Solvency II news: EIOPA publishes QIS 5 results

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What is the practicability, implications and impact of Solvency II? 

On 14 March 2011, the European Insurance and Occupational Pensions Authority (EIOPA) released the fifth Quantitative Impact Study (QIS 5) report. The publication of this report marks the end of the impact study, which was conducted in 2010, in order to test the practicability, implications and impact of Solvency II.

QIS 5 is also the final full-scale test of its type to be run in advance of the Solvency II regime being in force. Almost 70% of the industry participated in the study, making this the most comprehensive test of the Solvency II proposals to date. The results, which apply to insurance balance sheets as at the end of 2009, indicate a reduction of surplus of €56bn compared to the current Solvency I regime.

However, this overall experience differs by geography and type of company. The study shows that 15% of European participants could not cover their solvency capital requirement, or SCR, (prompting regulator action), while 5% of the participants could not cover their minimum capital requirement, or MCR (which triggers major regulator intervention).

Firms were also encouraged to provide internal model results and they were generally found to be similar to the standard formula. At a group level, the internal model results were on average 80% of the standard formula results.

There are still many areas where firms have expressed concerns ranging from the type of the method, the calibration, or the simple practicality of performing the calculations.

The QIS 5 report highlights that the impact on any given firm is a sum of many moving parts and industry working groups will continue to test certain aspect of the calibration.

Given this uncertainty, we are supportive of the proposed transition measures within Omnibus. This will help smooth the impact, and give firms and regulators time to achieve an orderly transition to the new regime.