Guy Carp and ABI publish guides to help insurers deal with Solvency II

Guy Carpenter’s guide, Succeeding under Solvency II – Pillar One: Capital Requirements, examines the issues thrown up by the quantification of capital requirements for re/insurers seeking to serve the European marketplace. The ABI’s guide aims to help insurers to understand the Internal Model Approval Process (IMAP). It offers advice to help insurers create their own internal models for Solvency II, which are expected to produce a lower Solvency Capital Requirements (SCR) than the standard model. The ABI guide clarifies the internal model approval process (IMAP) making it more cost effective and manageable. Under Solvency II insurers will have the choice between using a standard formula or an internal model for calculating the SCR. hideInternal models have the advantage that they are more risk-sensitive and capture individual risk profiles more adequately and consequently are expected to produce lower SCR than the standard model, the ABI explains. “Internal model approval is a crucial element of Solvency II implementation. Applying a new internal model can be a costly burden to firms and we hope this guide provides greater certainty regarding the process demands and expected outputs,” said Peter Vipond, the ABI’s director of financial regulation and taxation. The ABI’s guide, developed with the UK’s Financial Services Authority, provides context to the assessment criteria for internal models, sets the right expectations and best practice of managing costs and provides help to both understand the documentation process and demonstrate the model to regulators. It can be found on the ABI website. The Guy Carpenter guide, also published this week, is the first in a series of reports that will analyse Solvency II and the issues surrounding it as various elements of the regulation are finalised over the coming months. The paper examines: the process of transitioning to Solvency II; the impact on re/insurers, including niche players, small- to mid-size providers and large global re/insurance companies; and the costs for implementation, model approval and ongoing compliance, as well as maintaining required levels of capital. It will also consider key challenges and opportunities that are emerging under the new regulatory regime and capital management strategies that can be used to reduce risk levels associated with Solvency II. “Despite its nominally European focus, Solvency II presents a wide range of considerations—and opportunities—for insurance entities worldwide. All businesses with operations, subsidiaries or affiliates in Europe, writing coverage in Europe or doing business with insurers in Europe should be preparing now for these fundamental changes in the way that the European market will examine risk and risk management practices,’ said Claude Lefebvre, head of GC Analytics for the EMEA region at Guy Carpenter. Mr David Flandro, global head of business intelligence at the intermediary, added that with a disciplined and thoughtful approach to risk-related capital management under Solvency II, insurance companies can take significant steps towards lessening the impact of the regime and can even improve their competitive position as a result. A full copy of the report is available on www.GCCapitalIdeas.com.

Guy Carp and ABI publish guides to help insurers deal with Solvency II

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