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Links  »  Accounting, Regulatory Capital and Other Frictional Risks

Regulatory Capital - General

PRA capital requirements - general details can be found in the section 2. of the General Prudential Sourcebook (GENPRU) as well as:

Prudential sourcebook for Insurers (INSPRU) - supplement to the General Prudential Sourcebook

Prudential sourcebook for Banks, Building Societies and Investment Firms (BIPRU) - supplement to the General Prudential Sourcebook

Pension obligation risk - PRA April 2013 supervisory statement on how insurers and banks should allow for the risks associated with pension schemes under ICAS and ICAAP respectively

"Bank capital and liquidity" - useful 2013 primer on the topic by the Bank of England

"The dog and the frisbee" - influential speech by Andrew Haldane and Vasileios Madouros of the Bank of England on the case for "less is more" in financial regulation and capital requirements

"The regulatory framework: balancing risk sensitivity, simplicity and comparability" - 2013 Basel Committee on Banking Supervision (BCBS) discussion paper on options for enhancing the regulatory framework, improving comparability and aiming for greater simplicity (NB among the many options discussed is getting rid of the internal model approach altogether!)

Actuarial profession response

"Possible Unintended Consequences of Basel III and Solvency II" (Malcolm Kemp and Padraic O’Malley) - 2013 Actuarial profession paper on the impacts of Basel III and Solvency II which inter alia gives a good overview of the similarities and differences between the two regimes and bank and insurance regulation and reporting

 

Regulatory capital - Solvency II

EU Directives and supplementary legislation

Solvency II directive

Omnibus II directive

Level 2 text

Regulatory links

The European Insurance and Occupational Pensions Authority (EIOPA) is driving Solvency II which will radically change insurer capital requirements.

EIOPA main site

Solvency II site

Solvency II Preparatory guidelines issued by EIOPA September 2013, including Systems of Governance and reporting to regulators

PRA Supervisory Statement SS4/13 on implementing the guidelines, December 2013

CP on Systems of Governance and ORSA Guidelines - EIOPA, June 2014

PRA Solvency II site

Archived FSA Solvency II site

FSA schedule of existing publications - summary of publications up to 2009 relating to Solvency II

Technical Specifications

CP on Pillar I - EIOPA, June 2014

Technical Specification for the Preparatory Phase - EIOPA, April 2014

Long-Term Guarantee Assessment (LTGA) - intended to address concerns about the impact of Solvency II on those writing business wth long-term guarantees (link includes EIOPA Response to LTGA)

For non-life, the calibration of standard formula stresses in QIS5 was superceded at the end of 2011 by the report of the Joint Working Group (JWG) “Calibration of the Premium and Reserve Risk Factors in the Standard Formula of Solvency II”

EIOPA press release

Annexe A of report

Annexe B of report

EIOPA took over from the Committee of European Insurance and Occupational Pension Supervisors (CEIOPS) in 2011. CEIOPS had undertaken five Quantitative Impact Studies (QISs) on proposed rules:

QIS5 Technical Specification - detail of the last QIS (superceded in parts by LTGA)

QIS5 Calibration paper outlining details of how stresses were calibrated

"Task Force Report on the Liquidity Premium" - 2010 CEIOPS paper on the against for and against including a liquidity premium in the valuation of insurance liabilities, and what that premium should be

Internal Models and USP

EIOPA CP on Guidelines for Internal Models -June 2014, noting that USP Guidelines are covered under the Pillar I CP

EIOPA consultation on set 1 of Implementing Technical Standards - including internal models and USP, April 2014

CEIOPS' Advice for Level 2 Implementing measures on Solvency II: Articles 120 to 126 tests and standards for internal model approval (CP56) - this October 2009 paper gives a good insight into possible tests and standards for IM approval and the regulatory expectations in this regard

CEIOPS’ Advice for Level 2 Impllementiing Measures on Solvency II: SCR standard formulla - Artiiclle 111 j, k Undertakiing-speciifiic parametes (CP75) - similar January 2010 paper on USP

ORSA

EIOPA guidance on Forward Looking Assessment of Own Risk (FLAOR), October 2013

CP on Systems of Governance and ORSA Guidelines - EIOPA, June 2014 (noting that changes in respct of ORSA from the FLAOR guidance above are minimal)

Final Report on Public Consultation No. 11/008 on the Proposal for Guidelines on Own Risk and Solvency Assessment - EIOPA , July 2012

Australian PRA (APRA) Internal Capital Adequacy Assessment Process (ICAAP) is a Pillar II assessment similar to ORSA:

Prudential Practice Guide

US National Association of Insurance Commissioners (NAIC) ORSA Guidelines, July 2014 - while not strictly relevant to Solvency II, I believe these guidelines are more intuitive than the EIOPA guidelines and are helpful guide to ORSA

"How to review an ORSA" - extended version of an esssy produced for a Society of Actuaries competition based in part on the NAIC guidelines

Background

CEIOPS also produced advice on advice on Solvency II implementation which while somewhat out of date still gives a good insight into likely regulatory requirements:

Final advice page

Other useful links

Lloyds of London Solvency II site - extensive insight into how this key general insurance market aims to comply with SII

PwC Solvency II site

 

Regulatory capital - Basel

General

Compilation of documents that form the global regulatory framework for capital and liquidity

Basel III

Capital Adequacy - including original December 2010 rules and June 2011 rules which superceded these

Liquidity Risk (January 2013 with revisions to December 2010 rules)

Basel 2.5 - December 2010 update to Market Risk elements of Basel II to address weaknesses identified during the financial crisis (replaces July 2009 update) 

Basel II

"Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework - Comprehensive Version" - June 2006 version (replacing the June 2004 and November 2005 versions of these)

"An explanatory note on the Basel II IRB risk weight functions" - July 2005 outlining the theoretical basis for risk weightings including the ASRF model used to derive these

Market Risk Amendment - originally issued January 1996 but amended September 1997 and November 2005 and incorporated into Basel II

Basel I (1988) 

EU directives and other regulations plementing Basel requirements

Credit Requirements Directive (CRD) including both 2006 Directive and CRD IV package effective from 1/1/2014 (replaced earlier Capital Adequacy Directive)

"Credit Risk: Internal Ratings Based Approaches" - August 2013 BoE paper consolidating past FSA papers on IRB approaches

 

Accounting standards

International Accounting Standard Board including International Financial Reporting Standards (IFRS) - you will need to register to access the full standards but you can find a list of these and download technical summaries here. IFRS replaced International Accounting Standards (IAS) - again you will need to register but can find a list of these here.

Financial Reporting Council - responsible for setting UK reporting standards, the FRC replaced the Accounting Standards Board in 2012

The Institute of Chartered Accountants in England and Wales (ICAEW) have issued a number of useful guides to UK accounting standards

ICAEW Knowledge Guide to UK Accounting Standards - giving a useful overview of the development of these

ICAEW Guide to Accounting for the Insurance Industry - note there is a separate page relating to IFRS4 - Insurance Contracts

Financial Accounting Standards Board (FASB) - sets US accounting and reporting standards

CFO Forum of leading European insurers - this Forum is driving market consistent embedded value reporting for life insurers:

Embedded Value page

Market Consistent Embedded Value (MCEV) Principles and Guidance (October 2009)

Market Consistent Embedded Value (MCEV) Basis for Conclusions (October 2009)

 

Tax

KPMG Corporation Tax Rate table

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