Eighty per cent of major European insurance companies
have begun their Solvency II implementation program and,
encouragingly, two-thirds (61 per cent) see it as a means to improve
all aspects of their risk management across the whole business, says a
new survey from Ernst & Young, one of the world's leading firms of
professional advisors. However, while the benefits are welcomed, there
is still much work to be done.
The 2006 Solvency II Readiness Survey: Readiness and Beyond,
published by Ernst & Young's Global Insurance Center, interviewed
senior managers with responsibility for Solvency II in 54 of Europe's
largest insurers, spread across 16 countries, with an average asset
size of EUR 110 billion.
Lex van Overmeire, who leads the Ernst & Young Solvency II
Taskforce, comments, "Solvency II pressure on insurers is mounting and
the timetable is becoming critical. While the industry is embracing
the benefits, there are practical issues around readiness which must
be overcome. Insurers are facing the challenge of developing internal
models, the adequacy of information systems, the complexity of data
requirements and the skills levels within their organizations."
On the positive side, the survey shows a strong appreciation of
the enterprise-wide benefits of Solvency II. Only a small number of
respondents see Solvency II as just an additional regulatory burden.
Rather it appears to be driving a welcome need for improved risk
management and an integrated view of risk across the whole
organization. By enforcing entity wide internal controls and risk
management, Solvency II is encouraging a more holistic approach,
linking regulatory requirements to the requirements to monitor
business strategy.
Niek de Jager, Solvency II taskforce member, adds, "Solvency II is
driving the convergence of Enterprise-wide Risk Management (ERM) and
the economic capital concept in global insurers. This is a great
opportunity for them to optimize costs and drive real business value.
However, in order to reap the benefits, companies need flexible
information systems and data models. At present many existing
information systems are not sufficient to support enterprise risk
management, and temporary workarounds will only be more costly in the
long run."
The survey highlights the key areas where a lack of readiness will
impact on the insurer's ability to implement Solvency II effectively.
Specifically these are:
-- Only one in five (20 per cent) insurers believes their current
capital models will comply with Solvency II; nearly half of
insurers believe their internal models will need significant
enhancement. Without qualifying models Solvency II using
standard formulas is the only option.
-- Although half (53 per cent) of insurers believe necessary
changes to their information systems will not be a significant
issue, the larger insurers in particular anticipate major
changes being necessary to both information models and
corresponding systems before they can produce all the data
required by Solvency II. Without the correct systems the
required information can only be delivered with significant
additional burden.
-- Two thirds (64 per cent) of insurers highlight a need to
upgrade the skills of actuaries and risk managers to deal with
the challenges of Solvency II; of these, 15% recognize their
current skill base falls short of the level required and many
anticipate difficulties in hiring competent people.
-- The importance of operational risk assessment seems to be
receiving less focus at this stage and there is less modeling
or measuring of these risks than other risk categories. This
is due to an industry-wide lack of the historical data needed
to enable effective risk management.
Jorg Behrens, one of Ernst & Young's financial services risk
management experts, highlights comparisons for the insurance sector
with the experience of the banking industry when implementing Basel
II, "The banks experienced major systems, modeling and people issues
which all led to significant cost over-runs. By recognizing these
issues now, and taking action to put an effective enterprise-wide risk
management process in place, insurers can capitalize on this necessary
expenditure more rapidly."
Peter Porrino, Leader of Ernst & Young's Global Insurance Center,
concludes, "This survey is the first to be released by the Global
Insurance Center and is closely aligned with our mission to help
insurers address complex issues, such as Solvency II. However,
complexity does not mean insurmountability, and Solvency II represents
an excellent opportunity for the industry to take a significant step
forward in the way it deals with risk."
About Ernst & Young
Ernst & Young, a global leader in professional services, is
committed to restoring the public's trust in professional services
firms and in the quality of financial reporting. Its 107,000 people in
140 countries pursue the highest levels of integrity, quality, and
professionalism in providing a range of sophisticated services
centered on our core competencies of auditing, accounting, tax, and
transactions. Further information about Ernst & Young and its approach
to a variety of business issues can be found at
www.ey.com/perspectives. Ernst & Young refers to the global
organization of member firms of Ernst & Young Global Limited, each of
which is a separate legal entity. Ernst & Young Global Limited does
not provide services to clients.
About Ernst & Young's Global Insurance Center and Solvency II
Taskforce
The Center is the hub of the Ernst & Young network of
professionals dedicated to serving the global insurance market and
connects our people around the globe, sharing information and
experience on current and emerging industry issues. The goal is to
help our global insurance clients address their complex issues by
drawing on our broad range of services including: assurance, tax,
actuarial & risk management, regulation & compliance, internal audit,
finance and performance management, transaction advisory services, and
technology advisory to support these services.
Ernst & Young recognizes the importance of the development of a
new solvency system for insurance undertakings in the EU and has set
up a dedicated multi-disciplinary task force for this project. Our
Solvency II Taskforce focuses on the conceptual development and
related multi-disciplinary assurance and advisory services regarding
Solvency II.
This press release has been issued by EYGM Limited, a member of
the global Ernst & Young organization.
