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Answer: The company can lower the capital charges assessed for determining the capital requirement by decreasing investment risk.
C is correct. Solvency III provides for capital charges for investment risk, underwriting risk, and operational risk. Lowering any of these risks will lower the related capital charges assessed for determining the capital requirement levels. A is incorrect because an insurer whose capital falls below the minimum capital requirement may be prevented from taking new business. B is incorrect as the minimum capital requirement is lower than the solvency capital requirement, so breaching the solvency capital requirement may still leave the company above the minimum capital requirement. D is incorrect because European insurers are regulated by a European Union regulator, not by state regulators.
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In a discussion between the Chief Financial Officer (CFO) and the Chief Risk Officer (CRO) of a French property-casualty insurance company, there is significant concern over an anticipated rise in property insurance claims triggered by recent flooding events in Europe. This concern centers around the risk that their firm's regulatory capital could fall below the Solvency Capital Requirement (SCR) as stipulated by the Solvency II framework. What potential outcome might result from this situation?
A
The company will be prevented from writing new property-casualty policies.
B
A plan to bring capital above the minimum capital requirement must be formulated.
C
The company can lower the capital charges assessed for determining the capital requirement by decreasing investment risk.
D
A waiver of capital requirements can be granted by the French insurance regulator.
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