Solvency Models


Knowing the importance of the concepts of Enterprise Risk Management, Capital Economic and Regulatory Capital. Understanding the risks associated with the Banking and Insurance industry. To understand the European institutional architecture in the supervision of the financial services. To obtain a global view of the European solvency regime for the insurance sector (Solvency II). To obtain a global view of the International solvency regime for the banking sector (Basel III Accord). Measurement of risks associated with the Banking and Insurance industry. Study of risk measures such as VaR and TVAR. Examples of application of the Standard Model.

General characterization





Responsible teacher

Pedro Alexandre da Rosa Corte Real


Weekly - Available soon

Total - Available soon

Teaching language

Portuguese. If there are Erasmus students, classes will be taught in English




¿            Solvency II Directive (2009/138/EC)Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 (Solvency II) - available at

¿            Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 (Solvency II) - available at

¿            Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework - Comprehensive Version - available at

¿            Basel III: A global regulatory framework for more resilient banks and banking systems - available at

¿            Basel III leverage ratio framework and disclosure requirements - available at

¿            Basel III: The liquidity coverage ratio and liquidity risk monitoring rules - available at

¿            Basel III: The net stable funding ratio - available at

¿            Basel III: Finalising post-crisis reforms - available at

¿            Value at Risk: The New Benchmark for Managing Financial Risk. Philippe Jorion.

¿            The Fundamentals of Risk Measurement. Christopher Marrison

¿            Modern actuarial Theory and Practice, P. Booth, R. Chadburn, D. Coper, S.Haberman, D. James, Chapman Hall.

¿            Market Consistent Embedded Value Principles, CFO Forum, October 2009

¿            The Essential Guide To Reinsurance. Brahin, Chatagny, Haberstich, Lechner, Schraft., 2010.

¿            Proportional and non-proportional reinsurance. Christoph Bugmann., 1997

Teaching method

Theoretical and applied lectures supported by study and research.

Evaluation method

Written exam

Subject matter

1.Enterprise Risk Management concept
2.Economic and Regulatory Capital
3.Risk and Coherent Risk Measures
4.Reinsurance as a Risk Management Tool
5.Parametric and Non-Parametric Models for VaR e TVaR estimation
1. Supervisory architecture of the European financial system
- Origins and evolution of the current financial crisis
- European initiatives in response to the crisis
- Role of the European Systemic Risk Board (ESRB) and of the European financial supervision authorities (ESA's: EBA, EIOPA and ESMA)
- Specificities of banking vs. insurance 2. Solvency regime of the insurance sector (Solvency II)
- Framework and objectives
- Pillar I - quantitative requirements
- Valuation of assets and liabilities
- Technical provisions: best estimate and risk margin
- Own funds
- Solvency Capital Requirement (SCR)
- standard formula (with description of its risk modules, namely market, counterparty default, life underwriting, non-life underwriting, health underwriting and operational risks)
- internal models.
- Minimum Capital Requirement (MCR)
- Pillar II - qualitative requirements
- System of governance
- Risk management system, including the Own Risk and Solvency Assessment (ORSA)
- Internal control system
- Key functions
- Capital add-ons
- Pillar III - transparency, reporting and disclosure of information
3. Solvency regime of the banking sector (Basel II and III)
- Framework and objectives
- Pillar I - quantitative requirements
- Own funds
- Trading book and Banking book
- Credit risk: standard method and internal models
- Market risk: standard method and internal models
- Operational risk: basic indicator approach (BIA), standard / alternative method and advanced measurement method (AMA)
- Pillar II - qualitative requirements
- Supervisory review process
- Internal Capital Adequacy Assessment Process (ICAAP)
- Pillar III - market discipline
- Basel III - changes introduced to the regulatory framework
- Framework
- Own funds
- Counter-cyclical capital buffer and capital conservation buffer
- Liquidity coverage ratio and Net stable funding ratio