Insight & Analysis

Run-off: the highway or the by-way?

Although it is clear that Solvency II will apply to the vast majority of
run-off businesses, there may still be a temptation by some to take the ‘path of least resistance’. Steve Mathews warns against taking the easier option without first considering the implications for both policyholders and shareholders. More

Lloyd's dry run guidance emphasises qualitative issues

Detailed guidance for this year’s Lloyd’s Solvency II dry run process urges managing agents to look beyond the numbers to pillar two and three provisions explains Mike Wilkinson. More

Model behaviour

CEIOPS has kicked off its consultation on Level 3 implementation measures for Solvency II with a paper on the pre-application process for internal models (CP80).  Recent analysis of the impact of the revised calibration of the Solvency Capital Requirement (SCR) Standard Formula may push more companies towards the internal model option. More

EMB study reveals 62% increase in Solvency II capital requirements

UK non-life insurers face an average solvency capital requirement (SCR) increase of 62% compared to the Solvency II QIS4 standard formula level, as a result of changes proposed to the implementation measures for the European regulatory standard over the past six months. This equates, on a conservative basis, to an additional €15 billion of capital that insurers across the non-life industry will have to find. The study was based on data from 49 entities with a QIS4 capitalisation of €8 billion. More

The role of technology in risk management

Technology plays an important part in effective risk management, but it can’t absolve people’s responsibility to use it appropriately and intelligently. While technology, and computing power in particular, has enabled mankind to achieve great things, there are limitations. Human skill and judgement cannot be eradicated from the mix. More

Reserving risk, risk margins and solvency: re-tuning your mind

Solvency II, with its requirement for a one year view of reserving risk, raises fundamental questions about the way reserving risk is defined. The wider consequences of risk margins and solvency with simulation-based internal models are also a topic for debate. More

Tracking changes in the Directive

The Solvency II Directive was officially adopted on 5 May 2009 and incorporates a number of changes from the original draft. The following points have been adapted from the FSA’s Feedback Statement 09/01 and should also be considered alongside EMB’s original explanatory document ‘Understanding the Directive’. More  

EMB release new Igloo modelling suite

EMB is pleased to announce the release of EMB Igloo™ 4.0, a brand new version of the insurance industry’s market-leading financial modelling platform. The expanded product suite will now be available in three editions, offering the flexibility and control of Igloo to organisations ranging from small businesses to multinationals. An Audit edition is also available to allow third parties to conduct independent audits of Igloo models. More 

An insurance conundrum: The Internal Model or the Standard Formula?

This paper sets out some of the respective high level benefits of using the standard formula and internal model approaches.  These should at least be considered when constructing the business case either way.  They may also be useful to firms considering which areas of their internal model might be simplified by using the standard formula (the partial model approach).  More

Markel uses EMB Igloo to prepare for Solvency II

Using Igloo, Markel has identified a path to achieve its ambition of integrated financial, management and capital planning. Along the way, and with EMB’s support, it is improving business management and understanding of issues such as natural catastrophe exposure, reinsurance purchase and capital allocation.  More 

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Key papers

CEIOPS advises on internal model approval

As part of its current focus on Level 3 implementing measures, CEIOPS has released its final guidance for the pre-application process relating to internal models. This follows on from the consultation on CP80 which closed at the beginning of March 2010. More

CEIOPS concludes stress tests

CEIOPS has released the findings of its European wide stress test exercise for the insurance sector aimed at evaluating the overall resilience of the insurance sector under several stresses to the economic and financial market environment. The study included 28 large European insurance groups covering above 60% of premiums of the European insurance market. In all scenarios, the aggregated level of available capital exceeded the regulatory requirements. More

CEIOPS reports on liquidity premium

CEIOPS has submitted to the European Commission the report of the Task Force on the Liquidity Premium containing technical considerations regarding the application of a liquidity premium for the valuation of insurance liabilities,  principles for extrapolation and considerations on the choice of the reference risk-free rate. The report will help to determine the risk-free rate for the Solvency II Level 2 implementing measures. More

Third wave of CEIOPS papers released

CEIOPS has released the third set of consultation papers relating to Level 2 implementation measures for Solvency II. The 16 papers, which cover topics including partial internal models, calibration of non-life underwriting risk and advice on simplifications have a response deadline of 1200 CET on 11 December 2009. More 

FSA publishes internal model approval update

As part of its proposed handling of internal model approvals under Solvency II, the UK Financial Services Authority, has published the first in a proposed series of information updates. It reports on response to the deadline to apply to use an internal model and its revised timetable for reviewing and approving models prior to implementation in October 2012. The timetable includes a pilot pre-application process with four volunteer insurers. Full report

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