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EU Directives

Dáil Éireann Debate, Wednesday - 26 May 2010

Wednesday, 26 May 2010

Questions (127)

Caoimhghín Ó Caoláin

Question:

139 Deputy Caoimhghín Ó Caoláin asked the Minister for Finance the details of the new insurance directive on solvency requirements which will come into force across the European Union as and from 1 January 2013; if he will provide a comparison across the key areas with the current solvency requirements applying in this jurisdiction; and if he will make a statement on the matter. [22152/10]

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Written answers

The Solvency II Framework Directive was published in the EU Official Journal on 17 December 2009. The most essential features of the Directive are:

(i) the introduction of an economic/risk based approach to the measurement of assets and liabilities. Capital requirements will be determined by an evaluation of a company's level of risk using a consistent set of measurement principles, resulting in an appropriate level of capital for solvency purposes. This contrasts with the use of a simple set of factors for determining capital under Solvency I, and

(ii) a much greater focus on qualitative issues such as governance and the role of the supervisor.

As Solvency II is a Lamfalussy Directive, the Framework Directive only represents the first stage (Level 1). Level 2 measures which will flesh out in detail the Level 1 principles are the next step and negotiations are ongoing in this area at the moment. Calibration of the various risk modules which will make up the solvency capital requirement will be determined at Level 2 amongst other things.

As part of the process of developing Solvency II a series of quantitative impact studies (QIS) have been carried out in order to assess a range of approaches and calibrations. The next QIS study (QIS5) which is expected to be the last one will run from August to December this year and will provide industry with the opportunity to test the various technical specifications being proposed under Solvency II using their own data. The purpose of the exercise is to enable the EU Commission to evaluate the specifications and also to allow companies to develop an understanding as to how Solvency II will impact them.

Once QIS5 is completed, there should be a clearer picture of how Solvency II will compare with existing arrangements from a capital perspective. The effect will however vary from company to company depending on the nature of the business they conduct and the type of assets they hold to meet their liabilities. On an overall basis it is expected that Solvency II will increase capital requirements for most types of business.

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