European Insurance: Solvency II (19 June 2017)

OAC Digest
EU / European Parliament / EIOPA, Life insurance, Non-Life, PRA / Bank of England, SIMR, Solvency II

19 June 2017

Selected recent Solvency II news items: 

On 19 June, EIOPA published "EIOPA's Supervisory Assessment of the Own Risk and Solvency Assessment - First experiences" based on the observations collected by national supervisors up to the end of 2016. The findings were summarised as follows:

  • The majority of firms have made good progress in implementing the ORSA process.
  • The need for a greater board involvement.
  • The scope of risk assessment to be further expanded.
  • Overreliance on the standard formula.
  • The quality of stress testing including reverse stress tests and scenarios used in the ORSA assessments to be further improved.

On 13 June, the PRA published "CP8/17 Strengthening accountability in banking and insurance: optimisations to the SIMR, and changes to SMR forms." Chapter 2 sets out proposed amendments and optimisations to the Senior Insurance Managers Regime (SIMR) with Chapter 3 containing a proposal to strengthen governance through requiring insurers to take steps to encourage board diversity. Both chapters are relevant to all Solvency II insurance firms and to large non-Directive firms. The PRA proposes to create the Chief Operations function (SIMF24) and Prescribed Responsibility (PR) for the oversight of outsourced operations and promote diversity among board members. The other proposals in respect of a new Head of Key Business Area function (SIMF6) and separation of certain roles relate to "large firms" (defined by the PRA as a firm with annual gross premium income of more than £1 billion or with gross assets of more than £10 billion at the end of each of the last three financial years). The consultation on these proposals closes on 22 September.

On 12 June, the PRA published "CP7/17 Solvency II: Data collection of market risk sensitivities."  The key points of the proposals are as follows:

  • Firms to submit (in an Excel spreadsheet template) half-yearly sensitivities to predetermined market stresses.
  • Submissions would be two weeks after the formal submission of end-June and end-December quarterly reporting with the first submission at the effective date of 30 June 2017.
  • Firms in scope are "primarily category 1 and 2 firms in the life sector, and any other category life firm or general insurance firm or composite insurance firm that demonstrates material risk and exposure to external factors." The PRA will inform firms individually through their usual supervisory contacts whether they will fall within scope.
  • This consultation closes on Monday 7 August 2017.

OAC Comment: The PRA cites "an obligation under the Solvency II Directive to have appropriate monitoring tools in place to enable the identification of deteriorating financial conditions in an insurance or reinsurance undertaking and to monitor how that deterioration is remedied" as a justification for this CP. However, further reporting requirements at the national level (the PRA already requires UK specific NSTs as part of the annual submission) in addition to those required by the EU will not be welcomed. Helpfully, no further reporting burdens may be applied to lower risk firms (categories 3 to 5) with the regulator adopting a proportionate approach to the scope of the proposal.

David Gray

For more information
David Gray
Consultant Actuary

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