How will the strategic implications of Solvency II drive M&A and what will be the impact on the shape of the industry?
Solvency II is set to impose huge extra demands on risk and capital management disclosure.Yet reporting is still a low implementation priority. How can insurers get their preparations on track?
The ‘use test’ is proving to be one of the toughest aspects of the internal model approval process (IMAP). How can firms get up to speed while reaping the competitive benefits of a more effective basis for decision-making?
Solvency II requires insurers to put in place an effective risk management framework. But what does that actually mean in practice and what are the biggest challenges?
With the internal model approval process (IMAP) likely to be a learning curve for both supervisors and applicants, what practical steps can companies take to make a convincing case?
With so much of the Solvency II implementation project resting on the quality of the data, now is the time to make data a priority and get preparations on track.
A poll of insurance professionals carried by PricewaterhouseCoopers at the end of last year shows that Solvency II is now firmly on the Board agenda. Yet as Jim Bichard and Jan-Huug Lobregt report, many firms are concerned that their ability to meet key implementation deadlines and realise the business benefits of their investment may be impeded by potential project overload and lack of available talent.
With the launch of significant new supervisory guidance and overhaul of risk management regulations in Germany in anticipation of Solvency II Pillar 2, a clearer picture of how the principles of the new directive are likely to be put into practice is beginning to emerge. Mark Batten and Julia Schüller discuss what regulators are likely to expect and the resulting implications for insurers.
The Own Risk and Solvency Assessment (ORSA) is an opportunity to showcase the firm’s risk management capabilities and demonstrate how risk and capital management is used to support decision making and ultimately create value. Farid Bonawiede, Erica Nicholson and Immy Pandor examine why the ORSA is set to be such an important regulatory mechanism under the new regime and how it will provide firms with an opportunity to extract real business value from their Solvency II investment.
Many banks’ Pillar 3 disclosures have been limited to basic compliance, offering little insight into how risk is managed or how it influences strategy. With the demand for transparency increasing in the wake of the financial crisis, could this minimalist approach be missing a valuable opportunity to demonstrate the strength of risk and capital management and its value to the business? We examine what can be learned from banks’ approach to Pillar 3, the disclosure challenges facing insurers, and how effective risk reporting could be turned into a source of competitive advantage.
As the development of Solvency II moves from legislation to the practicalities of implementation, initiatives being put in place by the UK FSA and German BaFin provide important insights into how the directive is likely to be applied. Martin Eibl and James Tuley look at what these initiatives reveal about the scale and urgency of the tasks ahead.
For large multinational insurers, the already daunting task of preparing for Solvency II is likely to be heightened by the diverse nature of their operations and extended lines of command. However, the directive also offers valuable opportunities to enhance the quality and consistency of management information and streamline the operational infrastructure of the group. Drawing on their experience of the comparable move to Basel II, Rob Field, Karin Hjalmers, Jan-Huug Lobregt and Douglas McNaught offer some expert insights into how multinational groups can prepare for effective implementation.
Solvency II is likely to require a substantial increase in data gathering and computational capacity within many European insurers. The good news is that by leveraging enterprise risk management (ERM) capabilities and aligning the implementation of new information systems with developments in financial reporting, firms could not only reduce costs, but also deliver more of the benefits. Robert van der Eijk and Isabelle Jenkins look at how to ensure your data and systems are engineered for success.
Solvency II is set to impose extensive governance requirements for insurers of all sizes. Although some insurers may opt for straight compliance, this may miss a valuable opportunity to strengthen stakeholder confidence and provide greater assurance for the board. Åsa Malmström Rognes, Garvan O’Neill and Wendy Reed look at the competitive benefits of building the latest concepts in risk and compliance management into a tailored framework for governance.
The fourth Solvency II Quantitative Impact Study (QIS 4) began in April and runs until July 2008. For insurers that have not participated in previous QIS, this is an invaluable opportunity to evaluate the impact of the Directive on their capital requirements, systems and strategy. Firms that have taken part before will have an opportunity to refine their capital evaluation processes and assess fresh areas including the impact on groups and the valuation of assets and liabilities in the context of IFRS (simplifications and proxies).
Operational risk is likely to be one of the most challenging aspects of Solvency II implementation. Yet, if aligned to business needs, investment in operational risk compliance could provide a valuable foundation for improving the efficiency of systems, processes and controls. Marcus Bowser, Robert van der Eijk and Jimmy Zou look at how to reap the rewards of a more informed and structured approach to operational risk management.
Much of the focus of model development has so far concentrated on the technicalities of risk and solvency capital evaluation. Yet creating the necessary control and validation procedures and ensuring that outputs are fully embedded into strategic decision making could prove equally important in securing supervisory approval for the use of companies’ own internal models. Frank Lyhne Hansen, Gilles Pestre and James Tuley examine the competitive potential and challenges ahead in the development, application and approval of internal models.
In the first edition of Countdown to Solvency II we examined what the experience of Basel II reveals about the scale and nature of the comparable implementation challenge for Solvency II. In this article, Robert van der Eijk and Richard Smith look at how the experience of Basel II underlines the need for a strategic approach to implementation marked by board-level sponsorship, co-ordinated planning and early organisational engagement. This can not only ease the cost and burden of the project, but also help companies to realise the bene? ts of their investment.
The draft framework Directive for Solvency II has now been presented to the European Parliament. While much had already been in the public domain, a number of what could prove to be ‘ambitious’ proposals go further than many expected in areas such as group supervision.
The timings and underlying principles of Solvency II and the planned new International Financial Reporting Standard for insurance contracts (IFRS Phase II) are moving ever closer, opening up valuable opportunities for synergies in systems, organisation and market communications.
Far from being merely a technical compliance issue, Solvency II could have major commercial implications in areas ranging from pricing and product design to investment strategy and market communications. Elizabeth Abraham, Monica Cornall and Thierry Madinier look at the key considerations for survival and success in what could be a very different competitive landscape.
July’s publication of the draft Solvency II framework marks the first stage of what could be a demanding process of EU legislative enactment, technical formulation and eventual application. Annette Olesen and Wendy Reed examine the political hurdles ahead and how insurers can influence the process.
The planned new EU Solvency II is reaching a decisive stage in its formulation and stakeholder consultations ahead of the publication of a framework directive in the summer of 2007. Charles Ilako and Annette Olesen look at the key implications of the move to a risk-based prudential regime and how insurers can influence its development at this critical time.
Implementing Basel II looks set to be far more costly and time-consuming than many banks had originally envisaged. Solvency II could prove to be even more demanding. Charles Ilako, Julia Schüller and Richard Quinn look at the similarities and differences between the two frameworks and how insurers might consider ways to overcome some of the comparable hurdles faced by banks in moving to a new prudential regime.
Paul horgan, Melanie McLaren and Annette Olesen examine the parallels between the planned prudential and financial reporting regulations and look at how insurers can realise the benefits of a more proactive and integrated approach to implementation.
Although Solvency II may provide further impetus for the use of economic capital techniques within the insurance industry, its application is still far from universal or consistent. While economic capital provides an excellent solvency management tool, there may be limitations in its use in planning and performance management. Hans Jørgen Andresen, Frank Lyhne Hansen and Gilles Pestre look at the relationship between economic capital and Solvency II and how a more ‘economic’ approach to risk and capital evaluation could aid decision-making and value creation.
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