A new Solvency II regime - overview

Solvency II is the largest ever change to European insurance solvency regulations. The European Commission has estimated total costs of implementation for the industry in Europe to be €2-3bn over 5 years.

Most European insurers are obliged to implement the full Solvency II requirements by October 2012.  As such, it will be a major driver for the development and embedding of Enterprise Risk Management (ERM) for the insurance industry. For some it will be a very significant change and a challenging transformation project.

Implementation of Solvency II is built around a 'Three Pillar' concept. Pillar 1 is the detailed quantification and modelling of risk and capital adequacy. Pillar 2 is the establishment of management practices to manage risk and capital, Pillar 3 is the disclosure and reporting of risk, capital and management practices to the regulators and the market.

In the last 12 months, PwC has worked with over 50 insurance companies in the UK to help them assess the implications of Solvency II on their business and plan for the detailed requirements of implementation. We are now moving into detailed design and implementation programmes with these clients. Find out more on implementation - working with PwC.

Solvency II progress to date

Existing European solvency rules for life, non-life and reinsurers will be significantly upgraded. Solvency II is a risk-based, forward-looking regulatory regime founded on a ‘total balance sheet’ and market-consistent approach. Companies will be given incentives to run their business with an increased focus on risk management, governance and enhanced disclosure.

The European Commission published a revised draft proposal for a Framework Directive in early 2008. It was finally adopted, after intense negotiations, by the European Parliament in April 2009.

Three waves of consultation papers were published by CEIOPS on ‘Level 2’ measures which aimed to fill in additional detail not covered in the ‘level 1’ Directive, with the “second wave” attracting much debate and over 20,000 comments.  Final advice on the first and second waves has been issued by CEIOPS, and will be joined by the third wave advice in early 2010.

PwC subject matter professionals have reviewed the consultation papers and provided comment on how the advice might work in practice, what we think will work well and areas in need of clarification. This gives you insight into how Solvency II will impact the industry.

The advice goes to the Commission, who will undertake their own consultation during 2010 and ultimately make the final level rules.

PwC updates

To keep you up to speed with latest developments, we have put together updates from the regulator, the industry and PwC.  Check the 'updates' section to review our responses to CEIOPS and short papers from PricewaterhouseCoopers on the latest CPs and key topics - for example, a summary of the 'second wave' CPs issued and an exploration of internal model approval.

CEIOPS consultation papers and QIS 5 - timings

Adoption of the Level 1 Framework Directive paves the way for substantial further work by the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) in preparing the associated ‘Level 2’ implementing measures. CEIOPS’ more recent quantitative impact studies (QIS) have informed this process: the results of QIS4, were published in November 2008.  On 26 March 2009, CEIOPS published its 'first wave' of consultation papers on Level 2 measures.  A more substantive second wave was published on the 2 July, with the third and final wave published on 2 November.  The Commission has announced its intention to conduct a fifth QIS from April to June 2010.