Risk  Management for Insurers (3rd edition)

Risk Management for Insurers (3rd edition)

Internal Models and Solvency II

Internal Models and Solvency II

The Solvency II Handbook


The Solvency II Handbook brings together some of the best known and most renowned experts in insurance risk management to provide a detailed examination of the main requirements and impacts of Solvency II to insurers and reinsurers.

Marcelo Cruz brings together highly regarded practitioners and academics working in the Solvency II area to provide a practical guide for implementing internal models – the focus of Pillar I and the area demanding greater attention in preparing for Solvency II. The book also gives practical examples for the key areas outlined throughout the three pillars of Solvency II, taking a close look at insurance risk, market risk, credit risk, liquidity risk and operational risk.

Also of interest will be the 2014 title The Solvency II Handbook: Practical Approaches to Implementation. This newer title complements the original Solvency II Handbook perfectly covering the more practical aspects of implementation with lessons learnt from experts in life and non-life insurance companies.

Availability: In stock

The Solvency II framework directive was approved in 2009 2Q by the European Parliament, and the insurance industry must now move quickly with their preparations to be compliant with this framework. As Solvency II allows insurers to use internally developed models for measuring risks for the first time, this is quite a challenge for these companies. Solvency II follows Basel II’s similar three-pillar structure, which will regulate risk measurement requirements, supervisor review and market discipline and disclosure. The demands for Solvency II are quite extensive and will change the insurance industry worldwide with better risk assessment and mitigation and much higher financial and risk disclosure details.

The Solvency II Handbook provides an introduction and deeper look into the Solvency II framework, exploring in detail the current practices within the insurance industry and the impact of Solvency II; looking at what the issues and challenges of building an internal model are, risk management implementation as it is and, crucially, the regulatory perspective on calculating solvency capital requirements. The book then moves onto explore in greater depth how to measure and manage financial risk, insurance risk, operational risk as well as providing key chapters on economic capital and hedging.


The relevant regulatory bodies will be looking to govern and approve company’s internal models. This must-read book is essential to all insurers and reinsurers who are currently in the process of choosing between using the standard formula or, in particular, developing their own internal risk management framework.

For practitioners and regulators, this is a one-stop reference tool that contains vital thinking on internal modelling ideas and how to prepare for Solvency II compliance.

More Information
ISBN 9781906348199
Navision code MSB2
Publication date 2 Nov 2009
Size 155mmx235mm
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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


Marcelo Cruz

New York University



1. Risk Management Implementation in the Insurance Industry

René 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



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



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 Hürlimann

FRSGlobal Switzerland

13. On the Non-Life Solvency II Model

Werner Hürlimann

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 Lévy 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 Hürlimann

FRSGlobal Switzerland



18. Modeling and Measuring Operational Risk in Insurance Companies

Marcelo Cruz

New York University



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