The FSA’s Discussion Paper “Insurance Risk Management: The Path to Solvency II” published on 25th September aims to help UK insurers in their preparations for the new regime by highlighting key elements of the Solvency II Directive where UK insurers will need to change their current practices. Mike Wilkinson and Andrew McGuinness of EMB discuss this important new guidance document.

It is now clear that, despite the Directive not yet being ratified, the FSA is very focused in its aim of driving the UK insurance industry timetable over the next four years to ensure UK insurers will meet the forthcoming Solvency II requirements.  The FSA expects that a significant proportion of the industry will wish to seek approval to use an internal model - particularly as feedback from the QIS process suggests a lower capital requirement will be available - and it intends to effect as streamlined a process as possible. The spotlight for this process will be on how internal modelling is integrated into insurers’ risk management activity.    

The Discussion Paper contains three key messages:

• Solvency II will bring changes to the UK regulatory requirements;
• Insurers should be making effective implementation plans now; and
• The Board and senior management are responsible for making it work.

Taking these three messages in turn, we focus on the relevant questions. 

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