14 March 2011 – Frankfurt
The results of QIS5 (the fifth Quantitative Impact Study) were today announced by EIOPA (the European Insurance and Occupational Pensions Authority). The study ran to assess the impact of new approaches to asset and liability valuations and capital setting under Solvency II – which will apply to insurers from January 2013. Under Solvency II the risk profile and risk management of an insurance company will determine its capital requirements.
There was a large increase in the level of participation in the latest study – roughly 70% of all insurance companies participated in QIS5, up from 33% in QIS4. QIS5 revealed that insurance companies hold €395 billion of excess capital to meet their solvency capital requirements (SCR*) and €676 billion of excess capital to meet their minimum capital requirement (MCR**) as defined in the Solvency II directive.
QIS5 revealed that areas of governance, risk management and reporting requirements require further attention of the industry to prepare for Solvency II.
* The Solvency Capital Requirement (SCR) is defined as the potential amount of own funds that would be consumed by unexpected large events whose probability of occurrence within a one year time frame is 0.5%. This definition based on a probability measure allows (and sometimes mandates) the replacement of all or part of the standard formula with an internal model, when this can be shown to be better able to fulfil the directive requirements in relation to an undertaking’s particular risk profile. EIOPA points out though that individual internal models have not been approved yet to calculate the capital requirements under Solvency II.
** The Minimum Capital Requirement (MCR) is defined as the potential amount of own funds that would be consumed by unexpected events whose probability of occurrence within a one year time frame is 15%. In order to ensure the smooth functioning of graduated supervisory intervention (often referred to as “the ladder of intervention”), the linear result produced by the MCR calculation is bounded between 25% and 45% of the SCR, subject to an absolute minimum.
For the full press release published by EIOPA, follow the link to the EIOPA website:
