“The Solvency II Directive lays an entirely new foundation for the supervision of insurance undertakings in Europe,” FMA Executive Directors Helmut Ettl and Kurt Pribil stated, welcoming the fact that the EU Directive on the taking-up and pursuit of the business of insurance and reinsurance – Solvency II (Directive 2009/138/EC) has entered into legal force through publication in the Official Journal of the European Commission.
This new supervisory system in Europe is intended to provide supervisors with tools that are appropriate, both in quantitative and qualitative terms, for assessing the solvency margin of insurance undertakings in the face of globalised financial markets.
At the same time, the Directive combines in a single document provisions set forth in 14 existing Directives on the subjects of life assurance and non-life insurance, reinsurance, insurance groups and liquidation, without having to modify the contents of the original Directives and thus avoiding renegotiation of their wording.
The solvency regulations of the EU are intended to ensure that insurance undertakings have a solid financial basis and are thus able to withstand negative developments, while protecting in turn policyholders as well as the stability of the financial system as a whole.
Insurers and reinsurers must comply with certain solvency regulations in order to ensure that they are able to keep their commitments toward policyholders. Up to now, solvency requirements have not been that risk-oriented nor have they addressed group supervision to an adequate extent. Consequently, market developments at the national and international levels as well as in specific sectors made the requirements obsolete. The new regulations represent a more adequate response to these developments in the way of supervision, actuarial principles as well as risk management, while additionally supporting future revision.
At the base of the Solvency II regime are the new solvency capital requirements, which are intended to cover not only the insurance risks involved in life assurance and non-life insurance but also the market risk, the credit risk and the operational risk as well, in this way reflecting the true risk profile of individual insurance undertakings. Besides quantitative regulations, Solvency II also places a stronger focus on qualitative requirements. These include supervisory rules for the individual cases, the governance system and the assessment of capital investments. The governance system comprises: compliance with the suitability requirements to which the management are subject; risk management; risk and solvency assessment by the undertaking itself; companies’ own control systems; internal auditing by companies; application of actuarial principles; and the outsourcing of business activities. For this reason, this governance system is especially important for ensuring the adequate management of insurance undertakings as well as the efficiency of supervision systems. The transparency and accountability obligations under Solvency II result in enhanced availability to the public of company-related business information as well as improved options for action on the part of supervisory authorities. In this way, greater pressure is placed on market participants via the capital market to comply with supervisory rules.
“Implementation of Solvency II represents a unique challenge that places high demands on the Financial Market Authority,” the FMA Executive Directors observed, adding that this was, “a challenge which we accept with whole-hearted dedication.”
The Committee of European Insurance and Occupational Pension Supervisors (CEIOPS) have been carrying out field studies or Quantitative Impact Studies (QIS) jointly with national supervisory authorities since 2005 to examine the potential impact in practice of a transition to the Solvency II system. The next field study is scheduled to be carried out shortly in 2010.
For further information please contact
Klaus Grubelnik (FMA Media Spokesperson)
+43/(0)1/24959-5106
+43/(0676)/882 49 516