December 28th, 2010

Top Solvency II Stories: July - December 2010

Posted at 8:34 PM ET

Solvency II Update: QIS5 Windstorm Scenarios Are Within Range of Industry Models: European insurers and reinsurers will face requirements for full compliance with the new Solvency II capital regime requirements in just over two years. Even if this introduction is phased in - as the European Commission has reportedly indicated it could be - these requirements will have a wide-ranging and profound impact on the insurance industry throughout Europe.

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Coping with Solvency II:   The timing of Solvency II regulations may create a “perfect storm” for insurers as they struggle to cope with challenging pricing and lower investment returns. Solvency II is expected to be finalized in 2011 and implemented by 2013. Under the Standard Formula, companies will be required to maintain more capital per unit of risk, encouraging diversification. Although these are good objectives in principle, they may compound an already difficult operating environment in the short-term.

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Lloyd’s of London - Solvency II Gains May Be Worth the Pain: Lloyd’s has identified three objectives for post-Solvency II implementation: 1. Agreement with the Financial Services Authority (FSA) to maintain the supervisory “status quo”; 2. Approval of a single internal model for Lloyd’s; 3. Each syndicate to reach Solvency II standards.

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QIS5 - Premium and Reserve Risk: Sufficient Consideration of Non-proportional Reinsurance?  On July 6, 2010 the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) published the technical specification for the latest Solvency II Quantitative Impact Study (QIS) 5. QIS5 is scheduled to be carried out from August to November of 2010, with a report summarizing the results scheduled for release in April of 2011. Regarding the non-life premium and reserve and risk, Guy Carpenter & Company, LLC has observed a return to capital requirements more in line with QIS4 and an implicit incentive for the use of an internal model.

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