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Willis Re Reports on New IFRS Insurance Accounting Standards and Solvency II Developments


Posted on 26 Oct 2010

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With insurance companies bracing themselves for the double hurdles of Solvency II and the new International Financial Reporting Standard (IFRS) in 2013, Willis Re has published two reports on the current state of play of these major developments in insurance regulation and reporting. The papers were released today by the reinsurance arm of global insurance broker Willis Group Holdings to coincide with this week’s gathering of European reinsurance professionals in Baden Baden and the annual meeting of the Property Casualty Insurers Association of America in Colorado.

The two reports, “QIS5: Solvency II Nears the Finishing Line” and “Insurance Contract Accounting, Edging Towards a Global Standard”, provide up-todate news and insights that demystify Solvency II and IFRS to help insurance organisations find a path through the forest of new regulations and develop appropriate strategies to win and thrive in this unchartered business territory.

Commenting on the upcoming changes, David Simmons, Managing Director, Analytics and Head of International Enterprise Risk Management for Willis Re said, “The differences between Solvency II and IFRS versus existing standards are startling and the implications huge, particularly if insurers are moving from a local standard with very different rules on reserving.

“Solvency II and IFRS will have profound implications for all insurance professionals in Europe, but the repercussions will be felt worldwide with the new IFRS being adopted by most major economies in 2013 and the rise of Solvency II-like regulatory regimes worldwide.”

The new IFRS is being rolled out at the same time as Solvency II, and Willis Re’s reports detail how the new regimes will require additional compliance efforts, new skill sets, updated standards of data capture and additional costs for insurance companies. “Many insurers do not have the right staff and systems to deal with these developments in combination, and there is little time to prepare,” said Simmons.

Key findings in the reports include:
    •    Solvency II will mean that regulatory capital will be an issue for the first time for many insurers. In fact, 11 percent of insurers failed to meet the Solvency Capital Requirement under the fourth Quantitative Impact Study (QIS4). QIS5 is tougher and it is expected that the failure rate will be much higher, especially for smaller, regional insurers who are unable to benefit from diversification credit. Reinsurance, an efficient form of surrogate capital, will be vital to many companies’ ability to meet the new standards.
    •    There will be an upswing in interest in internal capital modelling, as insurers seek to replace elements of the standard solvency calculation that are inappropriate for their business. Smaller insurers may not have the resources to develop internal models, and many regulators may struggle to meet the demand for internal model approval.
    •    The new IFRS will lead to increased volatility for insurance accounts. Some territories also will see the abolition of equalisation and catastrophe reserves.

James Vickers, Chairman of Willis Re International and Specialty said, “The additional workload on companies from Solvency II and IFRS will be considerable but not without benefit. Willis Re has built its business based upon this new landscape, and we will deliver to our clients the expertise, tools and assistance that they will need to succeed and grow in this more complex new environment.”
Copies of the reports are available on Willis Re’s website .

About Willis Re

One of the world's leading reinsurance brokers, Willis Re is known for its world-class Analytics capabilities, which it combines with its Capital Markets and Reinsurance expertise in a seamless, integrated offering that helps clients increase the value of their businesses. Willis Re serves the risk management and risk transfer needs of a diverse, global client base that includes all of the world's top insurance and reinsurance carriers as well as national catastrophe schemes in many countries around the world. The broker's global team of experts offers services and advice that help clients make better reinsurance decisions, access worldwide capital markets and negotiate optimum terms. For more information, visit www.WillisRe.com.

About Willis

Willis Group Holdings plc is a leading global insurance broker. Through its subsidiaries, Willis develops and delivers professional insurance, reinsurance, risk management, financial and human resource consulting and actuarial services to corporations, public entities and institutions around the world. Willis has more than 400 offices in nearly 120 countries, with a global team of approximately 17,000 employees serving clients in virtually every part of the world. Additional information on Willis may be found at www.willis.com.


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