If the rules are more credible they will not be used

If, under Solvency II regulatory requirements are too disconnected from economic reality, companies do them not use as a repository to improve their risk management, said Philippe Foulquier. In the study "Solvency II: an opportunity for piloting of the performance of insurance companies", in partnership with Swiss Re, he explains how the use of a model of economic capital compatible with the constraints of Solvency II may yet serve the intrinsic ambitions of insurers.

Many European insurers have denounced recent proposals relating to the implementation of Solvency II, that would lead to an excessive strengthening of own funds. What is the danger

If the drift is excessive, the years of negotiation between insurers and regulators that had led to a certain balance before the summer could shatter, or even go against the objectives of the directive. Solvency II has two objectives. First, to protect the insured via minimum capital requirement (MCR). Thus, that the crisis lead to a strengthening of these liquidity risk requirements, credit or counterparty can have meaning. The second objective is to encourage companies to better quantify and manage their risks. It is the role of the required full solvency capital (VCC). There is a real danger too increase the VCC, because if it is too disconnected from economic reality, companies will be be used for regulatory purposes and will not use it not as a repository to improve their risk management. It is for this reason it is important that the calibrations offered by Ceiops European regulators of the insurance and, in fine, adopted by the European Commission are not prohibitive. If the rules are more credible, they will not be used.

Solvency II can therefore be used as a tool for steering of insurance companies

Statistics of Ceiops, achieve compliance with Solvency II is very expensive. Our work shows that it may be appropriate to capitalize on the investments required for purely regulatory purposes, to implement a pilot tool, designed to better manage the company. Based on data and simulations required for its calculation, the SCR to determine, at the global level as at the level of each entity or activity, the necessary level of risk weighted capital and, ultimately, the creation of value for shareholders or members. The leaders of the insurance already built this type of models to better allocate their capital, define their policy of investments, underwriting, provisioning, reinsurance or launch of new products. This approach is applicable to all actors, capital-intensive structure as mutualist. In a mutual value creation can result in the satisfaction of the Member, through a better balance between pricing and delivery. With this tool, can for example enjoy where it is appropriate to lower rates to acquire new members.

What benefit is likely to remove the company

From the results of the calculations of Solvency II, it is possible to determine the weighted allocated capital of risk, the profitability of each activity and the eventual level of excess capital. There is then a specific mesure of the impact of each operational variable (the loss experience, costs, rates...) on the level of capital required of each activity and the overall level of the company. This could lead the field by a multiplication of reconciliations between players or to the contrary by the withdrawal of some branches. Finally, we note that this table from scorecard, declined in a common language of the branch to each employee, allows to federate enterprise around clearly identified common goals.