German Proposal for a Standard Approach for Solvency II
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German Proposal for a Standard Approach for Solvency II Thomas Schubert and Gundula Griemann Business Administration Institute, German Insurance Association (GDV), Friedrichstrasse 191, 10117 Berlin, Germany. E-mail: [email protected]
The German insurance industry has dealt intensely with the creation of a new supervisory model for European insurance companies since 1997 and released the so-called GDVmodel in 2002. At the end of 2005, a completely redesigned proposal for a Solvency II compatible standard approach was published. For this new release, the GDV worked together with the German supervisory authority (BaFin) and the Association of the German actuaries (DAV). The objective of this paper is to show the progress of the work aimed at developing this standard model. Market risk, credit risk, underwriting risk life and non-life and operational risk are included in the approach as CEIOPS proposed. The main focus is on modelling the market risk, especially the interest-rate risk. The paper wants to show how the ALM risk, which is quite important for the insurance industry, could be modulated in a simple but meaningful way with the help of a duration approach. The Geneva Papers (2007) 32, 133–150. doi:10.1057/palgrave.gpp.2510116 Keywords: German standard approach Solvency II
Introduction Within the scope of ‘‘Solvency II’’, it has been provided for that insurers calculate the risk-based own funds needed using a standard model or their own internal risk model. The working groups of insurance supervisors (CEIOPS – Committee of European Insurance and Occupational Pension Supervisors) have been discussing the actual design of this new system since the summer of 2004 and published a first interim report on their discussion – inter alia on the standard model and on requirements for internal models – in November 2005.1 This report mentions the risk categories to be quantified and points out several possibilities of how these might be reflected. GDV started its first reflections on a risk-based standard approach as early as 1997, setting itself the goal to initiate a redesign of insurance supervision by suggesting an approach, which is, to a greater extent, based on risk management models. With this in mind, a risk-oriented standard model for life and casualty/property/accident insurers has been developed allowing for the particularities of specific classes. Since its publication in August 2002, the so-called ‘‘GDV model’’2 has been applied by numerous insurance companies in their risk management practice. The approach has
1 2
Cf. CEIOPS (2005a). Cf. GDV Model (2002).
The Geneva Papers on Risk and Insurance — Issues and Practice
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met with a positive response at both national and international levels. Moreover, GDV has brought the model into the national and European debates on a new system of insurance supervision for Europe within the scope of the Solvency II project. Against this background, the model was revised in the spring of 2004. The objective was to check the model, which is now a few years old, to fi
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