Solvency II news: 1 April 2011

solvency II and cloud computing, solvency II-friendly investment, risk management slide presentation

Cloud computing under Solvency II

Cloud computing will have to comply with Solvency II outsourcing provisions. Lexology reports on the implications of the Directive for the UK insurance industry. Cloud computing “is a form of outsourcing by which vendors can supply computer services to multiple customers over the Internet,” writes Patrick Devine of Chadbourne & Parke LLP. “Firms will be required to have written policies relating to outsourcing setting out the goals, reporting procedures and processes to be applied,” he added. Solvency II Article 49 states that firms remain: “fully responsible for discharging all of their obligations under this Directive when they outsource functions or any insurance or reinsurance activities.”

Searching for Solvency II-friendly investments

Banks are already designing Solvency II-friendly products to a maximise investment under the new regulation. Risk.Net (subscription) reports, in detail, on a number of investments developed by banks and insurers to mitigate the additional cost imposed by the regulation. Activities centre around two areas: asset-liability mismatching and asset class holdings. Solvency II is designed to reduce mismatching, an asset-liability mismatch can lead to additional charges. Similarly, holding certain riskier assets will incur heavier charges. These charges are beginning to shape investment decisions and strategies. “We are actively looking for new asset classes with Solvency II in mind, or asset classes that are already Solvency II-friendly,” said Pieter D’Hoore, portfolio manager at ING Investment Management in The Hague. Société Générale Corporate and Investment Banking conducted analysis to examine effective ways to invest in equities. “We found that investing in medium- to long-term capital-guaranteed products with indexation to equity performance was the most efficient method,” said the bank’s Ludovic Antony, director of global solutions. Other methods being considered include value-in-force (VIF) monetising and negative basis trades. The article also highlights the paradox of treating all sovereign debt as AAA: “With a zero risk charge for European government debt, some market participants believe insurers could simply pile into the bonds of countries that offer the best-looking yields.”

From the Sphere

Risk management post Solvency II

The Solvency 2 Experts group blog posted  an interactive slide presentation – Risk Management after 2012 – presented by Raphael Borrel at an event organised by the Institute of Risk Management.

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