Keeping above the capital floor

Solvency II is expected to give rise to significant volatility in insurers’ capital own funds due to the regime’s market-consistent view of the economic balance sheet. Managing this volatility and ensuring that fluctuating capital levels remain above regulatory requirements present challenges for insurers. Clive Davidson reports on how insurers are approaching this issue

Walking on stilts

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The move to the fair valuation of assets and liabilities is one of the fundamental changes that Solvency II brings. Assets will be valued on a mark-to-market basis, while technical provisions in respect of insurance liabilities will be based on a discounted best estimate of expected future cashflows. And since markets can be volatile, so too will be Solvency II’s economic balance sheet. 

As a result, insurers’ capital levels – at a basic level, the excess of

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