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CEIOPS issues latest Solvency II study


FRANKFURT, Germany—The Committee of European Insurance and Occupational Pensions Supervisors, which is advising the European Commission on Solvency II —the new capital adequacy regime for the European insurance industry — has published its latest findings on the design of the proposed new system.

The so-called Quantitative Impact Study (QIS2) does not give any clear indications of how the planned new regime will affect the industry's overall solvency ratio and capital needs. This is because it is part of the committee's ongoing effort to work out the best ways of calculating such critical numbers not a guide in itself.

But CEIOPS did say that the study, that was based on a larger and broader sample than in the past, provided some important new information that will help it refine the process in preparation for the last impact study (QIS3) that is planned for the Spring of next year.

Charlie McCreevy, the European Commissioner for Internal Market and Services, told delegates at a recent conference organized by the Comite Europeen des Assurances in Brussels, Belgium, that the Commission is determined to produce a first draft directive for Solvency II by next summer.

CEIOPS said that QIS2 confirmed that the best estimate of future liabilities for technical provisions is by far the "most significant and critical component." It added that study showed a "slight preference" for the so-called "cost-of-capital" approach within the sector for calculating risk margins.

CEIOPS also said that "important signals" were given about the best design of the solvency capital requirement (SCR - the higher level based on standard and internal models which could trigger supervisory action if breached) and the minimum capital requirement (MCR -the lowest threshold at which supervisors can invoke serious measures including closure of the business if breached.)

The committee said that the feedback from the market suggested further analysis on some critical aspects, such as loss absorbing components of technical provisions and the link between the SCR and MCR was required.

It also said that its specifications are now intended to be based on a set SCR and MCR formula and that its methodology and process will be made simpler. "The benefits from experience of QIS2 will therefore serve to make QIS3 more user-friendly and less burdensome for the industry," stated CEIOPS."The lessons learned will be helpful in developing further advice, and in particular, when defining specifications for the third round of QIS, QIS3," added the committee.