What is matching adjustment Solvency II?

What is matching adjustment Solvency II?

Under Solvency II, insurers are required to calculate the value of their liabilities using a risk-free interest rate. The matching adjustment is an upward adjustment to the risk-free rate where insurers hold certain long-term assets with cashflows that match the liabilities.

What are the Solvency II requirements?

Solvency II imposes formal governance requirements, mandating roles such as a risk management function, an independent audit function, an actuarial function and a compliance function. The insurer’s processes for risk management should be set out in an Own Risk and Solvency Assessment (ORSA).

How is Solvency II calculated?

Solvency Ratio in Solvency II The equation is simple. We need to know the amount of Own Funds (OF) and divide it by the Solvency Capital Requirement (SCR). Own Funds (OF) refers to surplus capital that remains when the liabilities are deducted from the total assets.

What is the risk margin Solvency II?

It defines the risk margin as the discounted value of the future cost of capital relating to risks (other than hedgeable market risks) required to be held under Solvency II rules by the hypothetical trans- feree company (called the reference undertaking under Solvency II).

What is EU Solvency II?

Solvency II is a Directive in European Union law that codifies and harmonises the EU insurance regulation. Primarily this concerns the amount of capital that EU insurance companies must hold to reduce the risk of insolvency.

Does Solvency II apply to the UK?

‘Solvency II: Supervisory disclosures, PRA’s supervisory approach and insurance regulations applicable in the UK’ in line with our obligations under Article 31(2) of the Solvency II Directive for year-end 2018. The material published will be of primary interest to PRA authorised insurance companies.

How do you calculate risk margin Solvency II?

Risk Margin is calculated by: Determining cost of providing amount of own funds equal to SCR needed to support runoff of your (re)insurance obligations; The rate used in determining this cost is called “Cost-of-Capital” rate; • CoC = 6% = spread above risk-free rate. Memorize for Later!