Solvency II an opportunity, says new report

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A new report from Research and Markets argues that Solvency II should be regarded as an opportunity for insurers, rather than another compliance exercise. The report, 'Risk Management for Insurers', by Rene Doff, is styled as a risk management guide to help the insurance industry prepare for the implementation of Solvency II, the regulatory framework for the insurance industry that uses Basel II’s three-pillar structure.

Doff attempts to assure insurers that Solvency II provides incentives for insurance companies to improve their risk management systems and ‘will allow you to benefit from the risk management efforts in the context of supervision’. Bearing in mind the cost-savvy audience and the fact that risk managers will need to sell the implementation costs to the senior management, the report also shows how to integrate risk and value management into the management control framework of insurance companies, by highlighting the evolution of embedded value into market consistent techniques and fair value.

Although Solvency II does present benefits, the message appears to be getting lost on European insurers. Recently, rating agency Standard & Poor’s has noted the steps that some insurers are taking towards implementing enterprise risk management policies in advance of Solvency II, but warns that many firms have not yet fully evaluated the effect the new regulation will have on them as the implementation date is still so far away. The effects of Solvency II will hit those firms in the middle tier particularly hard, since they are the ones who are starting to gain an impression of the cost required to implement or upgrade their risk management systems, and are looking to M&A to find economies of scale.