EMB addresses IUA seminar on Solvency II
EMB advises seminar attendees to look beyond capital ratios to ORSA requirements of Solvency II
Solvency II experts from EMB, the international actuarial and business consultancy, have told insurers that the ORSA (Own Risk Solvency Assessment) requirements of the Directive pose a far greater challenge to them than the minimum and solvency capital ratios.
Speaking at today’s International Underwriting Association’s Market Briefing, ‘Solvency II: Planning for the Year Ahead’, they also said that for companies using Internal Models the real deadline is 2010.
EMB Partner, Raj Ahuja, said: “Regardless of any political wheeler-dealing currently taking place in Brussels, bodies like CEIOPS and the Financial Services Authority (FSA) are ploughing ahead with their timetables. With the dry run process for Internal Models that the FSA is proposing, companies will need to be ready to have their Internal Models scrutinised in 2010, not 2012 when the Directive is due to come into force.”
This gives companies 12-18 months in which to make significant progress if they intend to use an Internal Model.
Mike Wilkinson, who is leading EMB’s Solvency II Advisory Group, stressed the need for companies to be absolutely clear about the distinction between an Internal Model and a technical model. The Internal Model is the entire system for analysing a firm’s risks and assessing its capital requirements. The technical model plays a crucial role in this but it is only part of the process.
“Most technical models have been written from a capital setting perspective,” he commented. “Risk-based regulation like Solvency II, and the ORSA in particular, absolutely demands that Internal Models adopt a more business-oriented approach. It is the overall Internal Model that requires approval.”
The ORSA is the means by which companies carry out a full evaluation of their business risks, taking account of their own risk appetite, profile and strategy.
Working through the ORSA is also a prerequisite to meeting the requirements of the ‘Use Test’, another key part of the Directive according to EMB.
Raj Ahuja said: “The FSA’s current thinking is that companies will have to pass all of the Solvency II tests for the Internal Model to be approved. Calculating regulatory solvency capital requirements is therefore only the very tip of the iceberg. For many companies it will entail major structural and cultural changes across the organisation.”
For more information, please contact Graham Whitehead at EMB:
Tel: +44 (0) 1372 751060
Email: graham.whitehead@emb.com
www.solvency-2.com