The Forum strongly believes the directive represents an important step toward implementing an advanced supervisory and solvency framework which will help strengthen the European insurance industry. The Forum now urges the European Commission to introduce clear and effective implementing measures that will deliver the directive's basic principles.
The Solvency II standard formula to calculate a company's Solvency Capital Requirement should present a balancing act between various targets such as simplicity, risk sensitivity and robustness. The CRO Forum believes the main principles of the current standard formula, namely to asses the sensitivity with respect to all material risk factors and to aggregate capital requirements allowing for diversification, are appropriate for this purpose and moreover set incentives towards risk mitigation strategies.
Risk capital charges in the Solvency II context reflect the 99.5% quantile on a 1-year horizon. The consistent application of risk capital charges in Solvency II to all sources of risk is imperative. Inconsistent application of risk charges creates perverse incentives for certain asset classes or insurance products.
as a basis for discussion on the implementing measures for articles 50-55 of the EU Solvency II Draft Directive. The CRO Forum advocates a principles-based approach: Section B of this paper establishes five main principles for public risk disclosure which should be adhered to by all undertakings.
Financial Crisis strongly reinforces the case for Solvency II. EU should not water down the Solvency II directive or postpone the legislative process New CRO Forum publication comments on the consequences of the financial crisis forEnterprise Risk Management and regulation in the insurance industry
We have been an active participant in the Solvency II discussions that have taken place before the publication of the Solvency II directive promoting a risk-based and economic approach. We have therefore published a number of own initiatives papers on issues covering the cost of capital approach to market value margin (MVM), diversification benefits, internal models and financial risk mitigation and has responded to CEIOPS consultation papers.
CRO Forum's response to CEIOPS Consultation Paper no. 17: draft advice to the European Commission in the framework of the Solvency II project on Pillar 2 capital add-ons for solo and group undertakings We welcome this Consultation Paper from CEIOPS. The CRO Forum supports the inclusion of powers for a capital add-on in the Solvency II framework directive. However, we must emphasise that capital add-ons should be seen as a last resort as expressed, for example, in article 136(2) of the EU's Capital Requirements Directive.
We welcome this discussion document from the FSA and HMT which contains very useful principles for prudential supervision of groups in Solvency II.
While the exercise has highlighted a number of areas which require further consideration and discussion, the CRO Forum believes CEIOPS has achieved an important step in providing this new basis for discussion.