Group risk

Discussion in 'SA2' started by Viki2010, Aug 20, 2017.

  1. Viki2010

    Viki2010 Member

    How is Group Risk accounted for in Standard Formula for SCR calculations? The diagram on p. 17 of Ch. 12 does not illustrate Group Risk and I am a bit confused of how it may be accounted for in the calculations of SCR when using SF.
    Would it simply be captured in Pillar II under ORSA based on argument that any risks not captured quantitatively in Pillar I should be accounted for in a holistic approach of ORSA?
     
  2. Mbotha

    Mbotha Member

    Whether written on a group or individual basis, it is still life insurance risk that underpins these contracts (life underwriting SCR module). The difference is just in how these products are underwritten (group products are only underwritten above the free cover limit) and priced (group business is priced on a community rated basis). Similarly to individual life insurance products, the market risk, counterparty default and operational risk SCRs would also still be relevant.
     
  3. Viki2010

    Viki2010 Member

    What I am asking about is a group risk where the company is part of a larger group.
     
  4. Lindsay Smitherman

    Lindsay Smitherman ActEd Tutor Staff Member

    There is no sub-module for "Group risk" in the SCR standard formula calculation, but yes - you are correct: companies should take this into account in their ORSA.
     
  5. Viki2010

    Viki2010 Member

    Thank you Lindsay for clarifying.
    The risks coming via ORSA (group, reputational etc.) would not impact the SCR calculations because they are not accounted for in Pillar I. How would a company set aside capital for covering these risks?
     
  6. Lindsay Smitherman

    Lindsay Smitherman ActEd Tutor Staff Member

    Hi: the company basically has to make sure that it holds sufficient available capital (excess of assets over liabilities) to meet its capital requirements under both Pillar 1 and Pillar 2.
     

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