FSA has published a discussion paper looking at insurance risk management in the context of Solvency II. It looks at the main areas in which Solvency II will go further than the current ICAS regime. Although Solvency II has not been adopted yet, FSA thinks firms should be making implementation plans now. It suggests they start a gap analysis that focuses particularly on:
- systems of governance: these include the risk management system, the ORSA (own risk and solvency assessment), internal audit function, actuarial function, capital add-ons and outsourcing;
- reporting requirements: firms must plan for enhanced reporting and more transparent disclosure;
- showing adequate financial resources: firms will have to comply with the quantitative rules in Pillar 1 of Solvency II. FSA highlights the differences from the current requirements and the changes in valuation and own funds calculations; and
- use and approval of internal models.
The paper also looks at Solvency II's implications for supervision of insurers. Although FSA will work with firms to anticipate the Level 1 and 2 measures of Solvency II, it does not plan to change its rules before the 2012 planned implementation date. The paper asks for feedback on aspects of the EU proposals by 31 December.