Solvency II: Chaos for EU Insurers?


New insurance regulations in the European Union (EU) set to take effect in 2014 could soon have a world-wide impact. EU “Solvency II” Directive regulations will require companies that sell insurance in the EU to calculate and report their solvency status (whether they have adequate capital to back up policies) in a manner different  from the “Solvency I” regulations that have been in place since the 1970s.

The Solvency II Directive was prompted by a series of man-made and natural disasters that caught many insurers off guard and left some insured parties with worthless policies. In response, EU regulators took action to tighten solvency regulations and issue updated solvency calculation models and more rigorous reporting and monitoring processes.

The Solvency II requirements are technical and complex, requiring new solvency reporting, auditing, and standards compliance. The new regulations potentially impact the entire organization, from HR to IT—including the way solvency data is managed, calculated, and reported.

With a full portfolio of insurance industry solutions, SAP and its partners have been deeply involved in studying the Solvency II reporting structure. The bottom line : Insurance companies must now meet more stringent standards to prove they have the capital to back up the policies they write.

The three pillars of Solvency II

Solvency II is a risk-based capital framework that contains three pillars: quantification, governance and disclosure.

  • Pillar 1 includes standards, formulas, technical provisions, investment rules, and all related quantitative requirements. Standards for capital that the insurer must hold are defined in this pillar.
  • Pillar 2  specifies the governance and risk management requirements for both insurers and supervisors of insurers.
  • Pillar 3 contains the public disclosure and regulatory reporting requirements. Two reports are mandated: one for public disclosure and one for the supervisory authority, serving different purposes for transparency and monitoring.

The scope of Solvency II requirements impacts the entire company and has definite costs. Reports say that complying with Solvency II in Great Britain alone will cost insurers nearly £2 billion (Economist; May 3, 2012).

Read on the next page: A rapid reporting solution

Reporting deadline fast approaching

As with any new standards, there is likely to be a big learning curve with Solvency II. From identifying non-compliant processes to implementing effective – and correct – reporting processes, companies have little time to adapt to the new reality. There are two deadlines: rehearsal production in 2013 and legal enforcement in 2014. Updating existing systems and processes can be a time-consuming task without the correct tools in place.

A rapid Solvency II reporting solution

Through its Solvency II rapid-deployment solution, SAP is offering a fast, fixed-cost and fixed-scope deployment for the IT challenge in Solvency II: Pillar 3 reporting. The solution provides a quick start with software, services, predefined reporting content and enablement in a package tested by SAP partners with extensive solvency knowledge, including Accenture and PwC.

Specialized SAP Solvency II partners are qualified to assist customers with accelerated deployments and to adapt the solution to customer-specific needs. For example, the package provides the service team with step-by-step deployment guides to reduce deployment risks.

“The SAP Solvency II rapid-deployment solution provides a sound basis for the implementation of QRT [Quantitative Reporting Templates] reporting with our insurance clients,” said Dr. Maarten van Wieren, a senior advising consultant at SAP-preferred supplier PwC. He  led a testing team, including Centre Consulting, which provided rigorous input into the SAP solution. “Through a combination of the SAP solution and support from partners like PwC and CentreConsulting, insurers will have a lasting and stable QRT reporting solution for years to come.”

Learn more about Solvency II on the next page.Frank Walter, senior executive of Accenture Finance and Risk Business Service, also commented: “Solvency II Pillar 3 requirements drive a need for a comprehensive data model to deliver all the depth of analysis of the Solvency II QRTs, while ensuring full traceability and complete reconciliation between local GAAP [Generally Accepted Accounting Principles], IFRS [International Financial Reporting Standards], and Solvency II standards. All while respecting the implementation deadline.”

Walter added, “Insurance companies can look to the ready-to-use SAP Rapid Deployment solutions to mitigate the risks of delivery. The non-intrusive solution can reconcile the local, IFRS and SII GAAPs, providing hundreds of report options that allow detailed solvency margin analysis at the product and insurance category level.”

The SAP Solvency II rapid-deployment solution deploys in 12 weeks with full implementations within the enterprise adding up to eight weeks to apply nuances. Learn more at

Learn more about information Solvency II:

Price Waterhouse Coopers: Solvency II

Accenture: Solvency II

Ernst & Young: Solvency II

EU: Solvency II FAQs

European Insurance and Occupational Pensions Authority: Solvency II Introduction