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Firms warned to watch Solvency II disclosure rules


Accounting firm KPMG has warned European insurance companies that they should not underestimate the disclosure requirements that will probably be included within the forthcoming new solvency regime - Solvency II.

Solvency II follows the Basel II model that was created for the banking sector. As such its two core elements focus on what capital should be required to cover the risks underwritten by companies and then how the detail should be disclosed.

To date most attention has focused on the capital requirements as the body tasked with working out the new system - the Committee of European Insurance and Occupational Pensions Supervisors — designs a risk-based capital adequacy system and companies try and work out what it would mean for their individual capital requirements.

But Jane Leach, KPMG Financial Services Partner, Risk and Regulation says that companies that focus too much on the capital requirements and not enough on the disclosure part of the new regime could be in for a nasty surprise.

"The disclosure requirements of Basel are extensive, and the implications should not be underestimated. The measures will provide an incentive for sound and efficient management of firms, but they could come as a shock to those firms that do not engage in the dialogue," she said.

Earlier this month, CEIOPS published five consultation papers asking for comments on its draft advice to the European Commission on the framework for Solvency II.

CP 20 covers so-called Pillar I issues focused on capital requirements. It includes key decisions made on the measurement of technical provisions.

CP 19 covers so-called safety measures while CP 15 concentrates upon supervisory reporting and public disclosure.

CP 16 focuses upon reinsurance.

The final paper - CP 17 - focuses on capital add-ons for solo and group undertakings.

The consultation period for all four documents runs out on January 12th, next year. KPMG's Ms. Leach advised those companies that will be affected by the new solvency regime to become involved in the lobbying process now if they have not done so already.

"Solvency II is now reaching the critical stage, with a draft Directive being prepared for next summer, and firms need to actively engage in the debate," she said.