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Shaping a Constructive Regulatory Environment

Shaping a Constructive Regulatory Environment. Greg Carter 9 th June 2010. Agenda. How does Regulation impact ratings?. 5 Key areas of analysis. Conclusion. Agenda. How does Regulation impact ratings?. 5 Key areas of analysis. Conclusion. Analytical Methodology. Source: Fitch. 3.

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Shaping a Constructive Regulatory Environment

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  1. Shaping a Constructive Regulatory Environment Greg Carter 9th June 2010

  2. Agenda How does Regulation impact ratings? 5 Key areas of analysis Conclusion

  3. Agenda How does Regulation impact ratings? 5 Key areas of analysis Conclusion

  4. Analytical Methodology Source: Fitch 3

  5. Methodology – Where does Regulation sit? Source: Fitch 4

  6. Methodology – What does Regulation influence? Source: Fitch 5

  7. Agenda How does Regulation impact ratings? 5 Key areas of analysis Conclusion

  8. 1) Expected Regulatory Solvency Position Solvency Ratios From QIS4 Compared With Solvency I Source: CEIOPS QIS4 final report

  9. 2) Sources of Additional Capital Capital Shortfalls in QIS4, Selected Countries Source: CEIOPS QIS4 final report

  10. 3) Options for Reducing Capital Requirements QIS4 Solvency Capital Requirement (SCR) Composition Source: CEIOPS QIS4 final report

  11. Interest rate risk Equity risk Property risk Spread risk Concentration risk Currency risk Less diversification (%) 160 140 120 100 80 60 40 20 0 -20 -40 -60 Non-life Life Composites 3) Options for Reducing Capital Requirements (cont) QIS4 Composition of Required Capital for Market Risk Source: CEIOPS QIS4 final report

  12. 4) Own Funds composition & Allowance for Hybrids • Tier 1 or Tier 2? • Grandfathering? • Longer term impact on Financial Flexibility

  13. 5) Internal Model Use • “Solvency II compliance” • The Use Test • Partial model • Comparability and Transparency

  14. Agenda How does Regulation impact ratings? 5 Key areas of analysis Conclusion

  15. Conclusion • QIS 5 brings some clarity, but the picture is still not clear • QIS 5 results will bring the capital landscape into focus • Regulatory capital is one part of our Capital Adequacy analysis • Capital Adequacy is one part of our Credit Rating

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