Actuarial Post - Issue 3 - (Page 14)

14 gRouP STRuCTuRE: THE NExT foCuS foR SoLvENCy II IMPLEMENTaTIoN By Bob Haken, Senior Associate, Norton Rose LLP As the focus of regulatory authorities turns to the scope of the internal model, insurance groups headquartered outside the EEA are considering whether their legal structure could actually bring benefits under Solvency II requirements. Companies hoping to use an internal model to calculate their Solvency Capital Requirement (SCR) under the new Solvency II regime from 1 January 2013 were required to submit their preapplication qualifying criteria document to the FSA by 28 February 2011. Up to this point, most businesses will have concentrated their attentions on the calculation kernel, the quality of their data and the model governance (including the “use test”). However, with the FSA requiring groups to clarify which companies are covered by the internal model, the time has come to consider legal group structures and to identify whether difficulties will arise when Solvency II comes into force, or alternatively whether there are opportunities to derive benefits. Leaving for the moment the question of the equivalence of third country group supervision, international insurance groups will need to calculate a group SCR for any EEA sub-groups JULY 2011 ACTUARIAL POST within their overall group structure. Typically, they will choose to do so through an internal model in order to recognise diversification benefits to the greatest possible extent. As more groups are submitting applications to calculate group SCR through an internal model, the FSA is looking more closely at group structures and asking groups to take legal advice on the composition of any EEA sub-group. Group structures tend to evolve organically over time, meaning that the scope of group supervision is often broader than expected. This might be due to the inclusion within the sub-group of non-EEA insurers (such as off-shore captives or third country insurers) or other regulated entities (such as asset management arms). Some groups will also have Lloyd’s corporate members (whose capital requirements will be set by the Lloyd’s internal model) which will contribute to the own funds and group SCR. If these other companies are within scope of the model, not only does the group need to calculate their impact on the SCR, other requirements of Solvency II such as the need for consistent risk management, valuation of assets and liabilities and the ORSA will also apply. It is therefore essential to understand which companies will fall within scope, and what can be done about it. Very often, if there is no good reason for companies to be within the EEA sub-group, the solution will be simply to move them elsewhere within the group, whilst ensuring that doing so does not itself create another sub-group that is

Table of Contents for the Digital Edition of Actuarial Post - Issue 3

Actuarial Post - Issue 3
Contents
News
A Day in the Life of ...Gareth Haslip Solvency II Expert
Group Structure: The Next Focus
Review of the Amazon Kindle
Luddite
Mentioned in Dispatches
Talent Shortages Offer New Career Opportunities
Recruitment

Actuarial Post - Issue 3