CHAPTER 42
INSURANCE INDUSTRY AND SOLVENCY II
42.1 INTRODUCTION
(a) Solvency I to Solvency II
(b) Basel I to Basel II
(c) Common Elements of Basel II and Solvency II
42.2 VALUING INSURANCE LIABILITIES
42.3 SOLVENCY CAPITAL AND MINIMUM CAPITAL REQUIREMENTS
42.4 OPERATIONAL RISK MANAGEMENT
42.5 ISSUES FACING INSURERS IN IMPROVING OPERATIONAL RISK
42.6 ISSUES FACING INSURERS IN IMPROVING DATA INTEGRITY AND RETENTION
42.7 ISSUES FACING INSURERS MEETING IFRS AND SOLVENCY II
42.8 THE LAMFALUSSY PROCESS IN DEPLOYING SOLVENCY II
42.9 CONCLUSION
NOTES
42.1 INTRODUCTION
In banking think capital adequacy; in insurance think solvency. The concepts are closely related, and both are behind global initiatives that will transform the financial services industry.
Capital adequacy sets standards for the minimum level of a bank's equity in relationship with its assets as set by the Bank for International Settlements (BIS) through its Basel Committee. The new accords are known as Basel II. Capital adequacy measures financial strength and requires banks to have capital equal to 8 percent of their assets. The European Union's Capital Adequacy Directive established minimum capital requirements in the financial services industry and has been in effect since 1996. The Basel II capital accords go into effect in the next few years in the EU and other countries.
Solvency is used in the insurance industry to measure an insurer's ability to pay its debts with available cash. Solvency ...
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