AVBOB Integrated Annual Report 2018

change the way insurers do business, particularly the way they assess risk and allocate capital. Importantly, SAM will link the amount of capital an insurer must hold to the risks that the insurer is willing to take, as well as the nature of those risks. SAM will lead to better protection for policyholders and to a more efficient and more competitive insurance industry. SAM is based on the Solvency II capital adequacy, risk governance, and risk disclosure regime being implemented for European insurers and reinsurers. SAM shares the same broad features as Solvency II, being a principles-based regulation based on an economic balance sheet, and utilises the same three-pillar structure of capital adequacy (Pillar I), systems of governance (Pillar II), and reporting requirements (Pillar III). The purpose of SAM is to: • align capital requirements with the underlying risks; • develop a proportionate, risk-based approach to supervision, with appropriate treatment for both small and large insurers; • provide incentives to insurers to adopt more sophisticated risk-monitoring and risk management tools, as well as to develop full and partial internal capital models and increase the use of risk mitigation and risk transfer tools; and • maintain financial stability. To ensure compliance with SAM requirements, a SAM project commenced in 2012 covering each of the three pillars. Pillar I – Capital adequacy As part of the SAM project, the Society complied with the requirements of the Comprehensive Parallel Run (CPR) that included the full set of quantitative reporting templates each year, including 82