Solvency II News: Internal Model take-up lower than expected

A survey conducted by Solvency II Wire reveals that there are currently about 95 insurance and reinsurance entities with an approved Internal Model (IM) or Partial Internal Model (PIM) in Europe.

The survey, covering 25 Member States plus Norway, Iceland and Gibraltar, shows a substantially lower number of approvals in almost all Member States compared to the numbers anticipated in 2014.

20 National Competent Authorities (NCAs) responded to the survey. Information for 7 Member States was provided by industry sources. Information on Bulgaria, Luxembourg and Romania was not available.

The 2014 survey revealed that there were about 151* entities in the Internal Model Pre Application (IMAP) process at the time. In most Member States the number dropped by a few firms, with one exception.

In Germany, BaFin confirmed that there were now 34 IM and PIM firms compared to 7 IMAP firms in 2014. The increase is due to further clarification by the regulator detailing the solo entities that are part of the groups. The Solvency II Wire surveys count the number of individual entities per country rather than the number of models per insurance group, used in the EIOPA methodology.

In the UK, which had 45 IMAP firms in 2014, only 19 received approval at the start of the year (see list of firms, PRA 5/12/2015).

The ACPR confirmed that there were 10 Internal Model or Partial Internal Model firms in France at the start of 2016. The number was estimated to be at around 14 in 2014.

Other significant reductions in numbers occurred in Poland  from 12 to zero, and in Sweden from an estimated 11 firms to 1 in 2016 (and a further PIM decision expected later in the year).

The Swedish NCA said that firms did not follow through with the application because of the cost-benefit analysis compared to using the standard formula. A spokesperson told Solvency II Wire: “Undertakings found the processes surrounding the [internal] models disproportionate compared to the benefits.”

Details for each Member State are available on the Solvency II Interactive Implementation Map.

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* The original number of 175 published in 2014 has been modified due to a calculation error.

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