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Wednesday 27 October 2010
Author: Russell Group

Broker Willis has warned the insurance and reinsurance markets that the implementation of Solvency and accounting standards in 2013 will sendshockwaves through the global market

With insurance companies bracing themselves for the double hurdles of Solvency II and the new International Financial Reporting Standard (IFRS) in 2013, Willis Re has published two reports on the current developments in insurance regulation and reporting, adding that those who feel that the impact will be restricted to Europe should think again..

David Simmons, Managing Director, Analytics and Head of International Enterprise Risk Management for Willis Re said, “The differences between Solvency II and IFRS versus existing standards are startling and the implications huge, particularly if insurers are moving from a local standard with very different rules on reserving.

“Solvency II and IFRS will have profound implications for all insurance professionals in Europe, but the repercussions will be felt worldwide with the new IFRS being adopted by most major economies in 2013 and the rise of Solvency II-like regulatory regimes worldwide.”

The two reports, “QIS5: Solvency II Nears the Finishing Line” and “Insurance Contract Accounting, Edging Towards a Global Standard”, are said Willis Re aimed at helping insurance organisations find a path through the forest of new regulations and develop appropriate strategies to win and thrive in thisunchartered business territory.

 The new IFRS is being rolled out at the same time as Solvency II, and Willis Re’s reports detail how the new regimes will require additional compliance efforts, new skill sets, updated standards of data capture and additional costs for insurance companies. “Many insurers do not have the right staff and systems to deal with these developments in combination, and there is little time to prepare,” said Simmons.

Key findings in the reports include:

The broker said; “Solvency II will mean that regulatory capital will be an issue for the first time for many insurers. In fact, 11 percent of insurers failed to meet the Solvency Capital Requirement under the fourth Quantitative Impact Study (QIS4). QIS5 is tougher and it is expected that the failure rate will be much higher, especially for smaller, regional insurers who are unable to benefit from diversification credit. Reinsurance, an efficient form of surrogate capital, will be vital to many companies’ ability to meet the new standards.”

It added the new IFRS rules will lead to increased volatility for insurance accounts. Some territories also will see the abolition of equalisation and catastrophe reserves.

James Vickers, Chairman of Willis Re International and Specialty explained: “The additional workload on companies from Solvency II and IFRS will be considerable but not without benefit. Willis Re has built its business based upon this new landscape, and we will deliver to our clients the expertise, tools and assistance that they will need to succeed and grow in this more complex new environment.”