Swiss Federal Department of Finance FDF Swiss Federal

Swiss Federal Department of Finance FDF Swiss Federal Office of Private Insurance FOPI Swiss Solvency Test Field Test 2006 This version: 07. 08. 2007

Introduction Apart from the insurance undertakings for which the preparation of the SST report 2006 was mandatory (that is, those life companies whose premium volume ≥ CHF 1 bn and those non life companies whose premium volume is ≥ CHF 500 Mio) there was a considerable number of voluntary participants among small and middle sized insurers. Life Number of insurers with premium volume ≥ CHF 1 bn Number of insurers with premium volume < CHF 1 bn Non Life Number of insurers with premium volume ≥ CHF 500 Mio Number of insurers with premium volume < CHF 500 Mio Health Number of insurers participating 8 6 9 10 13 Federal Department of Finance FDF Swiss Federal Office of Private Insurance 1

Introduction Companies with full or partial internal SST model Life Non Life Health 5 9 2 Federal Department of Finance FDF Swiss Federal Office of Private Insurance 2

Comparison of Solvency I and SST Federal Department of Finance FDF Swiss Federal Office of Private Insurance 3

Comparison of Solvency I and SST Comparison of Solvency 1 Ratio and SST Solvency Ratio on the basis of Balance Sheet 31. 12. 2005: For non-life companies the statutory solvency ratio has a very weak relationship with SST solvency ratio. Therefore the statutory solvency ratio is no predictor of SST solvency ratio. Federal Department of Finance FDF Swiss Federal Office of Private Insurance 4

Comparison of Solvency I and SST Federal Department of Finance FDF Swiss Federal Office of Private Insurance 5

Assets: Market vs Statutory value Federal Department of Finance FDF Swiss Federal Office of Private Insurance 6

Assets: Market vs Statutory value Federal Department of Finance FDF Swiss Federal Office of Private Insurance 7

Assets: Market vs Statutory value Federal Department of Finance FDF Swiss Federal Office of Private Insurance 8

Liabilities: Market vs Statutory value Federal Department of Finance FDF Swiss Federal Office of Private Insurance 9

Liabilities: Market vs Statutory value Federal Department of Finance FDF Swiss Federal Office of Private Insurance 10

Liabilities: Market vs Statutory value Federal Department of Finance FDF Swiss Federal Office of Private Insurance 11

Best Estimate, MVM and SCR Federal Department of Finance FDF Swiss Federal Office of Private Insurance 12

Best Estimate of Liabilities, MVM and SCR Federal Department of Finance FDF Swiss Federal Office of Private Insurance 13

Best Estimate, MVM and SCR Federal Department of Finance FDF Swiss Federal Office of Private Insurance 14

Best Estimate of Liabilities, MVM and SCR Federal Department of Finance FDF Swiss Federal Office of Private Insurance 15

Best Estimate, MVM and SCR Federal Department of Finance FDF Swiss Federal Office of Private Insurance 16

Best Estimate of Liabilities, MVM and SCR Federal Department of Finance FDF Swiss Federal Office of Private Insurance 17

Components of Target Capital Federal Department of Finance FDF Swiss Federal Office of Private Insurance 18

Components of Target Capital Federal Department of Finance FDF Swiss Federal Office of Private Insurance 19

Components of Target Capital Federal Department of Finance FDF Swiss Federal Office of Private Insurance 20

Components of Target Capital - Weighted average Federal Department of Finance FDF Swiss Federal Office of Private Insurance 21

Components of Target Capital - Weighted average Components of Target Capital: Mean value (Non Life) (weighted average) 1500 1000 500 0 ult ios isk Risk fication Result it R e. R Res Scenar d i ket. . r s e c n r r i a e C M. F Dive Exp. T Exp nc sura In SCR M ital MV Cap t e g Tar Federal Department of Finance FDF Swiss Federal Office of Private Insurance 22

Components of Target Capital - Weighted average Federal Department of Finance FDF Swiss Federal Office of Private Insurance 23

Components of Market Risk Federal Department of Finance FDF Swiss Federal Office of Private Insurance 24

Components of Market Risk Federal Department of Finance FDF Swiss Federal Office of Private Insurance 25

Components of Market Risk Federal Department of Finance FDF Swiss Federal Office of Private Insurance 26

Components of Market Risk - Weighted average Federal Department of Finance FDF Swiss Federal Office of Private Insurance 27

Components of Market Risk - Weighted average Federal Department of Finance FDF Swiss Federal Office of Private Insurance 28

Components of Market Risk - Weighted average Federal Department of Finance FDF Swiss Federal Office of Private Insurance 29

Components Insurance Risk as fraction of RBC Federal Department of Finance FDF Swiss Federal Office of Private Insurance 30

Components Insurance Risk as fraction of RBC Federal Department of Finance FDF Swiss Federal Office of Private Insurance 31

Components Insurance Risk as fraction of RBC Federal Department of Finance FDF Swiss Federal Office of Private Insurance 32

Components Insurance Risk as fraction of RBC Federal Department of Finance FDF Swiss Federal Office of Private Insurance 33

Components Insurance Risk as fraction of RBC Federal Department of Finance FDF Swiss Federal Office of Private Insurance 34

Components Insurance Risk as fraction of RBC Federal Department of Finance FDF Swiss Federal Office of Private Insurance 35

Components of Insurance Risk: Non Life Federal Department of Finance FDF Swiss Federal Office of Private Insurance 36

Components of Insurance Risk: Non Life Federal Department of Finance FDF Swiss Federal Office of Private Insurance 37

Effect of Historical Financial Scenario as fraction of RBC Federal Department of Finance FDF Swiss Federal Office of Private Insurance 38

Effect of Historical Financial Scenario as fraction of RBC Federal Department of Finance FDF Swiss Federal Office of Private Insurance 39

Effect of Historical Financial Scenario as fraction of RBC Federal Department of Finance FDF Swiss Federal Office of Private Insurance 40

Effect of Selected Scenarios as fraction of RBC Federal Department of Finance FDF Swiss Federal Office of Private Insurance 41

Effect of Selected Scenarios as fraction of RBC Federal Department of Finance FDF Swiss Federal Office of Private Insurance 42

Effect of Selected Scenarios as fraction of RBC Federal Department of Finance FDF Swiss Federal Office of Private Insurance 43

Change in SST Ratio due to Impact of Historical Scenarios (Intervention Levels) Impact of historical scenarios on Life Market Stock market crash (2000/2001) Intervention Levels: 1. Green Level – SST ratio remains over 100 % 2. Yellow Level – SST ratio falls below 100 %, but remains over 60 % 3. Orange Level – SST ratio is reduced to less than 60 % The blue colour stands for the SST ratio prior to any scenario occurrence. LTCM (1998) US interest rate crisis (1994) European currency crisis (1992) Nikkei crash (1990) Stock market crash (1987) Real estate crash (with increase in interest rates) No Scenario 0 0. 2 0. 4 0. 6 0. 8 1 (RBC - SCENARIO) / TC 1. 2 1. 4 Federal Department of Finance FDF Swiss Federal Office of Private Insurance 44

Change in SST Ratio due to Impact of Historical Scenarios (Intervention Levels) Federal Department of Finance FDF Swiss Federal Office of Private Insurance 45

Change in SST Ratio due to Impact of Historical Scenarios (Intervention Levels) Federal Department of Finance FDF Swiss Federal Office of Private Insurance 46

Change in SST Ratio due to Impact of "Specific Scenarios" (Intervention Levels) Federal Department of Finance FDF Swiss Federal Office of Private Insurance 47

Change in SST Ratio due to Impact of "Specific Scenarios" (Intervention Levels) Federal Department of Finance FDF Swiss Federal Office of Private Insurance 48

Change in SST Ratio due to Impact of "Specific Scenarios" (Intervention Levels) Federal Department of Finance FDF Swiss Federal Office of Private Insurance 49

Macaulay Duration for Life Companies Federal Department of Finance FDF Swiss Federal Office of Private Insurance 50

Appendix: Run-Off Pattern ( Non Life ) Federal Department of Finance FDF Swiss Federal Office of Private Insurance 51

Appendix: Runoff Risk Relative standard deviation of Reserves per line of business. Federal Department of Finance FDF Swiss Federal Office of Private Insurance 52

Appendix: New Claim Risk Relative standard deviation of attritional (i. e. normal or small) claims per line of business. Others Legal Credit&Surety Lines of Business Aviation Transport Individual Health Collective Accident without UVG General Liability Nat. Cat Property without Nat. Cat Motor Hull Motor Liability 0 0. 2 0. 4 0. 6 0. 8 1 Variation Coefficient Federal Department of Finance FDF Swiss Federal Office of Private Insurance 53

Appendix: Boxplot (from Wikipedia) In descriptive statistics, a boxplot is a convenient way of graphically depicting the fivenumber summary, which consists of the smallest observation, lower quartile (x. 25), median, upper quartile (x. 75) and largest observation; in addition, the boxplot indicates which observations, if any, are considered unusual, or outliers. The boxplot was invented in 1977 by American statistician John Tukey. For a data set, one constructs a horizontal box plot in the following manner: • • Calculate the first quartile (x. 25), the median (x. 50) and third quartile (x. 75) • Construct a box above the number line bounded on the left by the first quartile (x. 25) and on the right by the third quartile (x. 75). • Indicate where the median lies inside of the box with the presence of a line dividing the box at the median value. • Any data observation which lies more than 1. 5*IQR lower than the first quartile or 1. 5*IQR higher than the third quartile is considered an outlier. Indicate where the smallest value that is not an outlier is by a vertical tic mark or "whisker", and connect the whisker to the box via a horizontal line. Likewise, indicate where the largest value that is not an outlier is by a "whisker", and connect that whisker to the box via another horizontal line. Calculate the interquartile range (IQR) by subtracting the third quartile from the first quartile. (x. 75 -x. 25) Federal Department of Finance FDF Swiss Federal Office of Private Insurance 54

Appendix: How to read the box plots? Minimal Value 25%-quantile Maximal Value Median Outlier (excluded from evaluation) 75%-quantile + Federal Department of Finance FDF Swiss Federal Office of Private Insurance 55

Appendix: waterfall chart (from Wikipedia) A waterfall chart is a special type of floating-column chart. A typical waterfall chart shows how an initial value is increased and decreased by a series of intermediate values, leading to a final value. An invisible column keeps the increases and decreases linked to the heights of the previous columns. Federal Department of Finance FDF Swiss Federal Office of Private Insurance 56