5.2.1 Broad description
In general, the calculated QIS3 solvency ratio for most participating undertakings is lower than the Solvency I solvency ratio. The technical provisions tend to decrease vis-à-vis the provisions on current bases as the implicit prudence is removed. The capital requirements on the other hand tend to increase.
The financial impact of Solvency II cannot be estimated by simply comparing the calculated SCR with the Solvency I capital requirement. This is because not only the capital requirement but also the calculated technical provisions may change.
Therefore, to make a reasonable estimate of the financial impact of the QIS3 calculation, the SCR is compared with the so-called ‘effective’ Solvency I capital requirement. This latter figure is defined as the Solvency I capital requirement plus the difference between the Solvency I provisions and the QIS3 provisions.
The graphs below give the results for life, non-life and composite undertakings, respectively. For a better comprehensibility the bars are capped in some cases so that extreme outliers are excluded from the presentation.12
Figure 9: Ratio of SCR to the effective Solvency I capital requirement (life)
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min-max interval 25th to 75th percentile interval Median Weighted Average 3831% 1236% 1560%
12 Note that negative ratios are possible if the calculated technical provisions
Figure 10: Ratio of SCR to the effective Solvency I capital requirement (non-life)
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min-max interval 25th to 75th percentile interval Median Weighted Average Non-life
Figure 11: Ratio of SCR to the effective Solvency I capital requirement (composite)
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25th to 75th percentile interval min-max interval Weighted Average Median
5.2.2 Life
On the whole, most life participants across all participating jurisdictions have calculated a QIS3 solvency ratio in excess of 100%. However, participating life insurers generally show a decrease in their solvency ratios in several jurisdictions, though in some countries the results are more ambiguous or there is an increase in solvency. The latter seems to be the case especially for life undertakings writing substantial with profit business. In the case of with profit business, negative MCRs are occasionally observed. One supervisor commented that they considered this to be the main problem in the methodology for with profit undertakings.
5.2.3 Non-life
As for life undertakings, most non-life undertakings show a decrease in their solvency ratios based on the QIS3 calculations, though here too there are countries with more ambiguous results. However, compared with life participants, there seem to be more non-life undertakings with a calculated solvency ratio of less than 100%. One of the supervisors had some concerns over the non-life capital charges measured by the standard module, which might lead to severe capital adequacy issues.
5.2.4 Health
Only some country reports mentioned health insurance as a separate category.
Of these, one supervisor stated that the solvency ratio generally increases, a second that it either remains stable or increases, and a third that the solvency ratio significantly decreases to a level of less than 100% in most instances. The latter supervisor pointed to the apparent inability of the health module to deal with the risk mitigating particularities of its health market.
5.2.5 Composites
Some of the national supervisors discussed the financial impact of the QIS3 calculations on composite insurers active within their jurisdictions. One describes the impact as modest, but notes that the impact of future profit sharing significantly affects the outcome. Another three find that the solvency ratio generally decreases.
5.2.6 Reinsurers
Very few country reports discussed the financial impact on participating reinsurers. Of these, one states that the solvency ratios significantly decrease to
what it feels is a more realistic outcome. Another mentions that the impact on reinsurance is comparable to the impact on non-life insurers.
5.2.7 Specific types of undertaking significantly affected
Supervisors were asked to identify types of undertaking that would be required to raise new capital to meet the calculated MCR or SCR. Some supervisors thought that smaller insurers might be more likely to be required to raise new capital; especially smaller monoline non-life undertakings were mentioned. One supervisor felt that all non-life undertakings active in its jurisdiction might face a requirement to raise new capital. Another two identified some of their participating composites as needing to raise new capital. One supervisor noted that a substantial number of the health insurance undertakings active within its jurisdiction might be required to raise new capital. Lastly, one national supervisor identified annuity providers and firms writing unit-linked business.
Supervisors were asked to identify types of undertaking showing an increase in the excess of available capital over the SCR of over 50%. Six supervisors said that this was the case for a substantial number of life undertakings, three for non-life undertakings and one for health undertakings. In one country about half of the life companies used all bonus provisions as risk mitigation the other half using none – causing high volatility in the QIS3 results.
Supervisors were also asked to identify types of undertaking showing a decrease in the excess of available capital over the SCR of over 50%. Five supervisors said that this was the case for a substantial number of life undertakings, sixteen for non-life undertakings and one for health undertakings. Further, one supervisor identified small and medium-sized composites as being affected, another made out certain mutuals with non-life activities severely affected, a third identified reinsurance undertakings and a fourth observed workers compensation undertakings as being affected. One of these supervisors stressed the fact that since the tested methodology is more risk-based than the Solvency I system, such decreases are to be expected.