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Solvency ii and Operational Risk
from the Solvency ii Association, the largest Association of Solvency ii Professionals in the world
 
Solvency ii and Operational Risk: Fourth Quantitative Impact Study
 
Risk margin
Risks to be taken into account
 
The risk modules that need to be taken into account in the cost-of-capital calculations are operational risk, underwriting risk with respect to existing business and counterparty default risk with respect to ceded reinsurance.

 Steps to calculate the risk margin: Estimating operational risk
The operational risk capital charge can always be calculated using the SCR standard formula.
 
The formula uses as input parameters earned premiums gross of reinsurance and best estimates of technical provisions (comprising both premium provision and outstanding claims provision) gross of reinsurance.
 
There is also an upper limit with respect to BSCR.
 
These input data have to be estimated for each respective year in each segment.
 
Participants are reminded that the best estimates are valued at the time value of money of the development year in
question (consistent with the use of the interest rate term structure at the valuation date).
 

SCR Calculation Structure
 
 
SCRop operational risk
 
Description

 Operational risk is the risk of loss arising from inadequate or failed internal processes, people, systems or external events.
 
Operational risk also includes legal risks.
 
Reputation risks and risks arising from strategic decisions do not count as operational risks.
 
The operational risk module is designed to address operational risks to the extent that these have not been explicitly covered in other risk modules.

 Input
The inputs for this module are:

 TPlife = Total life insurance technical provisions (gross of reinsurance)

 TPlife-ul = Total life insurance technical provisions for unit-linked business (gross of reinsurance)

 TPnl = Total non-life insurance technical provisions (gross of reinsurance)
It concerns all the Lines of business in non-life excluding the risks related to annuities in lines of business:
• Accident and health – workers' compensation
• Accident and health – health insurance
• Accident and health –others not included under first two items

 TPh = Total health insurance technical provisions (gross of reinsurance)
It concerns the risks related to both long term health insurance and annuities in lines of business:
• Accident and health – workers' compensation
• Accident and health – health insurance
• Accident and health –others not included under first two items

 Earnlife = Total earned life premium (gross of reinsurance)

 Earnlife-ul = Total earned life premium for unit-linked business (gross of reinsurance)

 Earnh = Total earned health insurance premium (gross of reinsurance)
It concerns the risks related to both long term health insurance and to annuities in lines of business :
• Accident and health – workers' compensation
• Accident and health – health insurance
• Accident and health –others not included under first two items

 Earnnl = Total earned non-life premium (gross of reinsurance)
It concerns all the Lines of business in non-life excluding the risks related to annuities in lines of business :
• Accident and health – workers' compensation
• Accident and health – health insurance
• Accident and health –others not included under first two items

 Expul = Amount of annual expenses (gross of reinsurance) incurred in respect of unit-linked business

 BSCR = The Basic SCR
 

 Output
This module delivers the following output information:
SCRop = Capital charge for operational risk

 Calculation
The capital charge for operational risk is determined as follows:

 

Read more about:

Solvency ii and Operational Risk: Fourth Quantitative Impact Study

Consultation Paper No. 53. Draft CEIOPS’ Advice for Level 2 Implementing Measures on Solvency II:
Article 109 1 (g) SCR standard formula - Operational Risk

Solvency ii Training

 1. Certification:
Certified Solvency ii Professional (CSiiP)

Certified Training Course:
Certified Solvency ii Professional (CSiiP): Preparing for the Solvency ii Directive of the EU - Prep Course (3 days)

To learn more:
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2. Certification:
Certified Solvency ii Equivalence Professional (CSiiEP)

 Certified Training Course:
Certified Solvency ii Equivalence Professional (CSiiEP): Preparing for Equivalence with the Solvency ii Directive of the EU - Prep Course (3 days)

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