Solvency II and Individual Solvency

The new EU solvency rules, Solvency II, which are expected to come into force in 2012, will make it possible for companies such as TrygVesta with operations in several countries to benefit from the risk diversification that typically exists between different geographical areas when determining their solvency requirements. We have for several years taken part in the Solvency II hearings through the Danish Insurance Association, Forsikring & Pension, and in 2007 we were involved in drafting QIS3 (Quantitative Impact Study), part of the preparatory work for the final Solvency II directive. With these efforts and the work with our internal models we aim to provide the best possible preparation for the introduction of the new solvency rules.

In preparation for the introduction on Solvency II, companies are required as from 1 January 2008 to make their own determination of the necessary capital, the Individual Solvency Requirement, and report it to the Danish Financial Supervisory Authority. For purposes of determining the Individual Solvency Requirement we use our internal model and Standard & Poor’s capital model in combination with several other quantitative assessments. Read more about Solvency II and Individual Solvency in the section TrygVesta and the external community.

The figure illustrates the impact on the fixed-rate securities and discounted provisions for claims based on simulated interest rate scenarios in TrygVesta’s ALM model with the portfolios of bonds and provisions at 31 December 2007.

The calculation of the impact on our liabilities does not include provisions for claims for TrygVesta Garanti, the Finnish and Swedish business and the provision for the Norwegian pension liability.

The figure is based on simulation of 5,000 scenarios with a one-year horizon, with 90% of scenarios being within the light-blue frame.

The red line illustrates scenarios in which the impacts of interest rate changes on assets and liabilities are mutually offsetting. The figure shows that 90% of all scenarios fall within a band corresponding to interest rate risk of less than DKK 140m. The scenarios are scattered around a line sloping slightly less than that indicated. This is because the portfolio of fixed-interest assets exceeds our provisions, and that the provisions referred to above are excluded. The Norwegian pension provision is discounted using a fixed rate, and interest rate changes therefore have no direct impact on profits.