Solvency II - Pillar 1
The cover ratio is a key performance indicator at the heart of the quantitative risk analysis of pillar 1 of the supervisory regime Solvency II. It is determined as the ratio of the company’s own funds, calculated by subtracting the company’s liabilities from its assets (both based on their market values), to the Solvency Capital Requirement (SCR). When valuing the company's own funds, the traditional principle of prudence as per the German accounting standards is replaced by a market oriented approach. Consequently, all actors dealing with the solvency balance sheet - with the widely spread balance sheet according to German accounting standards being replaced - are faced by a paradigm shift. This new way of thinking has numerous consequences, particularly for risk modelling.
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Meyerthole Siems Kohlruss (MSK) accompanies and advises companies with regard to the calculation of individual aspects of the standard formula. This includes, among other elements, the Best Estimate calculation, the estimation of the risk margin and the solvency balance sheet. Additionally, MSK assists companies in validating the results of the standard formula.
Undertaking-specific parameters (USP)
When determining the SCR using the standard model it is possible to calibrate some risk factors according to a company's individual data. To give an example: in "Non-Life", the premium and reserve risk may be calculated using undertaking-specific parameters (USP). Meyerthole Siems Kohlruss advises companies regarding the implementation and calculation of undertaking-specific parameters, and offers support in preparing and validating the relevant data.
Partial (Internal) models
With regard to solvency, a (partial) internal model is much more precise than the standard approach. Beyond that, the capabilities of internal models are not limited to this topic; for instance, using an internal model, the risk reduction merit of reinsurance cover can be measured "live" and in detail, and tailor-made gauging of your underwriting structure allows detailed analyses in order to achieve an economic evaluation of your business (particularly with a view to value-oriented management). In the context of Solvency II this creates a leading edge, for example when carrying out an ORSA.