Aon Benfield Launches Updated UK Terrorism Cat Model

Aon Benfield, the global reinsurance intermediary and capital advisor of Aon Corp., announced that it has updated its UK terrorism catastrophe model, which now “estimates the financial loss to life insurers from potential terrorist events and helps to satisfy the requirements of the proposed European Union Solvency II regulations.

Aon Benfield said its model “simulates attacks on more than 2,000 potential UK targets, including places of worship, financial centers, infrastructure, government and military locations. For each simulated event, it forecasts the consequent impact on an insurer’s exposures which can be used to assess potential financial losses from injuries and deaths.”

Adam Podlaha, international head of Impact Forecasting, commented: “Working with ex-military and security professionals with real-life experience of the impact of terror attacks means we have been able to build a model based on a set of practical and realistic scenarios.

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A.M. Best Analyst: Solvency II Equivalency Could Benefit Companies in Bermuda, Switzerland

If Bermuda and Switzerland are successful in their bids to be considered among the first non-European Union jurisdictions to meet new regulatory requirements under Solvency II, it could have a positive impact on companies domiciled there, said Stefan Holzberger, managing director of analytics with A.M. Best Europe.

“Equivalency will allow insurers domiciled in countries deemed equivalent to continue to operate under the rules imposed by their local regulator,” Holzberger said. “This means that these companies will be able to write business within the EU without additional regulatory hurdles imposed by the EU regulators such as heightened collateral requirements, and additional required capital to back up certain lines of business.”

“In addition, these companies will enjoy greater fungibility of capital with the ability to move funds in and out of the EU,” Holzberger said. “Ultimately, the domiciles that obtain equivalency will likely see greater interest in (re)insurers relocating there due to the lower regulatory costs and red tape related to doing business within the EU.”

The European Insurance and Occupational Pensions Authority, the European insurance regulators, are working on rolling out Solvency II for the 27-member EU nations, and recently assessed the first countries — Bermuda, Switzerland and Japan — that are being considered for equivalency.

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BearingPoint Announces Launch of ABACUS — A Comprehensive Solvency II Reporting Solution

ABACUS/Solvency II offers insurers across Europe a cost effective way to collect, consolidate, validate and submit SII regulatory reports

Management and technology consultancy BearingPoint mother-bear-and-her-four-cubs_5699744a430d6( today announced the launch of its ABACUS/Solvency II reporting solution ( )

Solvency II, due to come into effect within the next two years, represents a major challenge for the insurance industry. From early 2014 all insurers operating in the European Union must change their reporting methods and submit a complex set of quarterly and annual reports to the respective EU supervisory authorities in each country (e.g. FSA & IFSRA). Most insurers underestimate the complexity of Solvency II reporting; furthermore existing IT systems are not currently designed to fulfill Solvency II requirements.

Working closely with insurance industry representatives, BearingPoint has developed a pan-European reporting solution for Solvency II that covers the standard and local requirements of regulators. It covers all Quantitative Reporting Templates (QRTs) currently defined by the European Insurance and Occupational Pensions Authority (EIOPA) and will be continuously adapted to reflect subsequent regulatory changes. Continue reading BearingPoint Announces Launch of ABACUS — A Comprehensive Solvency II Reporting Solution

Solvency II Equivalence Likely for U.S.

While the United States is not in the first group of nations whose regulatory structure is being considered for equivalence with Europe’s upcoming Solvency II rules, experts say it is likely to be granted some form of equivalent status.GetFile.aspx

In an analysis, Fitch Ratings Ltd. said last week that it believes the United States will achieve Solvency II equivalence. “Equivalence would be mutually beneficial for both markets,” Fitch said.

“It would help European insurers and reinsurers with U.S. operations, which would otherwise face the same capital requirements in the United States as locally owned companies plus the extra capital requirements of Solvency II—a competitive disadvantage when pricing products,” according to the analysis. “The U.S. insurance market would gain the capital and investment that European companies bring via their U.S. subsidiaries.”

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Bermuda readies for Solvency II

Bermuda is among the first wave of countries, along with Japan and Switzerland, that are being considered for third-country equivalence status, meaning its regulations have been accepted as comparable to the upcoming European rules.  Officials from the Frankfurt, Germany-based European Insurance and Occupational Pensions Authority visited Bermuda in May to make an on-the-ground assessment of the domicile’s progress toward a new regulatory regime.

The drive for Solvency II equivalence is part of a wider priority of ensuring that the wide array of insurance entities on the island—which include global reinsurers and captives—are subject to a pragmatic regulatory framework, said Jeremy Cox, CEO of the Bermuda Monetary Authority.  The BMA seeks to align its efforts with those of the International Assn. of Insurance Supervisors, which aims to level the playing field of international regulation and facilitate regulatory equivalence, he said.

“We see the importance of our framework being regarded as equivalent by other major jurisdictions that are relevant to our market,” said Mr. Cox. “Such equivalence can provide, among other benefits, increased opportunities for Bermuda firms to operate in key markets under nondiscriminatory terms and less duplicative regulation.” Because of the “significant amount of commercial reinsurance business conducted between Bermuda and Europe, Solvency II is highly relevant to this market,” said Mr. Cox.

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Most E.U. Insurers Pass Solvency II Stress Test

The vast majority of European insurers and reinsurers remained financially “robust” in a test of their ability to withstand various economic shocks, but up to 10% failed to meet their minimum capital requirement under Solvency II, the European insurance regulator said.

The Frankfurt, Germany-based European Insurance and pass_failOccupational Pensions Authority said 221 insurance and reinsurance groups and companies in the European Union, the European Economic Area and Switzerland—with a market share of about 60%— took part in the study testing their ability to maintain minimum capital levels despite macroeconomic shocks that include inflation, interest rates, credit and insurance risks.

Participating insurers’ aggregate solvency surplus was E425 billion ($606.18 billion) before EIOPA applied the stress test scenarios.

Under a stress test to gauge insurers’ reaction to inflation, their combined surplus fell to E367 billion ($419.35 billion) and 8% of participants would fail to meet minimum capital requirements under Solvency II, the insurance regulator said.

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Solvency II Implementation Likely Delayed a Year

BRUSSELS—It appears likely that full implementation of Solvency II will be delayed a year, but experts say insurers, reinsurers and executives overseeing company-owned captives should continue working to comply with Europe’s revamped risk-based capital rules.

While the most recent deadline to implement Solvency II was Jan. 1, 2013, the Council of the European Union recommended delaying full implementation of the rules until 2014 in a “presidency compromise” that was reached in late June. Under the council’s proposed compromise on the Omnibus II directive, which proposes transitional arrangements to adopting Solvency II, regulators would not have to transpose Solvency II into national laws until March 31, 2013, and the Solvency I rules would not be repealed until Jan. 1, 2014.

In the compromise plan, the council also recommended that insurers and reinsurers be able to gain formal regulatory approval of tools such as internal models in the latter half of 2013, but with an effective date of Jan. 1, 2014. Under the plan, regulators would require insurers and reinsurers to provide an implementation plan by July 1, 2013, that includes evidence of the progress they have made toward complying with Solvency II. Continue reading Solvency II Implementation Likely Delayed a Year

Solvency II: Complex Engineering Task Creates ‘Skills Crunch’

The Solvency II regulations do not come into force until January 1 2013, but insurance companies have been making detailed preparations and running complex modelling processes for several years. This has produced a surge in demand for qualified people who understand what the new rules require, and actuaries in particular.

To pass the exams to become an associate or fellow of the Institute and Faculty of Actuaries takes between three and six years, according to The Actuarial Profession, the body that represents the industry. All but a few candidates also hold down a full-time job while doing this. This Solvency II skills crunch is having a marked effect on salaries. While an actuary working with a City insurance company can earn more than £100,000 a year, the demand for key staff means the most sought-after professionals can command double that. According to The Actuarial Profession, the average salary for a chief actuary in the UK was £184,000 in 2009-10.

Jim Bichard, partner in the insurance regulatory practice at PwC, the consultancy, agrees that Solvency II has created a “skills crunch”. Mr Bichard says of people with key skills related to Solvency II: “They are in a two-year period when they can really command almost whatever price they want.”

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EU to Give Insurance Industry More Time to Prepare for Solvency II

European Union regulators look set to bow to insurance industry demands for more time to adjust to new solvency rules, with the head of the EU’s insurance watchdog acknowledging that some of the measures would have to be phased in beyond an official start date of 2013.

Some insurers have complained of big open questions to be resolved before the beginning of 2013, when the so-called Solvency II rules are due to enter force. The rules aim to better protect consumers by more closely aligning insurers’ capital cushions to the risks on their books.

Rules on the treatment of hybrid capital, liquidity considerations, regulatory reporting requirements and the treatment of foreign subsidiaries in solvency tests are all candidates for staggered introduction, industry officials say.

Bernardino declined to discuss the areas that might be phased in from 2013, but said smaller insurers in particular needed time to adjust to the new rules.

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Solvency II: Rules Changes Will Lead to Greater Burdens

The European insurance industry is fast approaching the deadline for what was supposed to be the final test of the new capital rules, known as Solvency II, that are due to come into force at the start of 2013.

The new rules, which are designed to create a better match between the capital that insurers hold and the risks that they take, will do much more than merely set different capital requirements for insurers.
The bigger impact will be the requirement to demonstrate that all risk management processes are fully embedded in their decision making and operations.

George Culmer, chief financial officer of RSA, the UK insurer, says that one concern with all the extra reporting requirements is that insurers will be unable to see the wood for the trees.
For many companies, this will entail not only overhauling their risk management, but also ensuring each element is fully documented and reportable to their regulator.

Copyright The Financial Times Limited 2011.

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