CEIOPS publishes Solvency II QIS3 results

CEIOPS has released the results of the third Quantitative Impact Study, while the FSA releases results from the UK survey

FRANKFURT – The Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) has published the conclusions from its third Quantitative Impact Study (QIS3), which tested the design framework for Solvency II insurance regulation.

Some 1,027 insurance companies from 28 of the 30 states within the European Economic Area were surveyed, almost double the 514 respondents to QIS2.

QIS3 tested group supervision for the first time, and multiple approaches for some elements, contributing towards an informed adoption of the best option by the 2012 deadline – although further calibration will come with QIS4.

CEIOPS said feedback was less consistent for some more controversial topics, such as the treatment of concentration and counterparty risk, and the equity risk approach based on the duration of liabilities.

The testing also revealed the amount of change needed to comply with the minimum capital requirement (MCR) and solvency capital requirement (SCR), concluding that, despite the changes needed to adapt to a risk-orientated system, 98% of firms will meet the MCR without allocating additional capital.

CEIOPS concluded that 30% of undertakings would have 50% surplus capital under the new regime, although for 34% the surplus would decrease by the same amount – meaning that 16% of firms will need to allocate more capital to meet their SCR.

On operational risk, CEIOPS reported most firms recognised the area deserved special attention, although participants said full correlation with the other forms of risk was not possible, and demanded the recognition of diversification effects.

Worryingly, 21% of firms still did not consider an operational risk strategy necessary, and of those that did, 30% considered it unnecessary to define their risk appetites within the strategy.

Only 38% of firms collected historical loss data for op risk analysis, although a further 24% planned to in the future.

More encouragingly, 65% of respondents said a committee structure was necessary for operational risk strategy, with most of these involving the board of directors directly in the committee’s work.

The Financial Services Authority (FSA) has also released the UK results. UK participation was considerably higher than for QIS2, representing 65% of life firms and 75% of non-life firms, respectively.

While UK solvency ratios would reduce, the industry as a whole would require a substantial buffer of capital greater than the SCR, with varying effect between firms. Over 80% of UK firms could report a capital surplus over the standard SCR as proposed in QIS3 and a reduction in their overall solvency ratio compared to the current requirements under the Insurance Groups Directive.