Featured Product

    Article of EIOPA Chairman on Learning Lessons from Solvency II

    September 27, 2017

    EIOPA published an article titled “Learning lessons from Solvency II” by Chairman Gabriel Bernardino. This article, which was originally published in the Enterprise Risk Magazine, highlights that, for insurers, there are lessons to learn in implementing Solvency II. EIOPA discovered this when it undertook the first analysis of progress since the regulations started.

    Solvency II requires all insurance and reinsurance companies to have an effective system of governance—including risk management—in place, which is proportional to the nature, scale, and complexity of the business. EIOPA analysis on Own Risk Solvency Assessment (ORSA) shows that, while insurance and reinsurance companies are making good progress in implementation, there is scope for further improvements. The analysis highlights that small insurance businesses tend to face more challenges in implementing and applying ORSA processes. This encourages them to further elaborate on ORSA processes, including their ORSA policy and the quality of data used in assessments.

    Additionally, EIOPA has identified the need for a greater involvement of the administrative, management, or supervisory bodies in the ORSA process. EIOPA expects board members to use the ORSA results in their strategic decision-making process to enhance the overall risk management of undertakings. According to ORSA requirements, undertakings should assess all current or potential material risks, including those that are not quantifiable. The findings show that risk assessments do not always include all potential risks and, in many cases, the assessments are not linked to the business model and strategic management actions of the undertaking. Therefore, EIOPA calls on insurers to widen the scope of their risk assessment and to deepen the risk analysis. Furthermore, if any key tasks or functions are outsourced, there should be no negative impact on either the governance system or operational risks.

    EIOPA’s analysis also indicates that there is an over-reliance on the standard formula by undertakings. The assessment of the significance of the degree to which risk profiles deviate from the assumptions underlying the solvency capital requirement under the standard formula should be further improved. EIOPA expects all organizations to perform an assessment of their specific risk profile when calculating their overall solvency needs, taking into account the proportionality principle. Finally, there is scope to improve the quality of stress testing, including reverse stress tests and scenarios used in the ORSA assessments. The stress criteria used should enable insurers to evaluate appropriately, in a forward-looking perspective, the potential risks they and their business may be exposed to and the required solvency to manage such risks. While recognizing the steps taken by insurance and reinsurance companies in implementing ORSA, further improvements will help to better embed this risk management tool into business strategy. The article concludes that risk management is an essential function for business planning and strategic decision making. Solvency II and, in particular, ORSA are powerful tools to help companies taking a holistic approach to risk, which, in the longer term, can only serve to benefit consumers and policyholders.

     

    Related Link: Learning Lessons from Solvency II (PDF)

    Keywords: Europe, EU, Insurance, Solvency II, ORSA, Risk Management, Governance, EIOPA

    Featured Experts
    Related Articles
    News

    EU Amends IFRS 9 Rule, Changes Concern Interest Rate Benchmark Reforms

    EU published Regulation 2020/34 regarding the International Accounting Standard (IAS) 39 and International Financial Reporting Standards (IFRS) 7 and 9.

    January 16, 2020 WebPage Regulatory News
    News

    FDIC and OCC Issue Statement on Heightened Cyber Security Risk

    In response to the heightened cyber-security risk facing the financial services industry and other critical business sectors, FDIC and OCC issued an interagency statement on heightened cyber-security risk.

    January 16, 2020 WebPage Regulatory News
    News

    BoE and FCA Outline Next Steps for LIBOR Transition in 2020

    BoE, FCA, and the Working Group on Sterling Risk-Free Reference Rates (RFRWG) have published a set of documents that outline the LIBOR transition priorities and milestones for 2020.

    January 16, 2020 WebPage Regulatory News
    News

    BCRA Updates Regulation on Capital Requirements and Information Regime

    BCRA updated the rules on minimum capital requirements for financial entities and on certain aspects of the information transparency regime for quarterly and annual supervision.

    January 16, 2020 WebPage Regulatory News
    News

    BIS to Expand Central Bank Membership

    BIS is to expand its central bank membership base and to increase collaboration in its work as a forum for international cooperation and as a hub for central banks and other financial authorities.

    January 14, 2020 WebPage Regulatory News
    News

    EIOPA Issues Technical Specifications for Market and Credit Risk Study

    EIOPA published the technical specifications, including instructions, for the market and credit risk modeling comparative study for year-end 2019.

    January 13, 2020 WebPage Regulatory News
    News

    FED Publishes FAQs on Tailoring Rules for Banks

    FED released a letter announcing the publication of an initial set of frequently asked questions (FAQs) in response to questions from institutions.

    January 13, 2020 WebPage Regulatory News
    News

    IA of Hong Kong Publishes Stress Testing Scenarios in Relation to ORSA

    IA of Hong Kong published the prescribed scenarios for stress and scenario testing to be used by the authorized insurers conducting general insurance business.

    January 13, 2020 WebPage Regulatory News
    News

    FDIC Letter on Submission of Call Reports by End of January 2020

    FDIC, in a letter to financial institutions, announced that the Consolidated Reports of Condition and Income (Call Reports) for the December 31, 2019 report date must be submitted to the Central Data Repository of the relevant US agencies by January 30, 2020.

    January 13, 2020 WebPage Regulatory News
    News

    EBA Consults on Calculation of Own Funds Requirements for Market Risk

    EBA is consulting on the draft regulatory technical standards for calculation of the own funds requirements for market risk, under the standardized and internal model approaches of the Fundamental Review of the Trading Book (FRTB) framework.

    January 13, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 4489