Solvenskrav och riskhantering enligt Solvens II: Implementering av de nya riskbaserade solvensreglerna på ett skadeförsäkringsbolag
Independent thesis Advanced level (professional degree), 20 credits / 30 HE creditsStudent thesis
The insurance industryis challengedby major changesthrough internationalizationand thusgrowingcompetitionwithmore optionsand greater availabilityfor customers.Solvency II, a new regulatoryframework and anew standard forinsurance companies,is therefore implemented in a steptowardsa more competitive Europeaninsurancemarket. Solvency II will result in extensive structural changes for many insurance companies. Newstandards andinternal models must also be implemented by the companies. Solvency IIhasa tightening effect on thesolvency capital requirements forinsurance companies. At the same time it also leads tomajor changesandincreased demandon risk management andinternal control, alongside with demands fordisclosure of informationto the market. The purposeof this thesis isthereforeto develop aSolvency IImodel with solvency capital requirements, SCR, and own risk and solvency assessment, ORSA,for a small, fictitious, non-life insurancecompany.The thesis iscovered byfour parts, whereeach of themis a partof developingthe non-life insurance company. The modelis implementedin association withthe consulting firmtheFinancialCompliance Group, FCG, inStockholm and willprovide insight into theSolvency II, its meaning, andhow the frameworkcan be implementedin practice.The modelingis doneprimarilyin Excel. Matlab and VBA, the programming language integrated in Excel, is also used for the implementation. The result shows that market risk is the largest part of the total solvency capital requirement related to the non-life insurance company. The size and allocation of the assets of the insurance company has a direct impact on the size of the capital requirement for market risk. The counterparty credit rating, probability of default, also has a crucial effect on the size of the capital requirement. The outcome in both the base scenario and the stressed scenario in the ORSA show the importance of companies simulating a future solvency situation. They can thereby get an idea of how the business reacts to market changes. The combination of assets in the asset portfolio that generates the minimum SCR is the portfolio with the lowest return and the lowest risk profile. This approach also results in a high solvency ratio. Conversely, the portfolio with the highest yield also implies a maximum level of risk. More weight allocated in assets with high returns and variance generates a higher SCR and thereby a lower solvency ratio. The insurance company can benefit from the strategy with a high return on the asset portfolio in prosperous times with positive market trends. Conversely, more weight allocated to assets with low returns generates a lower SCR and a higher solvency ratio. This approach is preferable when the market suffers from negative trends. The solvency ratio is further affected by changes in the value of both assets and liabilities. A decrease in interest rates results in an increase of the technical provisions which in turn leads to a reduction in own funds and solvency ratio. The same effect arises when the total value of assets is reduced. The thesis also showed the importance of reallocating the assets in the asset portfolio. This is particularly palpable in times when the value of assets suffers from downward trends. Reallocation of the assets will reduce the risk of falling solvency ratio and thereby the risk that the company will become insolvent.
Place, publisher, year, edition, pages
2014. , 114 p.
IdentifiersURN: urn:nbn:se:umu:diva-89745OAI: oai:DiVA.org:umu-89745DiVA: diva2:723642
FCG - The Financial Compliance Group
Master of Science in Engineering and Management
2014-06-05, MC343, Umeå Universitet, Umeå, 08:15 (Swedish)
Ådahl, Markus, Universitetslektor
Lundström, Niklas, Postdoktor