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Insurers, reinsurers ready for Solvency II amid uncertainty

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Insurers, reinsurers ready for Solvency II amid uncertainty

Insurers, reinsurers and captive owners face huge challenges in preparing for Solvency II, the Europe-wide risk-based capital regulatory regime slated to come into force in the next couple of years.

Under current plans, there may be a “soft launch” of Solvency II in 2013, with elements of Europe's new insurer capital rules being phased in over time.

The European Parliament will vote this year on whether the full implementation of Solvency II should be delayed. In late July, a key European Parliament Committee, the Committee on Economic and Monetary Affairs, published a draft report in which it suggested that full implementation of Solvency II be delayed until Jan. 1, 2014.

In addition to questions surrounding the implementation date, several other areas of Solvency II have yet to be formally settled, and insurers and reinsurers continue lobbying the European Commission to ensure that the eventual rules are not unfavorable to them.

Still, insurers, reinsurers and captive owners in Europe—and further afield—are readying their businesses for the time when the new regime takes effect. In Europe, those preparations have been extensive, time consuming and costly; elsewhere, companies and regulators have begun preliminary work toward eventual regulatory equivalence with Solvency II.

Solvency II, which will be the first unified set of insurance regulations for the 27 member states of the European Union, not only requires insurers to demonstrate they have robust risk and capital management strategies in place but also will impose new corporate governance and reporting requirements on companies.

The new regime, intended also to streamline the regulation of international groups with operations in several jurisdictions, has been designed to protect policyholders, ensure that the industry can withstand economic shocks, and protect the viability and stability of the financial system in Europe.

The most recent stress tests of insurers' ability to meet their minimum capital requirements under Solvency II suggest that most are likely to meet those standards when the rules go into effect, according to the European Insurance and Occupational Pensions Authority.

The insurance regulator's study of 221 insurance groups and companies—with a market share of about 60% from the European Union, the European Economic Area and Switzerland—found that at least 90% remained financially robust in their ability to withstand a series of economic shocks.

The study was intended to test the market's resilience to macroeconomic shocks such as inflation, interest rate changes, credit risks and insurance risks, and the Brussels-based Comit� Europ�en des Assurances, which represents insurers and reinsurers in Europe, said the results demonstrate that the industry is able to withstand even severe economic shocks.

Regulators and groups representing various parts of the insurance industry continue to work on the remaining areas of Solvency II that have yet to be finalized, including significant questions around the calculation for catastrophe risk and other issues.

The following Solution Arc articles and resources will provide companies—both inside and outside the E.U.—with insights into the latest developments in the Solvency II implementation process as it plays out in key insurance markets throughout the world.