Solvency II implementation likely to constrain regulatory capital: Willis Re

The impact of Solvency II will be “profound” on the (re)insurance market, as most companies will likely find their regulatory capital constrained for the first time, Willis Re reported.
Though Solvency II is being implemented in Europe, Willis Re suggests its impact will be felt globally, setting off a chain reaction of regulators implementing similar regimes, Willis Re said in its report, QIS5: Solvency II Nears the Finishing Line.
The fifth and final quantitative impact study (QIS5) of Solvency II was launched in August 2010. QIS5 forms the core of the standard solvency capital requirement calculation when Solvency II comes into force.
The capital requirements under QIS5 are significantly higher and more rigourous than those set out in the previous impact study, QIS4, said the Willis Re report.
“Currently few firms in Europe are regulatory capital constrained under Solvency I regulations,” the report says. “The QIS4 exercise in 2008 was completed by more than 1,400 firms across the European Economic Area. Of these, 11% failed to meet the solvency capital requirement and QIS5 is expected to produce higher failure rates.”
The calculations in QIS5 must be made on post-credit crunch data and balance sheets.
“The impact of Solvency II will be felt beyond the EU, with many other national regulators likely to introduce similar schemes, driven by peer pressure and the carrot of European Union regulatory ‘equivalence,'” the report says. “Solvency II is not going to go away.”