Welcome to the first of three articles summarising the key themes under Solvency II. Given the breadth and depth of Solvency II, this is just a taster of the detail underpinning these areas: you’ll have to get into the detail to have a sound knowledge of the new requirements. The final rules also have yet to be finalised – whilst this shouldn’t affect the principles, they may affect specific aspects of the new rules.
By Christopher Critchlow, Consultant Actuary, OAC Actuaries and Consultants
The main topics you need to consider are –
- Component parts
The main principle of Solvency II is that a firm must hold sufficient assets to cover its technical provisions and regulatory capital requirements. The capital requirements should reflect the specific risks to which the insurer is exposed allowing for the management actions the firm is prepared to take under adverse events. The capital requirements are calibrated to a 99.5% level of confidence over a one-year time horizon.
Continue Reading “A Bite Sized Guide to Solvency II” at Actuarial Post News
Depositaries are all the rage in Europe. Hedge fund managers must appoint them under the Alternative Investment Fund Managers Directive (AIFMD).
Mutual fund managers have had them for a while, but their responsibilities are being increased under the fifth iteration of the Undertakings for Collective Investment in Transferable Securities Directive (UCITS V). Under the March 2014 version of the Directive on Institutions for Occupational Retirement Provision (IORP Directive), due to come into force in member-states of the European Union by 31 December 2016, even defined contribution pension schemes in Europe must appoint a depositary bank, with responsibility for safekeeping and oversight of the assets of the fund.
The real problem in European pensions, however, is not the safety of the €2.5 trillion of assets they own. It is solvency. This is why the original revision of the IORP Directive, unveiled as a white paper in March 2012, proposed a “holistic balance sheet,” which aimed to measure accurately the assets (investments plus the support of the plan sponsor and any insurance underpinning) of European pension funds against their liabilities (conditional as well as unconditional benefits payable plus a risk margin for error).
Continue Reading “IORP and Solvency II: European Fund Management Industry Must Adapt or Die” at COO Connect News
LONDON–(BUSINESS WIRE)–Profit margins in the U.K. non-life insurance sector are under pressure this year as companies fight to maintain pricing discipline in an extremely competitive market, according to a new A.M. Best special report. Premium rates are falling in personal lines and most notably for motor business.
The Best’s Special Report, titled, “U.K. Non-Life Insurers Compete Fiercely, Brace for Solvency II Implementation,” also states that regulation continues to consume considerable management time. Preparation for Solvency II, the proposed regulatory and capital regime for EU insurers, has gathered pace after the approval of Omnibus II in March this year. U.K. insurers will be subject to the Solvency II regime from 1 January 2016.
Continue Reading “A.M. Best Special Report: U.K. Non-Life Insurers Compete Fiercely, Brace for Solvency II Implementation” at Business Wire News
Insurers are attracting the attentions of European Union policy makers who are trying to spur investment in long-term infrastructure projects needed to undergird the region’s stuttering economic recovery.
The European Commission, the EU’s executive arm, will publish capital rules for insurers today that include lower requirements for investments in cross-border funds focused on lengthy projects, said Klaus Wiedner, head of the insurance and pensions unit in the commission’s financial-services department.
Michel Barnier, the EU’s financial-services chief, proposed last year that funds meeting minimum EU criteria on governance and strategy should be designated European Long-Term Investment Funds and designed to increase non-bank financing for companies.
Continue Reading “EU Uses Capital Rules to Get Insurers Into Infrastructure ” at Bloomberg News
By Anna Brunetti
LONDON, Oct 10 (IFR) – Rules published today by the European Commission mark the first official recognition of high-quality securitisation (HQS), as the legislator granted some concessions to the asset class under both the Liquidity Coverage Ratio and Solvency II laws.
The two sets of rules define how banks can use asset-backed securities as liquidity buffers and how much capital insurers investing in them must set aside to cover potential losses.
While an official definition of HQS is still being finalised at both European and international levels, the two texts are “the first legislative acts to provide a differentiated approach to securitisation,” the Commission said.
Continue Reading “Solvency II, LCR Mark Progress for Top-tier ABS but Fail to Ease Capital Burden” at Reuters News
Life insurers should accelerate current processes used in managing compliance as the upcoming European Solvency II deadline draws nearer, Towers Watson has urged.
The UK actuarial firm today published a survey highlighting the time pressures that life insurers will be under to meet the Solvency II reporting timelines, which is due to come into force in January 2016.
The survey said the leading risk and capital modelling issues preoccupying UK life insurers are: model validation requirement, the application of the matching adjustment (MA) or volatility adjustment (VA), and accounting for credit and longevity risks.
Towers Watson found in its poll of 20 UK-based life companies, representing the vast majority of life firms using internal models for the new capital rules that over two-thirds expect to completely re-engineer their end-to-end reporting processes.
Continue Reading “Life Insurers Urged to Speed up Solvency II Compliance” at The Actuary News
The volatility adjustment should help insurers by smoothing the impact of market swings on the balance sheet. But firms are struggling to understand how it will work in practice. Hedging the discount rate for liabilities under the directive is challenging to begin with. The volatility adjustment threatens to add still more complexity to the process. Louie Woodall reports
UK insurers received a fillip on August 6 as a Treasury consultation paper provided reassurance that those who wish to use the Solvency II volatility adjustment (VA) will be able to do so.
This is welcome news for firms because access to the VA will allow them to reduce the impact of spread volatility on their Solvency II balance sheets. The adjustment applies a parallel upward shift in the risk-free rate that firms use to discount liabilities – the higher the rate the lower their liabilities.
Continue Reading ” Solvency II: Insurers Study Hedging Options for Volatility Adjustment” at Risk.net News