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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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.
Continue Reading “EU to Give Insurance Industry More Time to Prepare for Solvency II
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.
Continue Reading “Solvency II: Rules Changes Will Lead to Greater Burdens” at Financial Times News
With the approach of Solvency II in the European Union, the Lloyd’s market is making greater use of actuarial skills, according to the Lloyd’s Market Association, which represents Lloyd’s managing agents.
During the past three years, the LMA said in its 2010 market survey, Lloyd’s managing agents have increased the size of their actuarial operations by 49%.
The survey, which was based on replies from 50 of the 53 managing agents at Lloyd’s, said 382 people are performing actuarial duties within the respondent group.
This is up from 256 in 2007, said the LMA, which predicted the total would rise by another 10% by the end of 2011.
“The requirements of Solvency II [are] one of the main drivers behind the increase,” the LMA said in a statement. “The demand for better management information coupled with greater demands by regulators also drove the demand for actuarial talent.”
Continue reading Lloyd’s Group Says Solvency II Drives Rising Use of Actuaries
Apparently yielding to the global demand for a change in the basis for calculating Companies’ Income Tax for insurance firms, the International Accounting Standards Board (IASB) has included liquidity premium in new proposals for insurance company accounting standards.
The proposal is expected to engender a shift from the more market consistent exit value-based approach whereby values of asset and liability reflect the cash required to liquidate them in line with the last draft in 2007.
The proposal was originally intended to be applied in Solvency II only to annuity contracts that cannot be lapsed or transferred and are therefore considered illiquid but it will now apply in different degrees to all insurance liabilities over one year in length.
The controversial premium would be added to the discount rate for liabilities, thereby decreasing their value notwithstanding the fact that its inclusion in the Solvency II directive caused uproar and accusations of protectionism because annuities providers in the United Kingdom will benefit most from it.
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