Willis Re warns over Solvency II

More companies will fail the latest test of the European Commission’s Solvency II directive than the last such exercise, Willis Re has warned.

In a new report, the global broker’s reinsurance arm says that Quantitative Impact Study (QIS) 5 is a tougher test than the QIS 4 exercise, which 11% of insurers failed.

The report says: “QIS5 is tougher and it is expected that the failure rate will be much higher, especially for smaller, regional insurers who are unable to benefit from diversification credit.”

It also warns that smaller players and regulators will have problems developing internal models.

“Smaller insurers may not have the resources to develop internal models, and many regulators may struggle to meet the demand for internal model approval."

Commenting on the upcoming changes triggered by Solvency II and the revisions to the IFRS, Willis Re managing director, analytics and head of international enterprise risk management David Simmons, said: “The differences between Solvency II and IFRS versus existing standards are startling and the implications huge, particularly if insurers are moving from a local standard with very different rules on reserving.”

“Solvency II and IFRS will have profound implications for all insurance professionals in Europe, but the repercussions will be felt worldwide with the new IFRS being adopted by most major economies in 2013 and the rise of Solvency II-like regulatory regimes worldwide.”