsurance impacts non-life insurers under Solvency II – a case study, this decision impacts how reinsurance is considered and how much risk capital the company needs to hold.

Once Solvency II comes into effect in January 2013, non-life loss reserves will be recognised as a major driver of volatility and thus of required capital. This is a change from Solvency I and reflects the trend towards more complete economic regulatory risk models. The fact sheet Retrospective solutions under Solvency II: passing the non-life loss reserves hurdle outlines how clients can transfer any additional capital burden via retrospective reinsurance solutions, allowing them to protect their loss reserves and thus free-up the capital otherwise required to back-them up.

Published 6 July 2011


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