11 October 2012

Risk.net: Solvency II - Insurers and supervisors must work together to ensure consistency on model approvals

Speaking at Insurance Risk's Solvency II and Insurance Risk conference, Paolo Cadoni said EIOPA's peer review of the internal model pre-application process had found inconsistencies between the approaches of national supervisors. But there was evidence that some insurance groups were not consistent in their own approaches.

The peer review found a divergence between supervisors in the speed of the application process and the emphasis of the reviews. "Are we there yet in achieving consistency? The view is that we are not", Cadoni said. But he added that insurers must ensure they meet their responsibilities during the application process: "We need to work together. Firms need to deliver on time and without delay."

Cadoni said EIOPA was taking steps to improve the level of consistency between supervisors, such as providing guidance on internal models to the colleges of supervisors. "Building a [harmonised] supervisory culture takes time, but we are moving there. The scenario is not perfect, and that is why we are willing to solve the problem."

The EIOPA peer review also highlighted areas where insurers could improve their internal models. Some models were unnecessarily complex, while some were too narrow in their scope, it found.

Risk aggregation was also not adequately dealt with in some models. "It is up to firms to convince supervisors that dependency structures are appropriate", Cadoni said.

Despite the continued uncertainty in the final calibrations of Solvency II, it is vital that firms continue to work on their Solvency II implementation programme. Cadoni said. "The risk of doing nothing is greater than the risk of doing something."

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