Solvency II: Final Agreement Polish Industry Perspective

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Solvency II Final Agreement Polish Industry
Perspective
Witold Walkowiak
Joint International Seminar of the Geneva
Association for the Study of Insurance
Economics Polish Chamber of Insurance Warsaw
University of Technology, Department of
Management Warsaw, 29 June 2009
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Poland fast growing insurance market
Number of Insurance Companies
Gross Written Premium (bln EUR)
Source Eurostat, Polish Financial Supervision
Authority, Deloitte projection
3
Polish insurance market is open to foreign
capital and will be exposed to cross border
supervision
of companies
Share Capital
GWP
23
19
48
52
46
77
Domestic capital/control
Foreign capital/control
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Towards Solvency II in Poland Who drives the
process ?

• Financial Supervision Authority (KNF)
• 2005 2008 Presentations and meetings with the
  market on Solvency II
• Introduction and facilitation of QIS exercise on
  the Polish Market
• The Ministry of Finance
• Council for Financial Markets Development (RRRF)
• Polish Chamber of Insurance (PIU)
• Communication and discussion platform for the
  market
• Discussion partner for CEA and Polish
  regulators/supervisors

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Towards Solvency II in Poland Actions driven
by the Polish Chamber of Insurance

• Solvency II Working Group formed in 2004 and
  meets on a regular basis
• Since 2007, the Solvency II related activities of
  the Chamber supported by Deloitte
• Solvency II related issues presented by various
  professional speakers
• US Solvency Capital regulations and Mack
  reserving methodology for non-life EMB
  Consulting
• FSA experience and UK market approach AVIVA
• Basel II Deloitte
• Standard Approach for life and non-life CEA
• German GDV Solvency Model GDV
• Swiss Solvency Test Thillinghast
• Solvency II v. IFRS 4 Peter Clark from IASB
• Solvency II Group Regime and Support Karel van
  Hulle EC
• Communication
• E-room for the exchange of information between
  Solvency II Working Group members

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Towards Solvency II in Poland Quantitative
Impact Studies

• QIS 1 September December 2005 Calculation of
  Technical Provisions
• Life 4 companies (67 of life provisions)
• Non-life 9 companies (91 of non-life
  provisions)
• QIS 2 May July 2006 Valuation of Assets
  Liabilities, SCR, MCR
• Life 9 companies (76 of life provisions)
• Non-life 13 companies (75 of non-life
  provisions)
• QIS 3 April June 2007 Group Capital
  Requirements, Internal Models
• Life 9 companies (74 of life provisions)
• Non-life 15 companies (80.9 of non-life
  provisions)
• QIS 4 April June 2008 Proxies and
  Simplifications of Technical Provisions
• 25 out of 65 Polish companies participated
• Life 11 companies (86 of life technical
  provisions)
• Non-Life 14 companies (81 of Gross Premium
  Written)
• QISs provided valuable learning opportunity for
  all parties involved in preparations for Solvency
  II in Poland

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QIS results Total assets and technical
provisions QIS4 to current

• Assets roughly in line with current valuations
• Material decrease of technical provisions
• Best estimate/market consistent valuation vs.
  prudent valuation
• higher discount rate
• recognition of VIF in QIS4 valuation
• Insufficient guidelines regarding reserve
  calculations
• future administration costs
• future management actions
• negative reserves in the calculations
• Those were pre 2008 crises results!

Median
7
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QIS results Own Funds QIS4 to current

• Own funds increased driven mainly by lower
  provisions
• Equity booked in Polish companies is mostly Tier
  1
• Capital excess derived from fair value approach
  might have been lowered as markets moved down in
  2008

Median
8
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QIS4 results Own Funds/SCR and Basic Own
Funds/MCR
Median

• As per QIS4 results, the capital base of Polish
  insurance sector is more than sufficient relative
  to new capital requirements

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QIS results Solvency Position and Internal
Models

• Solvency Position
• Increase of Own Funds surplus more than 50
  mainly for life companies (6 out of 7 companies)
• Decrease of Own Funds surplus more than 50
  mainly for non-life companies (4 out of 6
  companies)
• Total Own Funds are lower than SCR for 2 non-life
  companies
• Basic Own Funds are lower than MCR for 1 life
  company
• SCR in Internal Models
• 4 life and 2 non-life insurance companies use
  internal models in their activity
• 9 companies plan to use internal model (full or
  partial) in the future
• 4 companies plan to have full internal model
• 5 companies plan to have partial internal model

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Key challenges in implementing Solvency
IIInsurance companies

• Generally, no major business adjustment (capital
  injections, asset portfolio reshuffling etc.)
  expected as per QIS4 results
• Enhancement of risk management structures and
  processes
• Improvement/development of internal models
• Potential inconsistencies between local and
  international (group driven) regulatory regimes
• Active communication with the regulators/superviso
  rs with support of the Polish Chamber of
  Insurance

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Key challenges in implementing Solvency
IIRegulatory framework

• Large scope of domestic regulations/supervisory
  guidelines to be amended or developed
• Establishment of Solvency II compliant regulatory
  framework on time requires well defined and
  strong owner of the implementation planning and
  execution
• Strong competence of the Financial Supervisory
  Authority is a precondition for its adequate
  interventions in response to potential risk
  management deficiencies in the insurance sector
• The Financial Supervisory Authority needs to
  coordinate well its policies and actions with
  foreign supervisors to avoid inconsistencies or
  frictions in regulatory environment for Polish
  subsidiaries of international insurance groups
• Communication with the market needs to be
  improved significantly
• Harmonization of Solvency II framework with
  accounting (IFRS) principles (a global challenge)
  and with tax rules (a local issue)

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Conclusions

• Necessary initial education and communication on
  Solvency II completed successfully
• Quantitative Impact Studies proved to be
  productive and helpful
• Need for clear definition of the Solvency II
  Project leader competent to drive necessary
  changes in the regulatory environment in Poland
• Need for effective harmonization between Polish
  other local European supervisors
• Need for improved communication between the
  regulators/supervisors and the market