The faulty towers of Solvency II


The faulty towers of Solvency II


As the implementation of Solvency II finally approaches, one worried actuary wrote to us expressing some deep concerns about its implementation. We then asked our online readers if they agreed or disagreed with the piece and why. What follows is the original letter and some of the responses we received.

After more than 15 years’ gestation, the Solvency II regulation is finally entering into force on January 1, 2016. The recent preparatory reporting gives room for reflection on what new world European “insurance and reinsurance undertakings” (ie, insurers) and their “administrative, management and supervisory bodies” (ie, boards) are facing.

The first years of the Solvency II process were promising. The Solvency I regulation was obsolete at inception and the ideas of a more holistic, technically advanced and principle-based regulation were inspiring. An early milestone of the process was the 2002 Sharma report investigating the root causes of insurance failures from 1996 to 2001. Poor management was found to be the root cause of most insurance failures—and regulatory cost, complexity and distraction were still unknown threats of the future. So where did it all go wrong?

Let’s start with the following analogy. Your regulator tells you to make an exact replica of the Mona Lisa. You receive no illustrations of the painting, but several 300-page documents, written by a legal minded third party, full of irrelevant details regarding Mona Lisa’s shoes and underwear.

Solvency II, Solvency I, Regulation, Europe, Mona Lisa, Three Pillars

Intelligent Insurer