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Last Wednesday, CEIOPS (the Committee of European Insurance and Occupational Pensions Supervisors) published the results of its second Quantitative Impact Study, QIS2. This report studied the impact of the Solvency II risk-based approach on the assets and liabilities of life and non-life insurance companies and reinsurance organizations. The report, carried out between May and July of this year, also studied possible options for setting the capital requirement. In all, 23 countries were included with an estimated market share of above 50%.
CEIOPS are tasked by the European Commission (EC) to introduce Solvency II, the new solvency and supervisory standard for European insurance organizations - one that is being structured along the three pillar approaches taken by the Basel II Accord for banking entities. CEIOPS conducted its first study, QIS1 at the end of last year. This concentrated on benchmarking the level of prudence in the current technical provisions. QIS2 looked at the practicability of the capital calculations, the impact on balance sheets and capital levels, and tested various approaches to capital calculations.
The report shows that the impact on solvency positions differs depending on the type of organisation with, on average, technical provisions decreasing, the solvency capital requirement (SCR) increasing as does eligible capital. The solvency ratio, on average, decreases, but remains above 100% for most organisations in most countries. This is viewed as confirming an overall resilience of the sector.
CEIOPS are being cautious about any conclusions and point out that the exercise has been a preliminary one, and they will use this experience in defining QIS3 planned for Spring 2007. This is the exercise that will lead to CEIOPS finalising the Solvency II capital requirements directive for insurance organisations, expected for July next year and planned to take effect in 2009.
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