The number of Solvency II insurance entities in Europe

32px-Flag_of_FranceHere’s a deceptively simple question. How many firms will fall under the scope of Solvency II?

You could try popping the question into an online search engine. Good luck with that. A selection of search phrases including “the size of the Solvency II market” or “how many Solvency II insurers” will lead to a mishmash of results containing all sorts and an Insurance Europe paper from 2007.

Before you rush off to test this out, here is the result. Well sort of …

Finding that number

According to information collected by Solvency II Wire from National Competent Authorities (NCAs) the number of insurance entities that fall under the scope of Solvency II in the 28 Member States is about 3,600.

The results are based on direct responses from 20 NCAs (including Gibraltar), with the rest coming from industry and the EIOPA Register for Insurance Undertakings. The latter puts the number of insurance firms that fall within EIOPA’s area of competence at around 4,200 for the 28 Member States. If you add Liechtenstein, Iceland and Norway the total rises to around 4,320.

who will be affected by solvency ii 1But … and this is a big but. The Register is only an excerpt of the full list (which has not yet been made available publicly) and only includes information on domestic undertakings and third-country branches without the cross-border activities. Furthermore it is based on data provided from NCAs and is currently updated on an irregular basis (latest update 9/9/2015). Still it is probably the closest thing out there amounting to an official list of Solvency II firms.

In any event the numbers are always likely to fluctuate. As the EIOPA website states: “EIOPA is aware that there may be differences between the information published herein and the lists available in the national public registries due to different underlying national legal frameworks.”

The slipperiness of this counting business can be put into perspective using an example from Sweden. According to the EIOPA Register the number of insurance firms in Sweden is 268 (as of September 2015). But the NCA told Solvency II Wire in March that there were 150 firms that will fall under the scope of solvency II.

The Finansinspektionen explained that firms that will be exempt from Solvency II, so-called non-directive firms (NDFs), will have to apply for the exemption, which they can only do after the new insurance legislation has been implemented in Sweden.

In a further twist, live stock insurance companies (which are currently listed in the Register) will be automatically exempt from the Directive.

Slippery numbers

Establishing the total number of insurance entities in Europe, let alone that of Solvency II firms, is a notoriously slippery business because of the array of legal forms they take (such as joint stock companies, mutuals and cooperatives). The fact that many fall under regional rather than national supervision, and, to a lesser extent, recent consolidation and M&A activity in the sector only complicates matters.

The number of Solvency II insurance entities in Europe 2Insurance Europe, which claims its membership represents around 95% of total European premium income, put the figure at a little more than 4,800 insurance and reinsurance entities in 2014. In 2013 that number was 5,300. AMICE, the representative body for mutual insurers in Europe, puts the figure at around 5,600 as of 2013. All of this seems to put the number of firms that fall under the scope of Solvency II in roughly the right ballpark.
To know how many Solvency II insurance firms there are in Europe you also have to consider that the Directive has a number of exemptions, further muddling the counting. The most significant of these is the size threshold. Article 4 of the Solvency II Directive states that an undertaking is exempt from the scope of Solvency II if its, “annual gross written premium income does not exceed EUR 5 million”. There are a slew of other exemptions covered all the way through to Article 12, ranging from types of firms providing assistance cover, some mutuals, and certain parts for groups, to name but a few.

In addition, insurance firms in run-off or administration may find themselves in limbo as to their status. That little nightmare is covered in this article: ‘Solvency II uncertainty. A reality’.

You don’t need to be an actuary to see that some of the numbers don’t stack up. Solvency II Wire will continue to track figures on the Solvency II implementation map on a ‘best estimate’ basis (haha – someone has been dealing with Solvency II for too long).

What counts: implementation

We could spend all day counting the numbers, but what really counts is what is happening on the ground.

Solvency II Wire first alluded to the shift of focus from Frankfurt and Brussels to local regulators in the spring of 2013, a trend that has continued since and is only likely to intensify as we move into implementation in 2016.

who will be affected by solvency iiComparing implementation between Member States purely on a like for like basis is a fool’s errand. Solvency II is a maximum harmonization directive, but reality spoils much of the harmonization myth. It is becoming apparent that harmonization is something to strive towards rather than a state that is ever fully attained.

For a start we have to acknowledge that firms and markets are approaching Solvency II across Europe from different levels of experience and expertise. You can’t expect firms (or regulators for that matter) that have only started working on an internal models a few years ago to have the same level of technical expertise and experience as ones that have been modelling risk for over ten years. These differences have been acknowledged by EIOPA as it looks at ways of bridging the gaps.

Similarly we are seeing differences in the approach to the ORSA. The concerns of regulators from Denmark and the Netherlands, where ORSAs have been on the agenda for several years, are quite advanced and deal with the challenges of appropriately linking capital requirements with business planning. Whereas markets like France are still making sense of the concepts of a more forward-looking holistic approach to risk and business management.

The state of Solvency II implementation

So what is the state of Solvency II implementation? Anecdotal evidence suggests it is patchy. This was becoming apparent from the time the results of the comply or explain exercise of the Solvency II interim measures were made public in early 2014 and continues since in the take up of XBRL, internal model application and transposition, to name a few.

As expected, NCAs have been very busy, increasing their output of consultation and advisory notes, while industry continues its preparations. A recent survey from Insurance Europe tells us: “Insurers on track with Solvency II implementation”. Followed by the customary alarmist messages about the number of pages of regulation, reporting and “gold plating”.

how many solvency ii insurersAccording to a selected summary of results from its membership (Insurance Europe would not provide any further information about the survey stating reasons of confidentiality) “a clear majority of firms were making good progress in implementing the first two pillars of Solvency II. [The survey] also revealed that the majority of insurers feel that risk management and governance have already been improved as a result of the introduction of the new regime.”

Results from the Thomson Reuters Solvency II Diagnostics tool give further insights into the state of implementation (disclosure: Solvency II Wire and Thomson Reuters have entered a commercial agreement to share anonymised aggregated data from the tool).

More than half of an initial sample of insurers of different sizes from across over half of the Member States in Europe said they believed their organization was ready to meet its Solvency II obligations (or should we focus on the fact that about a third were unsure?). Almost two thirds said they had conducted an ORSA, but fewer than half had it approved. About two thirds believed their Solvency II risk model was fit for purpose, while the rest said they were either undecided or that they believed it was not fit for purpose.
A similar sized sample of asset managers showed that just over half were ready to meet their clients’ Solvency II requirements. However, only about a third said their insurance clients conducted an ORSA. The majority said they did not know.

When asked how confident they were in their understanding of EIOPA’s asset data requirements for Solvency II, one fifth of both groups surveyed said they were ‘very unsure’. The vast majority said they were only ‘somewhat confident’.

It is too early to draw any substantial conclusions from this initial sample. However, the fact that many firms were still waiting for an ORSA approval and given the amount of work needed on the ORSA are certainly worth noting. The relatively low confidence level in understanding the EIOPA data requirements should also be of concern for all and may be more of an indicator of the level of engagement with preparation across the sample.

The number of Solvency II insurers in europe

So to conclude, there are (delete as appropriate) 4,800/5,300/5,600 insurers in Europe of which 3,600/4,200/4,320 will fall under the scope of Solvency II.

The number of Solvency II insurance entities in Europe
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