Solvency II Directive - Insurance intermediaries' issues

Solvency II Directive and its main impact on insurance intermediaries

The Solvency II Directive introduced a new solvency regime that has applied since 1 January 2016 to about 5000 (re)insurance undertakings in the European Economic Area (EEA). Although the Solvency II Directive has no explicit requirements towards insurance intermediaries, it has implications on insurance intermediaries.

The Solvency II Directive introduces a three-pillar approach whereby:

Pillar One contains the quantitative requirements (capital, valuation in the Solvency balance sheet, own funds)

Pillar Two contains the qualitative requirements (governance, including risk management and the supervisory review process) and

Pillar Three: contains the transparency requirements (supervisory reporting and public disclosure)

BIPAR Academy - Article on Solvency II by Professor Karel Van Hulle (> read more)

A summary of this article was presented at the BIPAR AGM in Prague on 16 June 2016. It is available on the BIPAR website.

Concluding observations of the article

"From 2017 onwards, much more information will become available on the European insurance industry than ever before. It is still unclear how undertakings will apply the new disclosure requirements. It is however expected that the new requirements will lead to market discipline because of peer pressure. It will not always be easy to interpret the information as the regime is new and some of the concepts are not yet familiar to a broader audience. In addition, there will be accounting data which may be different and which are not readily comparable as some will be based on local standards while others will follow IFRS (International Financial Reporting Standards). Rating agencies might also use different data although it might be expected that they will increasingly use the Solvency II data which are now more in line with the risks that insurers are exposed to.

Insurance intermediaries should also expect that the information disclosed by insurance undertakings will become more quickly available and that it will be subject to a great deal of scrutiny by investors, financial analysts, supervisory authorities and by the market as a whole.

Although Solvency II is complex, there can be no doubt that the introduction of a risk based solvency regime that links capital with the risks to which insurers are exposed, will allow the insurance market to operate more efficiently and more professionally: insurers are incentivised to better manage their risks and insurance supervisors have the means and the tools to better carry out their task. The availability – for the first time – of a great deal of relevant information about insurance undertakings and the insurance market will play an important role in helping the insurance industry to provide a better service to their clients.

This is also the case for insurance intermediaries. The information published by insurance undertakings will allow intermediaries to provide a better service to their clients because they will have a better insight into the way insurance undertakings are managed, which is highly relevant for their clients, who not only want to have a professional view on the products offered in the market but also on the providers of these products. Comparing these providers will become easier as a result of Solvency II."

Next step

BIPAR will continue to monitor the impact of Solvency II on insurance intermediaries. BIPAR will in particular work on the impact of the disclosure by all insurance undertakings of a report on their solvency and financial condition on an annual basis: the Solvency and Financial Condition Report (SFCR). Insurance undertakings will disclose their SFCR concerning the financial year 2016 for the first time by 20 May 2017.

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