At a recent conference “Solvency II: what can go wrong?” in Ljubljana, Slovenia, the Chairman of EIOPA shared his views on the “dos and don’ts of Solvency II.” He explained that the purpose of Solvency II is to bring a new risk culture and enhanced consumer protection to the insurance industry, while using the latest international developments in risk-based supervision, actuarial science and risk management. He notes that while there are risks in Solvency II implementation, there are also opportunities. He emphasised that EIOPA will closely monitor the consequences of the Solvency II implementation to ensure it has no unintended consequences, especially if they impact on consumers. Mr Bernardino emphasised that as Solvency II is a risk-based regime, it encourages innovation by insurers in product design. He explained that Solvency II does not intend to unduly penalise specific products and that is why adjustments were made with the long term guarantee package so insurers can continue to provide long term products to their clients. He believes there is a risk that insurers will put emphasis on capital requirements and consider the ORSA a second priority which would be a “dramatic error”. One of the core principles of Solvency II is to look at risk and capital in an integrated way. Insurers need to look at Solvency II as a tool to foster a true risk culture in an organisation and not to view it as a “compliance exercise”. Solvency II is also a game changer for supervision where supervisors need to move toward risk- based supervision and go beyond a “tick the box approach”.
A link to the speech is here.