Transcript Solvency II: Final Agreement Polish Industry Perspective

Solvency II: Final Agreement
Polish Industry Perspective
Witold Walkowiak
Joint International Seminar of the
Geneva Association for the Study of Insurance Economics
Polish Chamber of Insurance
Warsaw University of Technology, Department of Management
Warsaw, 29 June 2009
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Poland: fast growing insurance market
Number of Insurance Companies
Gross Written Premium (bln EUR)
12
6
45
41
40
5
38
10
35
8
Premium
3
6
2
1
4
Differance (Life - Non_Life)
4
33
30
30
31
35
34
3636 36
37
37
32
37
32
36
32
36
32
30
37
31
30
26
27
24
25
22
20
21
20
19
15
15
13
0
10
10
2
-1
0
-2
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Difference(L - NL)
Life
Non - Life
5
6
6
5
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Life
Non - Life
Source: Eurostat, Polish Financial Supervision Authority, Deloitte projection
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Polish insurance market is open to foreign capital
and will be exposed to … cross border supervision
# of companies
Share Capital
GWP
23%
19
46
48%
77%
Domestic
capital/control
52%
Foreign
capital/control
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Towards Solvency II in Poland:
Who drives the process ?
Financial Supervision Authority (KNF)
2005 – 2008 Presentations and meetings with the market on Solvency II
Introduction and facilitation of QIS exercise on the Polish Market
The Ministry of Finance
Council for Financial Markets Development (RRRF)
Polish Chamber of Insurance (PIU)
Communication and discussion platform for the market
Discussion partner for CEA and Polish regulators/supervisors
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Towards Solvency II in Poland:
Actions driven by the Polish Chamber of Insurance
Solvency II Working Group formed in 2004 and meets on a regular basis
Since 2007, the Solvency II related activities of the Chamber supported by
Deloitte
Solvency II related issues presented by various professional speakers:
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US Solvency Capital regulations and Mack reserving methodology for non-life – EMB Consulting
FSA experience and UK market approach – AVIVA
Basel II – Deloitte
Standard Approach for life and non-life – CEA
German GDV Solvency Model – GDV
Swiss Solvency Test – Thillinghast
Solvency II v. IFRS 4 – Peter Clark from IASB
Solvency II Group Regime and Support – Karel van Hulle EC
Communication
 E-room for the exchange of information between Solvency II Working Group members
 Key documents of CEOIPS, CEA, EC or other Solvency II stakeholders are summarized and made
available of PIU website
 Annual seminars on relevant aspects of Solvency II
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Towards Solvency II in Poland:
Quantitative Impact Studies
• QIS 1: September – December 2005 : Calculation of Technical Provisions
 Life – 4 companies (67% of life provisions)
 Non-life – 9 companies (91% of non-life provisions)
• QIS 2: May – July 2006: + Valuation of Assets & Liabilities, SCR, MCR
 Life – 9 companies (76% of life provisions)
 Non-life – 13 companies (75% of non-life provisions)
• QIS 3: April – June 2007: + Group Capital Requirements, Internal Models
 Life – 9 companies (74% of life provisions)
 Non-life – 15 companies (80.9% of non-life provisions)
• QIS 4: April –June 2008: + Proxies and Simplifications of Technical Provisions
 25 out of 65 Polish companies participated
 Life – 11 companies (86% of life technical provisions)
 Non-Life – 14 companies (81% of Gross Premium Written)
• QIS’s provided valuable learning opportunity for all parties involved in
preparations for Solvency II in Poland
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QIS results: Total assets and technical
provisions QIS4 to current
Assets roughly in line with current
valuations
Material decrease of technical
provisions
 Best estimate/market consistent valuation
vs. prudent valuation
 higher discount rate
 recognition of VIF in QIS4 valuation
Insufficient guidelines regarding
reserve calculations:
Median
 future administration costs
 future management actions
 negative reserves in the calculations
Those were pre 2008 crises results!
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QIS results: Own Funds QIS4 to current
Own funds increased driven mainly
by lower provisions
Equity booked in Polish companies is
mostly Tier 1
Capital excess derived from fair
value approach might have been
lowered as markets moved down in
2008
Median
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QIS4 results: Own Funds/SCR and
Basic Own Funds/MCR
Median
As per QIS4 results, the capital base of Polish insurance sector is more
than sufficient relative to new capital requirements
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QIS results:
Solvency Position and Internal Models
Solvency Position
 Increase of Own Funds surplus more than 50% mainly for life companies (6 out of 7
companies)
 Decrease of Own Funds surplus more than 50% mainly for non-life companies (4 out
of 6 companies)
 Total Own Funds are lower than SCR for 2 non-life companies
 Basic Own Funds are lower than MCR for 1 life company
SCR in Internal Models
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4
9
4
5
life and 2 non-life insurance companies use internal models in their activity
companies plan to use internal model (full or partial) in the future
companies plan to have full internal model
companies plan to have partial internal model
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Key challenges in implementing Solvency II:
Insurance companies
Generally, no major business adjustment (capital injections, asset portfolio
reshuffling etc.) expected as per QIS4 results
Enhancement of risk management structures and processes
Improvement/development of internal models
Potential inconsistencies between local and international (group driven)
regulatory regimes
Active communication with the regulators/supervisors with support of the
Polish Chamber of Insurance
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Key challenges in implementing Solvency II:
Regulatory framework
Large scope of domestic regulations/supervisory guidelines to be amended or
developed
Establishment of Solvency II compliant regulatory framework on time requires well
defined and strong owner of the implementation planning and execution
Strong competence of the Financial Supervisory Authority is a precondition for its
adequate interventions in response to potential risk management deficiencies in the
insurance sector
The Financial Supervisory Authority needs to coordinate well its policies and actions
with foreign supervisors to avoid inconsistencies or frictions in regulatory
environment for Polish subsidiaries of international insurance groups
Communication with the market needs to be improved significantly
Harmonization of Solvency II framework with accounting (IFRS) principles (a global
challenge) and with tax rules (a local issue)
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Conclusions
Necessary initial education and communication on Solvency II completed
successfully
Quantitative Impact Studies proved to be productive and helpful
Need for clear definition of the Solvency II Project leader competent to
drive necessary changes in the regulatory environment in Poland
Need for effective harmonization between Polish – other local – European
supervisors
Need for improved communication between the regulators/supervisors
and the market
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