Executive Summary

On 8 July 2019, the majority of a new Regulation (Commission Delegated Regulation 2019/981) came into force. In general, we expect the Basic Solvency Capital Requirement (“BSCR”) to increase for companies writing non-life business – particularly those with material (European) property, marine and aviation portfolios. Meanwhile, the BSCR may reduce for some undertakings – particularly life insurers and companies with material exposures to derivatives or unrated European reinsurers. The direction and size of the impact on the Solvency Capital Requirement (“SCR”) will also depend on changes to the loss absorbing capacity of deferred taxes, which will be implemented from 1 January 2020.

There have been significant changes in the calculation of the underwriting risk charge for undertakings writing non-life or NSLT Health business.

For many undertakings, changes to how market risk is calculated may lead to reductions in the capital charges, as well as simplified processes and rationales. Updates to counterparty default risk will have an impact mainly where an undertaking has significant exposure to derivatives, or uses unrated European reinsurers or short-term risk mitigation techniques. There have also been significant updates to the requirements for calculation and documentation of the loss absorbing capacity of deferred taxes (“LACDT”).