This chapter introduces the structure of the Solvency II balance sheet and explains the key components that determine an insurer’s solvency position, including liabilities, capital, and solvency metrics.
Solvency II framework
What is Solvency II objective?
How to describe Solvency II?
Balance sheet basic components
How to describe BEL?
Calculate Technical Provisions
Other components and metrics
Calculate Own Funds
Calculate SCR coverage ratio
Calculate Free Surplus
This chapter explains how Best Estimate Liabilities are defined, how future cash flows are projected, and how assumptions influence the valuation of insurance obligations under Solvency II.
What are Best Estimate Liabilities?
What is BEL?
What is Best Estimate?
Why avoiding prudence margins?
Cash flows included in Best Estimate Liabilities
Cash flows included in BEL
Policyholder behaviour
Calculate net cash flow
Assumptions in Best Estimate Liabilities
What are best estimate assumptions?
Assumption reviews
This chapter explores why the Risk Margin is needed, what it represents, and how it is calculated using the cost-of-capital approach, including the main factors that drive its size in practice.
Why do we need a Risk Margin?
Are BEL sufficient?
The idea behind Risk Margin
The cost reflected in the Risk Margin
What does the Risk Margin represent?
Non-hedgeable risks
The difference between RM and SCR
Risk Margin calculation
Risk Margin formula
Calculate Risk Margin
This chapter explains what the Solvency Capital Requirement represents, which risks it covers, and how it is calculated using the Standard Formula, including diversification and practical numerical examples.
What is the Solvency Capital Requirement?
The purpose of SCR
Confidence level
Risks covered by the Solvency Capital Requirement
Risk types
Failure to meet obligations
Time horizon
How is the Solvency Capital Requirement calculated?
Sum of individual risks
Standard Formula
Calculate SCR