The Solvency II Experts News

Solvency II is intended to radically change supervision of insurance within the EU. It will move Europe’s insurance supervision onto a modern, risk-sensitive platform far superior to that of the existing Solvency I regime. Meeting all the requirements of the Directive will however not happen overnight; hence many regulators have highlighted the need to start planning for implementation now.

To be Solvency II compliant by 2013, it is essential to identify precisely what activities will be required and how they should be prioritised. Drawing the overall road map and estimating global cost will also need careful consideration early in the Solvency II project. Companies should not treat Solvency II as a pure compliance exercise and should concentrate on identifying synergies between business needs and compliance requirements to drive business efficiency opportunities.

Solvency II will require insurance companies to integrate risk and risk management in all aspects of corporate day-to-day decision making, in particular in terms of setting the strategy. Insurers will need to strengthen the links between all the competencies that contribute to risk management.

In this article, Raphael Borrel and Michel de La Belliere highlight some of the challenges that insurance companies face in their attempt to implement the Solvency II Directive.

Click here to read the article.

The CRO Forum has published a thought leadership paper – insurance risk management response to the financial crisis.

This paper summarises the CRO Forum’s views on the key elements of effective risk management, the differences between insurance and banks’ approach to risk management, and the importance of economic-based group supervision for cross-border (re)insurers. The paper covers five major themes which the CRO Forum considers to be necessary responses to the crisis:

• Integrated Risk Governance;
• Risk Models;
• Liquidity Risk Management;
• Valuation and Risk Disclosure; and
• Group Supervision.

These themes have proved to work effectively for those (re)insurance companies that have rigorously followed these principles and they should form the basis for any conclusion to be drawn as lessons learned from the crisis.

Click here to download full paper

The CEA is delighted that the European Parliament has today approved the proposed
Solvency II Framework Directive.

“We welcome the vote and thank the Parliament for its hard work in ensuring that an
enhanced regulatory regime for Europe’s insurers will become reality,” said Michaela
Koller, CEA director general.

The Parliament’s vote follows the endorsement of the text of the Directive by the
Committee of Permanent Representatives (Coreper) on 1 April. Formal adoption of the
Framework Directive is expected at the 5 May Economic and Financial Affairs (ECOFIN)
Council.

A delegation from the EU yesterday presented recent regulatory developments in the EU, and in particular the agreed Solvency II regulatory reforms, to US (re)insurers and policymakers at a meeting in Washington, DC.

The EU delegation presented recent EU developments in the light of the adoption of Solvency II. It clarified certain misunderstandings about the regulatory reforms, explained the Solvency II approach and also discussed likely future developments in regulation. The US audience showed keen interest in Solvency II and was also particularly interested in the issue of the equivalence of supervisory regimes.

The Transatlantic Insurance Symposium was organised by the US Chamber of Commerce and BusinessEurope, in cooperation with the CEA, which is the European insurance and reinsurance federation, and the American Council of Life Insurers (ACLI). It focused on regulation and regulatory reform on both sides of the Atlantic.

Speakers on the EU panel were Karel Van Hulle, Head of the European Commission’s insurance and pensions unit; Peter Skinner MEP and Solvency II rapporteur; and Thomas Steffen, chair of the Committee of European Insurance and Occupational Pensions Supervisors (Ceiops). The panel was moderated by Michaela Koller, director general of the CEA.

“The Symposium was the perfect opportunity to stress the need for the US and Europe to work together in an open and constructive dialogue. It was an excellent first step towards achieving regulatory convergence between the US and EU,” said Peter Skinner MEP.

Karel Van Hulle added: “The meeting enabled us to discuss international best practice with our US counterparts, and there was an interesting and stimulating exchange of views on the respective views and plans in the US and in the EU.”

“Increasing the mutual understanding of our regulatory systems and of planned reforms can only help us to resist any pressure to introduce unwarranted protectionist measures as a result of the economic crisis,” said Michaela Koller.

Background

US perspectives at the Symposium were provided by William Toppeta, president of MetLife International and chair of the international committee of the American Council of Life Insurers; Congressman Ed Royce; New Jersey Insurance Commissioner Steven Goldman, chair of the international committee of the National Association of Insurance Commissioners (NAIC); and Michael McRaith, Illinois insurance director and a member of the international committee of the NAIC.

Solvency II, the proposed new regulatory regime for EU (re)insurers, was informally approved last week by the European Parliament and Council (see CEA press release of 26 March).

The Transatlantic Economic Council was created by EU and US leaders to foster transatlantic and economic integration at the EU-US Summit in Washington in April 2007.

BusinessEurope is the European employers’ federation.

Despite investments in risk management, many insurers still lack an overall view of the business, says new research.

Most insurers continue to manage “through the rear-view mirror”, attempting to predict the future based on stale reports, according to Strengthening governance, risk and compliance in the insurance industry, a survey and research paper written by the Economist Intelligence Unit and sponsored by SAP.

Few companies can produce accurate, near-real-time information to support decision-making, and fewer still have mastered scenario analysis and regular risk stress-testing, suggests the report. While insurers have become comfortable with the way they manage risk within operational silos, most have not invested in methods of managing all risk exposures throughout the company and to track interdependencies.

Process complexity, data inconsistency and systems incompatibility are all contributing to the problem at a time when market volatility and investor unease require speedy, data-driven decisions. “In the wake of the financial crisis, executives are paying more attention to how to aggregate enterprise-wide data and manage their businesses better,” says Dan Armstrong, senior editor at the Economist Intelligence Unit and the manager of the research. “This is especially true in insurance companies, where there can be an almost paralysing level of complexity and decentralisation.”

The findings were based on the responses of 58 insurance executives who were part of a larger 446-respondent survey on governance, risk and compliance conducted in the fourth quarter of 2008 and January of 2009. The report also includes interviews with executives at the multiline insurer Zurich Financial Services and the life insurer Securian Financial.

Other findings of the research include:

• The biggest benefits insurers hope to gain from standardising and automating financial processes are improving data accuracy, eliminating error-prone manual processes, giving staff more time to focus on more valuable activities, and making speedier decisions. While 24% of executives cited cost reduction as a key advantage, it ranked fifth overall. More than double that proportion highlighted data accuracy and integrity instead.

• Efforts to automate processes involve problems and risks of their own, many respondents believe. Almost half of respondents cited cost as a barrier to standardisation and automation, and 28% cited the difficulty of obtaining approval from independent-minded executives across regions and business lines.

• Insurers operating in the European Union will face pressure to refine and improve financial processes as part of the updated set of regulatory requirements known as Solvency II. The Supervisory Review Process of Solvency II aims to identify institutions with financial, organisational or other features that result in a higher risk profile. Because the authorities will review financial processes as well as governance and capital reserves, it will be necessary to know who participates in each process, what the person does, and the results of the process.

Click here to download the briefing  paper.