Legislation / solvency

can anyone clarify if the following is correct;

Solvency II has 3 pillars.
Pillar 1 is the MCR calculation

MCR = CRR = RMM = SMSM
whichever name is used, MCR = max of GICR (=RMS) and MGF (= BCRR)


Pillar 2 is setting out a risk based method of estimating capital
is this the same as the current ICA/ICG?
what is SCR, is it the name for the pillar 2 calc?
so SCR will replace the ICA?

If the above is correct, what is the ECR (enhanced capital requirement) and where does it fit?

And finally, are there any other capital terms i have missed out?

any help is much appreciated.

 

You are right

UK Solvency II
For non-life insurers you have, I think, correctly stated Pillar 1
You have also correctly stated Pillar II (See eg page 30 - Unit 6 for 2009 examinations)
Bear in mind that life insurers will have different requirements and meanings.

My take on the ECR is that instead of the old-fashioned "we expect general insurers to have free reseves of 3 X SMSM" (rather than just exceed the SMSM) why not have an objective number (ECR) which takes more of a look at the business written, reserves etc usually in excess of the SMSM as an informal starting point for discussion with the regulator. (See page 16 - Unit 6 for 2009 examinations) and thus why not express the ICG as a % of the ECR.

Finally Pillar 3 is the regulatory disclosures firms will be required to make publicly and to supervisors.

 

No

The solvency II "MCR" calculation has nothing to do with the Solvency I "MCR" calculation which has all those other names.

It just has the same name (MCR).

The solvency II "SCR" is similar to the ICA in that they are both risk-based and calculated using the insurer's internal models.

So it is expected to replace the ICA in the UK.

The ECR does not fit into the Solvency II framework. It's something between Solvency I and ICA.

 

I think, based on this guide:
http://www.abi.org.uk/Display/File/Child/664/CEA_Guide_to_Solvency_II_tillinghast.pdf
that SCR and MCR are both part of Pillar I, and Pillar II is more to do with internal risk management processes. Also SCR can be based on internal models, but can also be based on a standard formula.
But it's possible it's changed since!
L