Regulatory Alerts2018-12-17
Added · Updated
Mitigation of underwriting risks
Insurers must comply with specific Solvency II requirements to recognize risk-mitigation techniques, such as reinsurance or financial instruments, in the calculation of their Solvency Capital Requirement. Recognition under the standard formula requires that contractual arrangements do not create material basic risk unless reflected in the calculation, while internal models must explicitly account for reduced effectiveness or new risks. Valuation methods and risk margin adjustments differ based on the instrument type, with reinsurance and special purpose vehicles reducing the risk margin, whereas financial instruments do not.