Page 32 - Risk Management in current scenario

company will have lower capital requirement as compare to poorly risk
managed company. Therefore solvency-II provides incentive to invest in
risk management.

Risk based capital is calculated using value at risk (VaR) methodology. This
is a statistical tool where VaR is calculated as maximum loss to the company
in a given time frame and within certain level of probability. This time frame
could be one day or one year or any other period as desired and probability
level could be 99% or 99.5% any level required for the purpose.

Solvency-Il is based on the three pillar approach
X Pillar-1: Quantitative requirement-Market risk, Credit Risk, Equities
risk, Operational risk

X Pillar-2: Qualitative requirement Supervisory review' Risk
Management' Own Risk and Solvency Assessment

X Pillar-3: Disclosure
Pillar-1 and Pillar-II interacts, while Pillar-III interacts with both Pillar-1
and Pilllar-2

This is the position of solvency II applicable in European countries;

On the other hand India is working on solvency I regime where capital is
calculated based on formula approach. To initiate the risk management
culture in the Indian insurance, regulator (IRDA) has made CRO position
mandatory in every life insurance company.

Also the IRDA made it
mandatory to have
disclosure of financial
result on quarterly
basis on its website.
IRDA also asks to
calculate life
companies risk based

30 | Risk Management in Current Scenario