Practical preparation for Solvency II on “knife edge”
The final Solvency II legislative package will only be finalised in Autumn 2012. In the European Committee First Quarter Update, the ABI said the delay is a result to a number of changes to Omnibus II published in January this year.
The ABI said, “This does mean that, while companies remain supportive of 2013 as a start date, their ability to make practical preparations is on a knife edge.”
The Update also addresses a number of unresolved issues that emerged from the QIS 5 results, published last month, which could lead to higher capital requirements:
- The recognition of an illiquidity premium for new business
- Transitional arrangements for existing business (annuities, hybrid capital)
- The definition of contract boundaries
- SCR calibrations, in particular non-life catastrophe risk and counterparty risk for life and non-life
- Equivalence with third country regimes.
Financial Times Solvency II 101
Solvency II Explained is a short article explaining the basics of Solvency II, the three pillars and how pensions will be affected. The article is an accompaniment to a story on German occupational pension schemes.
Addressing flaws in the QIS 5 Catastrophe Risk sub-module
The CEA proposes solutions to flaws in the design of Catastrophe Risk sub-module used in QIS 5. The proposals, submitted to the European Commission on 28 March, address the use of a scenario-based approach and a factor-based approach to calculating capital requirements for the sub-module.
QIS 5 results showed that neither method, “produced a capital level which appropriately reflected the underlying risk of each type of Man Made and Natural Catastrophes,” the CEA said.
The CEA’s proposals relate mainly to the design aspects of the Catastrophe Risk sub-module. Once these are resolved, the CEA said, “it will be important to then work on ensuring the capital requirements are appropriately calibrated to the 99.5% 1-year Value at Risk.”
From the Sphere
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