In this guest post, Allan Christian, author of the Governance Matters blog shares his thoughts on Solvency II in Ireland and reviews a presentation given by Matthew Elderfield, Deputy Governor (Financial Regulation) of the Central Bank of Ireland in May this year. Allan is quick to post insights and views on Solvency II. His richly sourced and detailed blog is both a good read and indeed an “online repository for Solvency II”, as its tag line says. ——————————–
The pioneers in green
[caption id="attachment_1585" align="alignright" width="136"]![Matthew Elderfield 1 Matthew Elderfield, Deputy Governor (Financial Regulation) of the Central Bank of Ireland](https://solvencyiiwire.com/wp-content/uploads/2011/06/matthew-elderfield-1.jpg)
![Central Bank of Ireland logo crop Central Bank of Ireland logo](https://solvencyiiwire.com/wp-content/uploads/2011/06/central-bank-of-ireland-logo-crop.png)
- The “Gaping Hole” of Irish Fitness and Probity standards – having read the Level 3, specific Solvency II requirements are ‘to be developed’. The rest of the section mirrors existing FSA requirements, and as the Irish have borrowed heavily from these, they should comfortably fill this hole. Literal application of the new code is causing a few rumblings however.
- All VA providers forced to enter internal model process – the compulsion for VA providers to model is fair in principle, but as model approval is far from guaranteed, I would like to know what the response will be to any Irish-based VA providers (of which there are many) who are thrown out of the process.
- “Invested in building up staff levels” for Solvency II – the Central Bank headcount increase since his arrival, whilst not busted out to cover Solvency II staff, is impressive. That said, the level of Solvency II output (as highlighted in the 2010 annual report released this week) is fairly underwhelming and reactive.
- Wants consideration for “phasing particular [Solvency II] obligations” – I haven’t found specific reference to any transitional arrangements he may favour, but as he sits on EIOPA’s executive board, his views on this will carry considerable weight, and are worth tracking.
![Central Bank of Ireland Central Bank of Ireland, Dublin](https://solvencyiiwire.com/wp-content/uploads/2011/06/central-bank-of-ireland.jpg)
- “Middle Course” for the inclusion of EPIFP (expected profits included in future premiums) in Tier 1 Capital – In the QIS5 summary, most Irish companies were happy with full inclusion in Tier 1 (though due to the contract boundaries issue, most reported zero EPIFP!). It remains to be seen where this will end, but the lobbying from the CEA has been fiercely supportive of full inclusion.
- “Judgement calls” on correlation matrices more significant than risk buckets– I found thiscomment hugely significant, as it could be indicative of a shift in focus in the Irish model approval process. The expert judgements used to create correlation pairs, previously terra firma for the actuarial function, could potentially get the five star scrutiny treatment, so I would strongly recommend collecting evidence of validation of the process without delay.
- Internal Model Levy – Whilst the model-specific industry levy is now fairly equitable on the FSA side, there is no indication as yet as to who is footing the bill for the Irish model levy (i.e. participants only, or all undertakings). I look forward to hearing more on this.