The Solvency II Handbook

Marcelo Cruz Marcelo Cruz is an adjunct professor at New York University and a senior risk consultant. Formerly he was the group chief risk officer of Aviva, the UK's largest insurer and asset manager. Previously Marcelo was global head of operational risk analytics and quantitative risk analytics at Lehman Brothers and was the managing director and founder of RiskMaths, a boutique consultancy focused on risk management and more specifically operational risk. He also previously worked at UBS AG for three years as head of operational risk. Before UBS Marcelo worked as a chief economist/strategist for an investment bank and as a derivatives trader (fixed income) for JP Morgan, where he was involved in structuring, managing and trading fixed income derivatives. Marcelo wrote one of the best selling books in risk management ("Modeling, Measuring and Hedging Operational Risk, Wiley 2002), and has written and edited other books in risk management. He is the founder editor-in-chief of The Journal of Operational Risk and sits on the board of other publications. Marcelo was also part of the GARP Board of Trustees. He holds a PhD in Mathematics from the Imperial College in London, a MSc in Financial Mathematics, an MBA and a BSc in Economics.

List of Figures List of Tables About the Editor About the Authors Introduction Marcelo Cruz New York University SECTION 1: INTRODUCTION TO THE SOLVENCY II REGIME Introduction 1. Risk Management Implementation in the Insurance Industry Rene Doff Eureko/Achmea, Universiteit van Amsterdam 2. Heading in the Same Direction: IFRS 4 Phase II and Solvency II Francesco Nagari Deloitte LLP 3. Building Internal Models: Preparing for Solvency II Stephan Erasmus, Gaurav Kwatra Watson Wyatt 4. Using Internal Models to Determine the Solvency Capital Requirement: the Regulatory View Paul Cadoni Financial Services Authority 5. Market Consistent Embedded Value and Solvency II Kamran Foroughi Towers Perrin SECTION 2: MEASURING AND MANAGING FINANCIAL RISK Introduction 6. Solvency II and Economic Scenario Generation Thorsten Pfeiffer; Elliot Varnell; Russell Ward FINMA; KPMG LLP; Ernst and Young LLP 7. Market Risk Measurement Under Solvency II Michele Bourdeau Federal Reserve Bank of New York 8. Vanilla Option Replication of ALM Shortfall Risks for Life and Pension Liabilities Rahul Karkun, Juliana Kim Moustakas, Idriss Amor Bank of America 9. Liquidity Risk Analysis Framework in Insurance Ioannis Akkizidis; Kris Luyten FRSGlobal Switzerland; riskVentures 10. Reinsurance Credit Risk Rainer Sachs Munich Re SECTION 3: MEASURING AND MANAGING INSURANCE RISK Introduction 11. Solvency II for property-casualty insurers Kathleen Ehrlich; Heinrich R. Schradin University of Cologne 12. Optimization of the Non-Life Insurance Risk Diversification in Solvency II Werner Hurlimann FRSGlobal Switzerland 13. On the Non-Life Solvency II Model Werner Hurlimann FRSGlobal Switzerland 14. Solvency Requirements for Life Annuities Allowing for Mortality Risks: Internal Models vs Standard Formulae Annamaria Olivieri; Ermanno Pitacco University of Parma; University of Trieste 15. Risk Assessment of Life Insurance Contracts: a Comparative Study in a Levy Framework Nadine Gatzert; Stefan Kassberger University of Erlangen-Nuremberg; Ulm University 16. Demographic Assets and the Asset Allocation Problem for Pension Funds Francesco Menoncin Brescia University 17. On the Optimal SST Initial Capital of a Life Contract Werner Hurlimann FRSGlobal Switzerland SECTION 4: MEASURING AND MANAGING OPERATIONAL RISK Introduction 18. Modeling and Measuring Operational Risk in Insurance Companies Marcelo Cruz New York University SECTION 5: ECONOMIC CAPITAL AND HEDGING UNDER SOLVENCY II Introduction 19. Corporate Decision Making Using Economic Capital Models Susan E. Witcraft Guy Carpenter & Company, LLC 20. Risk Sharing in Insurance Groups Tamas Mayer; Andreas; Philipp Keller; Helga Portmann Ernst & Young Ltd; AXA Winterthur; Deloitte LLP; Federal Office of Public Health 21. Dependency and Copulas Andrew D. Smith Deloitte LLP 22. Hedging Inflation-Linked Pension Liabilities under Solvency II Mark Schouten, Albert Mentink; Roy Kouwenberg AEGON Netherlands; Madihol University, Erasmus University Rotterdam