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ERM Frameworks and Responses to risk [52]

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Bullet points include: Solvency I Framework dates from 1970s (14 Directives) ‘Prudent’ valuation of liabilities, reflecting local accounting practices and non-harmonised valuation of TP (Technical Provisions) Simple ‘volume-based’ capital requirements Asset risk managed by quantitative restrictions Diverging supervisory practices (both between countries and between insurance and other financial disciplines) Solvency II Unified legislative basis for prudential regulation of insurers and reinsurers Employs Lamfalussy arrangements (Level 1 Directive, Level 2 implementing measures and Level 3 guidelines etc.) Non-zero failure regime with explicit ruin probability Two capital requirements (SCR and MCR) and market consistent valuation Importance of risk management Parts of SII may be borrowed by future pension fund regulatory frameworks

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