DYNAMIC HYBRIDS UNDER SOLVENCY II&58; RISK ANALYSIS AND MODIFICATION POSSIBILITIES

In this study, we investigate the new and standardized European system of supervisory called Solvency II. In essence, asymmetric distribution of information between policyholder and insurer triggered this new regulation which aims at better protecting policyholders. Its three-pillar model is about to challenge both, insurers as well as policyholders. The first pillar includes quantitative aspects, the second pillar contains qualitative aspects and the third pillar comprises market transparency and reporting obligations. Underwriting risks, the default risk of a bank and market risks can be identified for the dynamic hybrid. Solvency II covers all these risks in the first pillar and insurers shall deposit sufficient risk-bearing capital. In our analysis, we first identify the dynamic hybrid specific risks under the Solvency II regime und then develop product modifications to reduce this risk.