With the entry into force of the 2016 Insurance Supervision Act (VAG 2016; Versicherungsaufsichtsgesetz), transposing Directive 2009/138/EC on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) into national law, the new “Solvency II” supervisory regime for insurance undertakings will become fully applicable in Austria as of 1 January 2016. The new supervisory regime is intended to enhance policyholders’ protection, to create uniform competition standards for insurers in the European internal market and to ensure a supervisory practice that is as consistent as possible within all of Europe.
In order to achieve these goals, Solvency II introduces a number of far-reaching changes:
- Calculation of the Solvency Capital Requirement had previously been mechanical. This will now be replaced by a system designed to map the risks entailed with the business activity as precisely as possible. Such a risk-oriented calculation of the Solvency Capital Requirement provides an incentive to expand risk management systems.
- To determine solvency, insurance undertakings are now also required to draw up a “solvency balance sheet” in addition to the financial statements based on the Corporate Code (UGB; Unternehmensgesetzbuch). The solvency balance sheet gives the eligible own funds, which are to be classified into tiers according to their loss-absorbing capacity.
- Solvency II requires investments to be managed in line with the prudent person principle. The previous quantitative limits for asset groups have been discontinued. Insurance undertakings are now generally required to maintain assets of sufficient quality to cover their overall financial requirements.
- In order to enable the effective supervision of insurance groups, provision is made for more intensive cooperation and exchange of information among supervisory authorities within the colleges of supervisors.
- The new, more comprehensive requirements pertaining to disclosure and transparency specify that insurance undertakings must publicly disclose, at least annually, essential information on their solvency and financial condition. Reporting obligations towards supervisory authorities have also been expanded.
- The supervisory review process will now be carried out in a standardised manner across Europe. National competent authorities (the FMA in Austria) must not only assess adherence to the quantitative, risk-based capital requirements but also to the qualitative requirements relating to the governance system and the ability of undertakings to control the risks associated with their activities.
The Solvency II requirements regarding calculation of the solvency ratio differ considerably from those under the previously applicable set of rules. “Risk-oriented calculation of the capital requirements under Solvency II is based on a solvency balance sheet aligned with market values. Insurance customers, insurance undertakings and supervisors will therefore need to get used to more volatile balance sheets and capital requirements,” FMA Executive Directors Helmut Ettl and Klaus Kumpfmüller pointed out. They added that this would, however, allow faster recognition of unfavourable developments and consequently more timely corrective action, thus strengthening the stability of the insurance sector.
Journalists may address further enquiries to:
Klaus Grubelnik (FMA Media Spokesperson)
+43/(0)1/24959-6006
+43/(0)676/882 49 516