The Solvency II Experts News

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 European Commission’s (EC’s) November 2008 target for adopting the Solvency II framework directive was missed. Standard & Poor’s Ratings Services believes that the earliest implementation date is now likely to be Jan. 1, 2013, instead of Oct. 1, 2012. In their opinion, Solvency I is no longer fit for purpose and is implemented by national supervisors in many different ways around Europe.

Solvency II holds out the prospect of a radical Europe-wide modernization of insurance supervision, putting it on a much more risk-sensitive footing than most other supervisory regimes around the world. Some commentators have cited the current turmoil in investment markets as reason to pause before embarking on Solvency II. Standard & Poor’s Ratings Services’ opinion is the contrary; they believe that the turmoil highlights the urgency of implementing Solvency II. The focus is now to adopt the directive by April 2009, before the European Parliament (EP) elections in June. If that target is missed, a 2013 implementation would in their view be challenging. Solvency II remains controversial and Standard & Poor’s Ratings Services commented on the features that gave rise to the controversy in their article published on March 12, 2008, titled “One In Four Of Europe’s Insurers Could Face Major Strategic Decisions Under Solvency II.”

In this article Standard and Poor’s updates their commentary for recent political, supervisory, and economic developments under the following headings:
•Group support
•Equity risk
•Minimum capital requirement (MCR)
•Market impact
•Annuity products in the U.K.
•Bonus reserves in Germany
•Diversification effects
•Standard solvency capital requirement (SCR) calibration
•Internal models
•Implications for ratings
•Convergence with International Financial Reporting Standards (IFRS)

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.

In its letter of 19 July 2007, the European Commission requested CEIOPS to provide final, fully consulted advice on Level 2 implementing measures by October 2009 and recommended CEIOPS to develop Level 3 guidance on certain areas to foster supervisory convergence.

Today, CEIOPS is releasing for consultation its first set of advice on Level 2 implementing measures. These drafts have been developed on the basis of the General approach on the Solvency II Directive proposal adopted by the ECOFIN Council on 2 December 2008 (“Level 1 text”).

CEIOPS invites comments from stakeholders on the Consultation Papers. CEIOPS will finalise the papers for submission to the European Commission, taking into account the comments received, the lessons learned from the crisis, and the adopted Directive text. CEIOPS will make all comments available on its website, except where respondents specifically request that their comments remain confidential.

Two further sets of advice on Level 2 measures are foreseen to be released at the beginning of July 2009 and in Autumn 2009.

Click here to read entire article

As insurers continue to release 2008 results, the difficulties of pinning down financial performances in volatile markets are becoming more evident.

Several relatively new accounting methods used by insurers in Europe are undergoing real-life stress tests in the current economic downturn, and interestingly, these methods that are designed to bring clarity to financial reporting are coming up with divergent pictures of what is going on in terms of company performance.

The insurance industry in Europe is calling for swift action on adoption of the European Union’s Solvency II standard for insurers, but it may be difficult to finalize that system if the underlying accounting cannot be nailed down.

This article discusses how current volatility in global equity and debt markets, along with interest rates, may be driving a divide between what can be expected from MCEV accounting and IFRS, and perhaps creating a problem for Solvency II. Click here to read full article

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.