09.13.2011
By Terry Flanagan

EU Directive Upon Pensions?

European Solvency II directive is often deemed the “Basel for insurers;” yet pensions await rules unveiled for them.

Pensions are among the top institutions facing a steepening degree of portfolio risk. Thus, their inclusion in the latest regulatory mandate may be imminent.  In Europe, Solvency II is a regulatory directive that introduces a new solvency regime, based on an integrated risk approach, with provision for these risks in the form of solvency capital.

Current European Union (EU) directives dictate that all insurance, life-insurance and pension companies operating within the EU must comply with the Solvency II framework by the end of 2012.

“Initially, Solvency II did not cover pension funds as the regulatory framework wasn’t applicable for the pension industry,” said Dave Kubersky, managing director of SimCorp North America. “Recently, there have been discussions around whether the scope of Solvency II will be extended to include pension funds. This has not yet been decided but is probable and so the scope and timeline is still undetermined.”

Solvency II is more comprehensive than any previous regulation of its kind and there is no out-of-the-box solution for Solvency II on the market today, according to data provider, SimCorp. The directive is often called the “Basel for insurers,” deeming “it is necessary to look at the complete holdings of an insurance company in detail,” said Kubersky.

“Every single position (of firms scrutinized) must be stress tested in order to calculate key figures,”
noted Kubersky. “In addition, in order to calculate key figures such as solvency capital requirement (SCR) and minimum capital requirement (MCR), firms must utilize a very extensive calculation logic involving over 400 pages of technical specifications.”

Kubersky told Markets Media that one of the other major issues of Solvency II is “the implementation of the look-through (decomposition of funds).” From a reporting and transparency perspective, “about 50 new reporting templates will be introduced with Solvency II.”

SimCorp’s plans to keep European institutional clients affected by Solvency II abreast of how to cope with the new directive by “improving data quality management and integration, enhancing interfaces between insurance companies and others affected, with their investment companies for implementation, and support for the vast amount of reporting requirements,” according to Kubersky.

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