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Chapter 36: SCR risk-based or not?

F

Fortunate

Member
May you please help me understand these 2 statements on solvency capital requirements:

page 4 - " Some countries use a different approach... This has the disadvantages that: ... solvency capital requirements are not risk-based, making it difficult to ensure that sufficient security is provided to policyholders."

and

page 8 - "As explained in the previous section: The SCR under Solvency II is a risk-based capital measure."

Does it mean SCR is not risk-based if provisions have been calculated on a prudent basis, but they become risk-based if provisions are calculated on a best estimate basis (eg under Solvency II)?
 
Hi
Thanks for your post. Page 4 is saying that Solv II calculates provisions on a best estimate basis with a risk-based capital requirement in addition. It then is saying that other countries may not be using a Solv II type approach, instead adopting for example a formula based approach that does not directly reflect the risks faced by the business.

The comment on age 8 is consistent with page 4, ie that the calculation of the capital requiremnet under Solv II is risk based.
 
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