Solvency II could improve insurers’ ERM – S&P

Insurers that fully implement the principles of the European Commission’s Solvency II directive could improve their enterprise risk management (ERM) capabilities, according to a new report by rating agency Standard & Poor’s (S&P).

In the report, "Solvency II Could Help European Insurers Improve Their Risk Management, If They Fully Embrace Its Principles" S&P suggested that insurers fully implementing the principles are likely moving toward a "strong" ERM assessment under our criteria.

However, S&P credit analyst Miroslav Petkov said: “Where supervisors allow insurers more latitude in their implementation of the principles, we might, depending on the overall profile, assess their enterprise risk management (ERM) capabilities as 'adequate'."

S&P views the risk management requirements of Solvency II, expected to come into force in 2013, as positive for the industry. The agency has been assessing insurers' ERM capabilities since October 2005 and expects that improved risk management capabilities will help insurance companies to better manage their risk profile and so improve their risk-adjusted performance.

"The insurance industry will likely be making significant changes to its risk management capabilities to achieve supervisory compliance,” said Petkov. "Under Solvency II, penalties for failing to meet the requirements could have significant negative consequences: supervisors may impose additional capital requirements to the solvency capital requirement when they identify deficiencies in governance."