Following the publication on March 14 by the European Insurance and Occupational Pensions Authority of its report on the fifth Quantitative Impact Study for Solvency II, the Malta Financial Services Authority published the Malta Country Report on the fifth Quantitative Impact Study for Solvency II.
Solvency II, the new regulatory regime that shall apply from 2013 onwards, is a risk-based system, introducing a comprehensive risk management framework to establish required capital levels and to implement procedures to identify, measure and manage risk levels. Under Solvency II, two levels of capital requirements are defined: the Minimum Capital Requirement (MCR) and the Solvency Capital Requirement (SCR). The SCR is the capital required to ensure that the (re)insurance undertaking will be able to meet its obligations over the next 12 months at the 99.5 per cent VaR confidence level, while the MCR represents the minimum level of required capital, the breach of which, triggers supervisory action.
Apart from the possibility of calculating the SCR using the standard formula, Solvency II explicitly allows for the use of internal modelling (full or partial) for the calculation of capital requirements.
As part of the Solvency II project, the European Commission has requested that CEIOPS (1) run a number of large scale field-testing exercises, called Quantitative Impact Studies (QIS), to assess the practicability, implications and possible impact of the various approaches considered. Following months of discussions with member states and stakeholders, the Commission issued a Call for Advice on July 5, 2010, asking CEIOPS to launch the fifth Quantitative Impact Study (QIS5) on Solvency II.
This study was conducted between August and November 2010 and was largely based on 2009 year end data (2). It was mainly intended to test the calibration and potential quantitative impact of the proposals (including a number of alternative approaches), as well as the preparedness of the insurance market for Solvency II.
As reported by CEIOPS, QIS5 was probably the last fully comprehensive test to take place before the implementation of Solvency II. Additional testing to further improve the framework may take place through ad hoc work dealing with specific areas.
Operational arrangements to conduct QIS5 and gather results from insurance undertakings were made by national insurance supervisors separately in each member state, supplemented by a centrally-coordinated collation of groups’ results. Results collated at national level were then shared within CEIOPS (EIOPA), which published the QIS5 results on a European level on March 14. This report is available on EIOPA’s website.
EEA undertakings were asked to provide results on a “best efforts” basis within a relatively short timeframe, which may have resulted in the quality of data being at a level which did not always permit detailed analysis. This limitation should be kept in consideration when reviewing the conclusions drawn from this report.
This report sets out the results for the participating Maltese insurance undertakings, and aims to be objective. These results are therefore reflective of the participating undertakings and the quality of their submissions. Data at the aggregated EEA level, used for reference or comparison throughout this report, has been quoted from the European report published by EIOPA.
(1) As of January 1, 2011 the European Insurance and Occupational Pensions Authority (EIOPA) replaces the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS).
(2) Undertakings whose financial year end did not coincide with the calendar year end could report as per own financial year end.
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