Answers to the European Commission on the ... - Eiopa - Europa

- going-concern aspects of business should be analysed and incorporated in<strong>to</strong>
<strong>the</strong> model where feasible (…), or taken in<strong>to</strong> account through Pillar II
measures
- whenever possible, appropriate simulations and field-testing should be
performed <strong>to</strong> support <strong>the</strong> EU decision making process. …
The main concern regarding <strong>the</strong> implementation of Solvency II regime for SMEs
is <strong>the</strong> potential complexity. This aspect has <strong>to</strong> be taken in<strong>to</strong> account both when
developing quantitative measures and when formulating supervisory
requirements for insurance companies. …
Background
10.1 An Article for <strong>the</strong> definition of <strong>the</strong> SCR (N9 for “target capital” in
document MARKT/2539/03) has <strong>to</strong> be developed. The following
example outlines some possibilities for illustration and discussion
purposes. It is tentative by nature and particularly <strong>the</strong> issues in square
brackets require fur<strong>the</strong>r analysis and consideration.
“To be able <strong>to</strong> absorb significant losses and <strong>to</strong> give [reasonable]
assurance <strong>to</strong> policyholders, an insurance undertaking shall hold at all
times solvency capital which is adequate having regard <strong>to</strong> its overall
risk profile. Solvency capital requirement shall cover <strong>the</strong> relevant
[underwriting, credit, market, liquidity, operational and o<strong>the</strong>r] risks. It
shall be calibrated so that <strong>the</strong> probability of failure of an undertaking
within [one] year is sufficiently low [“1/200” or “as defined in
implementing measures”].
Explana<strong>to</strong>ry text
Purpose of <strong>the</strong> SCR
10.2 The SCR should deliver a level of capital that enables an insurance
undertaking <strong>to</strong> absorb significant unforeseen losses over a specified
time horizon and gives reasonable assurance <strong>to</strong> policyholders that
payments will be made as <strong>the</strong>y fall due.
10.3 The concept of SCR shares many features with economic capital in
value-based management. Commercially, an undertaking will define its
risk appetite and, where applicable, <strong>the</strong> public rating it wishes <strong>to</strong>
achieve. It <strong>the</strong>n determines <strong>the</strong> economic capital that will be necessary
<strong>to</strong> limit its probability of insolvency <strong>to</strong> a defined level.
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