Aviva plc, the world's fifth largest insurer and the leading provider of life and pensions to Europe, welcomes the draft EU Directive on Insurance and Reinsurance Supervision (`Solvency II'), which was proposed by the European Commission today.
Aviva plc, the world's fifth largest insurer and the leading provider of life and pensions to Europe, welcomes the draft EU Directive on Insurance and Reinsurance Supervision (‘Solvency II'), which was proposed by the European Commission today.
Philip Scott, who will become group finance director of Aviva on 12 July, said: "Solvency II is a unique opportunity to create a modern, future-proof insurance supervision framework, for the benefit of policyholders, insurance companies and the wider economy.
"Fundamentally, Solvency II is not just about capital rules: it should also provide behavioural incentives for good risk management and provide a basis for group supervision in Europe.
"The capital requirements should reflect not only the risks in an insurance company's business, but also how these interact with other risks and the mitigation applied by the management. For multinational groups, it's vital that the capital requirements reflect the complete picture, including the spreading of risk. Diversification of risk is one of the fundamental principles of insurance and transcends corporate legal structures.
"With the emergence of large pan-European players, insurance groups operating across the EU face the burden of multiple compliance regimes, which can lead to capital inefficiencies. We therefore welcome today's proposal for group supervision, which provides a pivotal role for the home supervisor to determine group capital requirements. The local supervisor will still play an important role in the assessment of local risks and will also benefit from the greater understanding of how those risks fit the overall group risk profile.
"Aviva is - and has always been - fully committed to contributing to the success of Solvency II, and now calls on the European Parliament and the Council of Ministers to ensure its smooth and swift adoption. Beyond the EU, we also hope that Solvency II will be seen as a model for global supervision."
About Solvency II
- Insurers need to be able to meet their commitments to policyholders at all times, even in the case of unforeseen losses. To ensure this, European Union legislation has defined minimum solvency requirements and standards of prudential supervision.
- The current rules (known as "Solvency I"), which were developed in the 1970s, are too simple for today's complex financial services world. Most importantly, regulation needs to be aligned with insurers' modern risk management techniques. To address this, some Member States have advanced at national level and added requirements, resulting in a patchwork of rules across the EU.
- The Commission's Solvency II proposal is based on three pillars derived from Basel II:
- Pillar I - Risk-based capital requirements: Solvency II will impose new quantitative capital requirements. If an insurer's resources fall below the solvency capital requirement (SCR), the supervisory authority will be able to impose corrective measures. Below the minimum requirement (MCR) threshold, the supervisor can decide to close the company to new business. The SCR can be calculated with a (relatively simple) Standard Approach or a company's own (more sophisticated) Internal Model.
- Pillar II - Supervisory review of internal risk management: Supervisory authorities will not only assess whether an insurer holds sufficient capital but also the quality of its risk management. For instance, underwriting strategy, claims management and reinsurance cover will be taken into account.
- Pillar III - Transparency to aid market discipline: So that the market itself also brings in a "disciplinary effect" on corporate management and transparency, Solvency II will define principles for the disclosure of information to policyholders, investors, rating agencies and other interested parties.
- The directive will be adopted in the framework of the Lamfalussy procedure and is expected to be fully implemented around 2011.
- Group supervision: Solvency II will streamline group supervision and should allow groups to manage their risks and their capital more efficiently. The draft directive clarifies the respective roles of the group and local solo supervisors and calls for greater co-operation among European supervisors. The group supervisor would be responsible for ensuring that the group has eligible capital to meet its Solvency Capital Requirements. The group supervisor would be required to liaise with the solo supervisor in fulfilling his/her role of assessing the appropriate capital requirement for the group. Solo supervisors will be able to participate in the decision-making, including the approval of internal models used by the group.
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Notes to editors:
About Aviva
- Aviva is the leading provider of life and pensions to Europe with substantial positions in other markets around the world, making it the world's fifth largest insurance group based on gross worldwide premiums at 31 December 2006.
- Aviva's principal business activities are long-term savings, fund management and general insurance, with worldwide total sales of £41.5 billion and assets under management of £364 billion at 31 December 2006.
- The Aviva media centre at www.aviva.com/media includes images, company and product information and a news release archive.