05 April 2012

CRE: Spanish insurers fret over Solvency II ORSA requirements but gloss over eurozone threat

The ORSA rules demand that insurance companies must have internal risk assessment processes in place in order to manage non-quantifiable risks, which are not reflected in the capital requirements established by Pillar I of the Directive.

ORSA will not be evaluated by supervisory authorities but they will want to be reassured that adequate processes are in place, as the provision is seen as an important tool for insurance companies to identify long-term risks.

Participants in the debate highlighted advantages of the ORSA approach, deeming the focus on long-term, non-quantifiable risks as a desirable addition to the information tools used by insurance bosses as they set up business strategies according to the risk profile of their companies.

“ORSA is a risk management culture that must trickle down all sectors of a company”, said Miriam Blazquez, the Head of the Insurance department at Dirección General de Seguros y Fondos de Pensiones, DGSFP.

Ultimately, the process should help to increase the transparency of insurance companies by urging them to present detailed information in an understandable way. This could prove to be very different given current practices, according to experts.

“The insurance sector is difficult to understand, and has a reputation of being obscure”, said Carlos Montalvo, the Executive Director at EIOPA, the European insurance supervisor that is preparing Solvency II.

He tried to quell industry fears by stating that ORSA is not a tool for supervisors to tell insurers how to run their business, nor a model that will be forced on companies by the authorities. In fact, each insurer will have freedom to implement the model that better suits them, he said.

Several challenges lie ahead for the insurance industry in Spain. For instance, the dire state of Spain’s finances and suspicions about the country’s banking system have prompted justifiable ratings downgrades of Spanish insurers by agencies such as Fitch and Standard & Poor’s. The Spanish insurance industry has gone through several years of soft market, casting a shadow on technical results, which have only held up because the sluggish economy has kept losses down. It also needs to adapt to the tough Solvency II rules that will start biting next year.

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