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Solvency Models

Objectives

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

Code

200097

Credits

7.5

Responsible teacher

Hours

Weekly - Available soon

Total - Available soon

Teaching language

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

Prerequisites

Not applicable.

Bibliography

- Diretiva 2009/138/EC (Solvência II), disponível em http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:335:FULL:EN:PDF; Solvency II Directive (2009/138/EC); Other papers from EIOPA and BIS; - Especificações técnicas do exercício QIS5 do Solvência II, disponível em https://eiopa.europa.eu/fileadmin/tx_dam/files/consultations/QIS/QIS5/QIS5-technical_specifications_20100706.pdf; - Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework - Comprehensive Version, disponível em http://www.bis.org/publ/bcbs128.pdf

Teaching method

Theoretical and applied lectures supported by study and research.

Examination with the possibility of a team work.

The students will be graded according to the grades obtained in a work group and in the final examination to be realized during the 1st or 2nd examination period.

The work group grade will have a weight of 50% in the final grade. To be approved the student has to have a positive final weighted valuation (equal or above the 10 mark), and the examination’s grade cannot be below the 8 mark. 

 

All students that opt out of the work group, will have their final grade, based solely on the exam’s grade.

 

Evaluation method

All students that opt out of the work group, will have their final grade, based solely on the exam’s grade.

Subject matter

  1. Enterprise Risk Management concept (2.0 hours)
  2. Economic and Regulatory Capital (1.0 hours)
  3. Risk and Coherent Risk Measures (1.0 hours)
  4. Reinsurance as a Risk Management Tool (2.0 hours)
  5. Parametric and Non-Parametric Models for VaR e TVaR estimation (4.0 hours)
  6. Applications of the VaR e TVaR (4.0 hours)
  7. European institutional architecture for the supervision of the financial system (4.0 hours)
  8. Solvency regime of the insurance sector (Solvency II) (5.0 hours)
  9. Solvency regime of the banking sector (Basel III) (5.0 hours)

 

 

1. European institutional architecture for the supervision of the financial system

-        origin 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 supervisory authorities (ESA’s: EBA, EIOPA and ESMA)

-        specificities of the Banking vs. Insurance business

 

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 the risk modules, namely market, counterparty, life insurance, non-life insurance, health insurance 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-on

-        Pillar III – transparency, reporting and disclosure

 

3. Solvency regime of the banking sector (Basel III)

-        Framework and objectives

-        Pillar I – quantitative requirements

-        Own funds

-        Trading book and Banking book

-        Credit risk: standard method and IRB (foundation and advanced)

-        Market risk: standard method and internal models

-        Operational risk: Basic indicator approach (BIA), standard / alternative method and advanced measurement approach (AMA)

-        Pillar II – qualitative requirements

-        Supervisory review process

-        Internal capital adequacy assessment process (ICAAP)

-        Pillar III – market discipline

-        Counter-cyclical capital buffer and capital conservation buffer

-        Liquidity coverage ratio (LCR) and net stable funding ratio (NSFR)

-        Leverage ratio