Field test shows insurers have capital to meet new reserve requirements
European insurers have enough capital to meet new solvency rules, according to the European Insurance and Occupational Pensions Authority, which last week published the results of Quantitative Impact Study 5.
QIS5 is a field test of the Solvency II rules that European insurers will have to follow from January 2013. Under Solvency II, an insurer’s risk profile and how it manages those risks will determine how much of its capital it must set aside to cover for market shocks.
The regime will introduce new approaches to valuing assets and liabilities, including real estate. Insurers are big real estate investors, directly and indirectly via funds and equities, and the industry is unhappy about the way Solvency II treats property.
QIS5 does not give any details about what actions, if any, it proposes to take on this issue. INREV is due to publish a study on real estate treatment at the end of this month.
According to the Solvency II timetable, insurers that want to have their risk models and management systems approved by their national regulator must submit formal applications between November this year and April 2012.
Around 100 UK insurers have told the Financial Services Authority that they wish to use internal models to assess their capital requirements, but not all of these will invest in property.
“The industry wants a position of some certainty and QIS5 doesn’t provide it,” said Paul Clarke, chairman of PricewaterhouseCoopers’ Solvency II European steering group. “The process is up against the wire on the timetable.”