The Solvency II Experts News

As part of the Enterprise Risk Management Framework, Pillar 2 requires firms to undertake an Own Risk and Solvency Assessment (ORSA) to demonstrate “sound and prudent management of the business” and assess overall solvency needs. This article focusses on the impact of ORSA, the guidance to date, where companies currently stand and the key issues and challenges they face. Adhering to this aspect of Solvency II will mean significant and cultural change for many insurance companies. Click here to read full article.

Under Solvency II companies will need to take greater care in selecting their business partners. Choosing a financially strong partner will safeguard competitive advantages for the future.

This paper discusses qualitative aspects of reinsurance in the context of Solvency II’s Pillar 2 regime.

Some in the UK fear the FSA will apply the directive more strictly than its continental counterparts. Will “harmonization” succeed? Jessica Baylis investigates.

The approval of the Solvency II directive by the European Parliament and Council earlier this year has been the signal for some UK insurers and their advisers to start finding fault with it. The recent heavy coverage in the press of the costs to the UK pensions industry of Solvency II has been the most prominent example of this. But critics have also attacked the way they perceive the directive as being applied. Click here to read full article.

UK – Legal & General (L&G) has repeated a warning that annuity levels for UK-based defined contribution pension scheme members in the UK could fall by up to a fifth, if Solvency II is enacted in its current form.

The warning follows claims from the Association of British Insurers suggesting the European directive would force UK insurers to raise an extra £50bn (€57.16bn) in equity, leading to a sharp increase in premium rates paid by policyholders. The claims were made in a letter sent by the ABI to Alistair Darling, chancellor of the exchequer, urging both him and the European Commission to intervene.

Tim Breedon, chief executive of L&G, last month claimed the rules were “a betrayal of savers”, and said retirement income from annuities could be slashed by a fifth as insurers are forced to increase capital reserves. Click here to read full article

Standard formula or own model? Companies should not just wait to receive guidelines.

Now that the Directive has been adopted, CEIOPS can at last concentrate on the implementing measures. CEIOPS in fact published several consultation papers in March of this year.

For firms preparing for Solvency II, there’s no let-up. If they thought modelling issues were one of the most challenging aspects of the directive, they’re now beginning to worry seriously about another part of Solvency II, the own risk and solvency assessment (ORSA). There has been little information and little guidance from the authorities on ORSA and that has only fuelled concern about how much of a burden it will create for firms complying with it.

Click here to read full article

The CEA, the European insurance and reinsurance federation, is delighted that informal but unanimous agreement has been reached at political level in Europe on the text of the proposed Solvency II Framework Directive after prolonged negotiations.

“This is a decisive step towards the new, enhanced regulatory regime that we have been seeking for Europe’s insurers,” said Michaela Koller, CEA director general. “We are happy that the timetable for implementing the Directive is on track. Solvency II is an important and timely piece of legislation and any delay would have been most unfortunate in the current economic climate.”

The CEA, however, feels that carving out group support from the text agreed means that Europe has missed the opportunity to introduce a tool that would have met the need for the efficient and effective supervision of multinational groups which was highlighted last month in the De Larosière Group’s report on financial supervision. “The industry looks forward to Europe taking this step as soon as possible,” said Alberto Corinti, deputy director general of the CEA.

The text of the Framework Directive agreed informally today by the Committee of Permanent Representatives is expected to be formally endorsed next week. The European Parliament will put the Directive to a plenary vote on 22 April. Formal adoption of the Framework Directive could then take place during the 5 May Economic and Financial Affairs (ECOFIN) Council.

“The CEA stands ready to continue contributing to the work on the Level Two implementing measures of the Directive, to ensure that the best possible framework for the supervision of Europe’s insurers is achieved,” said Corinti.

PODRA (PillarOne Dynamic Reinsurance Analysis) is a service developed by Munich Re to describe and measure underwriting risk in property and casualty insurance. The method is based on the PillarOne.RiskAnalytics software platform, an open-source software project initiated and sponsored by Munich Re.

Munich Re has successfully concluded this joint project with a number of European insurance companies and presented the concept at market events. In all cases, the partial model has had an impact, the economic risk capital calculated for the underwriting risk in life being lower than if the standard formula had been used.