Solvency II
The Chartered Insurance Institute recognises its members need for information on Solvency II as it's a new piece of regulation with far reaching consequences that will have a significant impact on insurers. To ensure members receive the right information, the CII has teamed up with PricewaterhouseCoopers to provide specialist knowledge.
What is it?
Solvency II is the long planned overhaul of prudential regulation for European insurers which is due to come into operation across Europe on 31 October 2012. It will significantly upgrade existing European solvency rules for life, non-life, reinsurers and captives. Structured around three pillars, Solvency II is a risk-based, forward-looking regulatory regime founded on a ‘total balance sheet’ and market-consistent approach. Companies will be given incentives to run their business with an increased focus on risk management, governance and enhanced disclosure.
Are all insurers involved?
All insurance companies authorised within Europe are covered (unless very small). This includes insurers such as pure reinsurers and captives which have previously had a limited scope of regulatory involvement. Although the new regulations are targeted at Europe they have wider implications, particularly for those groups with head offices outside of Europe. There are also considerations for European groups who have subsidiaries outside of Europe.
Many non-European countries are watching developments with Solvency II very closely, and several have adopted or have indicated their intention to adopt rules broadly based on the European model.
One aspect of Solvency II is the power to recognise other jurisdictions as “equivalent”. If a non-European country can meet a set of specified requirements for their insurance supervision then they may be deemed “equivalent”. This will enable and oblige European regulators to rely on their supervision, and if the parent of the group is in the “equivalent” country, then the global group supervision can be coordinated by that country’s regulator.
Three pillars
The Solvency II proposals can be described as based on a three pillar approach (similar to Basel II). These cover:
What's the timeline?
The expected timeline for the entry into force and transposition of the Directive Close
| April 2009 | Adoption of the Directive by the European Parliament and the Council |
| October 2009 | CEIOPS advice on implementing measures |
| 2010 | Adoption of the implementing measures |
| 31 October 2012 | Transposition of the Directive |
What's happened so far?
The European Commission published a revised draft proposal for a Framework Directive in early February 2008. It was finally adopted, after intense negotiations, by the European Parliament in April 2009. The EcoFIN Council, co-legislator with the Parliament, is expected to formalise its adoption in early May. The directive will become EU law once published in the Official Journal.
In March 2009, CEIOPS published its "first wave" of consultation papers on Level 2 measures: another more substantive, second wave was published on the 2nd of July, with a third and final wave due towards the end of the year. The Commission has announced its intention to conduct a fifth QIS from April to June 2010.
Critical questions
The critical questions for CEOs, CFOs, CROs and Chief Actuaries to consider:
- What is our level of ambition for developing risk and risk based capital within the organisation, is it to meet Solvency II or to exceed it?
- What ambition and revised strategies are our competitors adopting?
- How will this impact on my daily activities?
- Do we require an internal model?
- How do the potential capital requirements affect the business strategy?
- How will the detail of Solvency II impact on my day to day activities?
- Are all Solvency II key business risks captured in our internal risk assessment?
- Can I manage and continuously report on risks at an individual and aggregate level?
- What is the potential impact on the operational and organisational structure of the business?
- Given the increased focus on public disclosure, what we will be required to disclose for :
- Governance system;
- Risk profile, mitigation and sensitivity; and
- Solvency and financial condition.
- What are the implications for our corporate group structure?
- Are there implications for my business strategy for growth outside of Europe?
- What could Solvency II implementation cost?
- How can I ensure and effective implementation programme?
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