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Business & Decision’s consulting team can assist insurance companies implement a risk management approach in compliance with Solvency II and turn the regulatory obligation into a competitive advantage. 

Proposition

Solvency II is the updated set of regulatory requirements for insurance firms operating in the European Union. Similar to Basel II in many respects, it aims at bringing new standards to the insurance world. Markets are indeed pushing towards more objectivity and transparence in the financial performance and risk management metrics used.

The rationale behind this accord is to harmonize the various national segmented markets and strive to the development of a single European market in insurance services. At the same time, the regulators want to ensure a high level of consumer protection.

The third-generation Insurance Directives established an "EU passport" (single license) for insurers based on the concept of minimum harmonization and mutual recognition. Still many Member States concluded that one had to go further than the minimum EU requirements. This led to the implementation of national reforms, leading to a patchwork of national regulatory requirements across the EU. This hampers the development and functioning of a single market.

Solvency II will find ground on economic principles for the measurement of assets and liabilities. It will be a risk-based system as risk will be measured on consistent principles on which the capital requirements will depend directly. While the Solvency I Directive was aimed at revising and updating the current EU Solvency regime, Solvency II has a much wider scope. Among other goals, the new accord strives to

  • reduce the default risk of an insurer (i.e. that an insurer would be unable to meet its claims),
  • minimize the losses suffered by policyholders in the event that a firm is unable to meet all claims fully,
  • provide supervisors early warnings to that they can intervene promptly if capital falls below the required level,
  • Promote confidence in the financial stability of the insurance sector.

Seen by many as similar to the banking regulation Basel II, the proposed Solvency II Framework has three main areas (pillars) as well:

Pillar 1 relates to the calculation rules and quantitative requirements (for example, the various ways to calculate the amount of capital an insurer should hold).

Pillar 2 highlights requirements for the governance and risk management of insurers, as well as for the effective supervision of insurers.

Pillar 3 focuses on disclosure and transparency requirements towards all external parties.

Why B&D ?

Even though Solvency II is often considered as a « Basel II for insurers", this new accord is potentially far more complex than the banking directive (a great part of the complexity coming from the internal models validation). Throughout the road to compliance, insurance companies will have to tackle several issues where Business & Decision will provide an added value:

  • Availability, frequency, quality and structure of relevant data
  • Development and validation of internal models
  • Choice of software and architecture
  • Integration of all risks (Enterprise Risk Management)

This greater complexity set aside, the insurance industry can learn a lot from how banks implemented Basel II. One of the main issues banks had to face was the consistency and quality of the data. The same is true for insurers that will have to cope with identical issues.

With an experience based on more than 40 risk management projects (a majority related to Basel II), Business & Decision's consultants can help you implement a risk management approach in compliance with Solvency II. Going beyond the strict compliance to the principles depicted in the directive, we will assist you in turning the regulatory obligation into a value driver that will enhance your competitive advantage. We provide guidance through all the step of the process from data integration to the capital amount calculation.