Solvency II is the new solvency regime for all EU insurers and reinsurers, which also covers the insurance operation of bancassurers. It aims to implement solvency capital requirements that better reflect the risks that companies face and deliver a supervisory system that is consistent across all member states.
The challenge of preparing for and implementing Solvency II calls for a multi-disciplinary approach.
At Deloitte, we are able to provide the required breadth of service expertise that ensures all aspects of Solvency II requirements and opportunities are considered and can support you through the entire process.
Solvency II capital requirements
The Solvency II regime offers incentives, potentially in the form of reduced capital requirements, to implement appropriate risk management systems and sound internal controls.
As in Basel II for Banking, the regime has a three pillar structure, with each pillar governing a different aspect of the Solvency II requirements and approach: Capital Requirements, Governance & Supervision and Disclosures
As well as requiring firms to disclose their capital and risk frameworks, they must also demonstrate how and where they are embedded in their wider activities.
Embedding Solvency II
Forward planning for capital adequacy and risk management will become a part of any new strategic venture but the ‘embedding’ requirements as part of business as usual will also affect hedging and reinsurance strategies, product development and pricing, underwriting and investment management.
Solvency II timeline
Anticipate Solvency II
Solvency II is a major and comprehensive reform for the insurance sector. It will have deep and long-lasting impacts on the way insurers look at risk : how they identify and anticipate it, how they measure it, how they manage and mitigate it.
Solvency II opens new questions, which will force many insurers to revisit significant elements of their business models and reconsider the way they operate. For example: how to compete on the market place, taking advantage of the new solvency principles (such as diversification); how to structure their business (e.g. under a group holding, through joint ventures, by outsourcing major operations, etc.); how to organise the decision-making process about risk-taking.
Finally, getting there will not happen overnight. Insurers may have managed insurance and financial risks for many years, but Solvency II changes the reference for risk management – it is not just about marginal improvements.
The Solvency II project will need to overcome several challenges : driving a large project to completion while the underlying regulation is still moving, improving the quality and traceability of the data that feed the risk management processes, implementing the tools to measure risk (be it a standard formula or a more sophisticated internal model), embedding the risk management culture in the insurer’s organisation and fostering along the way the cooperation of stakeholders with complementary points of views about risk.