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The politics of equivalence

In March 2015 the European Insurance and Occupational Pensions Authority (EIOPA) released its fi nal report on the equivalence of the Swiss supervisory system in relation to some articles of the Solvency II directive. This article explains the impact of this assessment for insurance groups from the European Union and Switzerland operating in the other’s supervisory territory, and provides a high-level comparison of how similar these regimes really are.

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 A key to stable solvency

Matching Adjustment

The market valuation principles embedded in Solvency II ensure that an insurer’s equity is directly affected by financial markets. In many respects, this is desirable. However, market value fluctuations only have a limited impact on the ‘true’ solvency of stable life insurance portfolios when the corresponding assets are adequately managed. To recognize such different dynamics, in 2014 the European Parliament approved the introduction of the ‘matching adjustment’. The requirements cover only two articles – but looks can be deceptive. This article highlights some of the ambiguities in the requirements and the consequences for governance, systems, processes and reporting that use of the adjustment entails. The benefits outweigh the costs, however.

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Longevity swaps and value creation

Due to better healthcare and a safer living environment, the average life expectancy in the developed world has been increasing. For life insurance companies this uncertainty creates ‘longevity risk’ – one of their major risks. They can use longevity swaps to hedge the possibility of people living longer. Can longevity swaps create value too?

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More or less? The constant fluctuation of risk

Theo Berg, Delta Lloyd, gives his view

European insurers are not only facing extremely low interest rates and the introduction of the Ultimate Forward Rate (UFR), they must especially take into account the presumed requirements of Solvency II, due to come into effect in 2016. How does an insurer approach the risks in 2014? Theo Berg, director of Group Actuarial Risk Management at the Delta Lloyd Group, gives his view.

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Aren’t we going too far?

On a day to day basis I regularly hear “I have to pop to Risk to find out what they think about this”, or “What does Compliance say?” and “Does this fit in with our risk allocation?” The responsibility for a transaction seems to be split over many different levels. So who is really solely responsible for their own work?

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