Limit systems under Solvency II

Limit systems under Solvency II

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Speaker(s): Klaus-Peter Nischke, Michael Kluettgens (Willis Towers Watson)

The use of limit systems is common practice in insurance companies. With the introduction of the new EU regulatory system Solvency II, new requirements have come up for the risk management of insurance companies. Although Solvency II does not explicitly request the installation of a limit system as an instrument of risk management, the regulations nevertheless contain a number of requirements for the quantitative limitation and the regular monitoring of risks. It is therefore recommended for European insurance companies to structure their limits in a company-specificlimit system appropriate to their own structure and process organization.

The workgroup "Risikostrategie, Risikotoleranz und Limitsysteme" of the German Actuarial Association (DAV) has worked on this question. The presentation is based on the results of the workgroup and deals with the design of limit systems to support the risk management requirementsof Solvency II.Firstly, important legal requirements from Solvency II concerning limits are collected and supplemented by the areas of risk management, which can be supported by a limit system. Subsequently, the requirements on the company's business and risk strategy to derive the limit system are elaborated. The structure and process organization required for installing the limit system as well as the stakeholders are presented. Further on, the presentation deals with the interaction between business strategy, operative planning, risk management (including own risk and solvency accessment "ORSA") and limit system. Particular attention is paid to the target group-specific design and to the concrete derivation of appropriate limits.

The presentation is completed by a case study on a fictitious life- and another one on a fictitious non-life insurance company. The speakers thank the members of the DAV working group for the elaboration of the presented results.

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