Is this an advantage? For some it probably didn’t feel like it early on. The effort and resource that Solvency II consumed was considerable and meant other priorities or development opportunities were often side-lined. For international subsidiary companies, who were not themselves the primary focus of the new regulation, this would have held some frustrations.
However, the new mindset of better aligning capital and actions with a fuller understanding of risk, must be considered as a good thing. It is unlikely to be time wasted.
The Solvency II universe
For those companies who have had some direct exposure to Solvency II through group touch and for those who have not, by being in offshore jurisdictions outside of this direct EU regulatory regime, there has already been some positive changes stemming from the introduction of Solvency II. These include:
- An increased pressure and focus on business models.
- A flight to core competencies.
- A better understanding and crystallisation of capital positions.
All of this has led to a shake-up in domestic European insurance markets, such as in the UK within M&A and revised market selection activity, as groups and companies sought to optimise their positions ahead of Solvency II. Quite naturally this rippled into the ownership and environmental proximity of many international life insurance companies.
For those not yet directly affected by Solvency II, there is little doubt that its long arm is beckoning.
This is, in part, due to an undeniable trend for increased regulation that picks up lessons, experience and best practice from one location or sector and reads it across to another. In sector terms, this might be from banking to insurance or vice versa, and in terms of geography it is from one successful application of a set of rules or approach in one location to another. This spread culture makes it inevitable that the learning from Solvency II will quickly move more widely.
Indeed, a number of countries and ter- ritories are studying the experience of Solvency II, with many actively running programmes to consider similar risk-based capital regulation.
Some, such as Switzerland (with its conceptually similar Swiss Solvency Test) already have a regime. Others are actively working on their approaches.
Looking at the position of the Isle of Man (IoM) provides a useful illustrative focus, which highlights both the wider direction of development and the specific interaction with the existing ‘standard’ that is set by Solvency II.
Following the lead
The IoM Insurance and Pensions Authority commenced its work in further risk-based capital regulation alongside other insurance regulatory development in earnest in 2013 with the publication of its Roadmap for updating the Isle of Man’s regulatory framework for insurance business. Two further updates to the Roadmap have since been published in 2014 and 2015.
Its objectives and work streams are clearly set out and include the following: “A fundamental aspect of the new framework will be a more fully articulated, risk-based capital and solvency regime.”
