September 2015
Guy Carpenter has claimed that upcoming regulations – including Solvency II and the Own Risk and Solvency Assessment in Europe – will have a profound effect on (re)insurers’ balance sheets and risk management practices.
In addition to the increased administrative cost of compliance, higher risk-based capital requirements often reduced the strategic flexibility of insurance company operations and ultimately would lower returns, warned Guy Carpenter’s report, released earlier today (15 September).
Under the European Union’s Solvency II Pillar 3 reporting requirements, European (re)insurers must provide a Regular Supervisory Report to the regulator as well as a Solvency and Financial Condition Report to be published for clients, financial analysts, rating agencies and other stakeholders.
Additionally, each of the two reports consists of a narrative risk report where companies have to describe their risk strategy, risk governance system and risk management processes and complete extensive quantitative reporting requirements in the form of the Quantitative Reporting Templates (QRTs).
Guy Carpenter noted that (re)insurers had already invested heavily in data management systems, but that additional investments were still necessary.
“For the last two or three years, the preparation for Pillar 3 reporting requirements, especially the installation of an accurate data management system based on market consistent valuation principles for the QRTs, has absorbed considerable time and money and has typically become one of the largest projects for (re)insurers,” the report said.
James Wrynn, vice chairman of Guy Carpenter Strategic Advisory (US), said the costs associated with compliance and disclosure would continue to rise as insurance regulators and rating agencies increased their scrutiny of the industry.
“In addition to the increased administrative cost of compliance, higher risk-based capital requirements often reduce the strategic flexibility of insurance company operations and ultimately lower returns,” he said.
The report also referred to latest developments with China’s new C-Ross framework as an example of changing solvency rules around the world.
