Solvency II was initiated by the European Commission (EC) in 2000 to implement a fundamental change to European insurance regulations. The project aims to create a more harmonised, risk-oriented solvency regime resulting in capital requirements that are more reflective of the risks facing insurers.
The proposed Solvency II framework consists of three pillars:
- Pillar 1 defines the financial resources that a company needs to hold in order to be considered solvent. In particular, it specifies the valuation of assets, liabilities and capital requirements.
- Pillar 2 focuses on the governance and risk management systems an insurer is expected to have in place, together with the requirements for supervision of these systems and controls. In particular, this includes the requirement for an insurer to carry out an Own Risk and Solvency Assessment (ORSA).
- Pillar 3 defines the requirements for public and supervisory disclosure of an insurer’s financial condition.
The Solvency II implementation date has been delayed and it is not yet clear what the implementation date will be. However, this does not mean that work on meeting Solvency II requirements has stopped.
EIOPA launched the Long-term Guarantees assessment on 28 January 2013 to test the impact of using different methodologies to set the discount rate used to value long-term liabilities on key stakeholders. The ‘Trilogue’ (the European Parliament, the Council and the European Commission) will consider the findings of this assessment in advance of the plenary vote on the Omnibus II Directive, expected in October 2013.
In addition, attention is turning to the Pillar 2 and 3 requirements. Some European supervisors are considering introducing some of these requirements in advance of the full implementation of Solvency II. Over the coming months we expect European-wide discussions between EIOPA and European supervisors with the aim of achieving consistency in the requirements which may be introduced before the implementation date.
WHY TOWERS WATSON?
Our deep understanding of risk and our expertise in the insurance industry mean that we clearly understand the specific issues facing insurers in implementing Solvency II. We have a range of experts throughout Europe who have worked closely with clients to provide compelling and practical solutions to both meet Solvency II requirements and improve business performance.
Our range of services and software tools include:
- Providing expert advice on interpretation of Solvency II requirements
- Support in the valuation of the Solvency II balance sheet and calculation of standard formula capital requirements
- Internal model development, validation and support with the internal model approval process
- Meeting risk management requirements, including development of the ORSA
- Thought leadership and strategic positioning for the post Solvency II world
- Providing software implementation support and updating software capabilities with market-leading solutions such as: