Interview: Arndt Gossman, DARAG


22.10.12 MONDAY


Complexity: the real challenge of Solvency II


Small- to medium-sized insurers can reduce complexity and cost by using portfolio transfer, as Arndt Gossmann of DARAG told Intelligent Insurer.


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olvency II compliance is a daunting         


       groups, its impact is even greater to bear for      run-off-insurer DARAG. He says that while      to face, they are more experienced in dealing with regulatory challenges and have greater resources at their disposal. “Solvency II means the world has changed


for the entire industry. Coupled with a dismal in- terest rate environment, increasing competition and the end of the cyclical nature of the market, it is putting huge pressure on insurers,” he adds.       


insurers could possibly be greater than on the  work to do in terms of implementation but they       


 have better ideas for capital instead of using it for ceased business.”


have been traditionally less affected by group- wide roll-outs, cannot draw upon the same ex- perience. “This means that insurers will have to address


several challenges at the same time. For insurers    part of these efforts,” says Gossmann. The challenges that Solvency II presents are


 - ducing a capital-based model. This means that every line of business must have capital allocated to it, even if it is in run-off. This makes it less at- tractive for insurers to maintain lines that are no longer being actively underwritten. Whereas in


Arndt Gossmann, DARAG


the past they might have produced some income, under Solvency II they will also consume capital. If the return on capital is not attractive enough,  - ness, according to Gossmann. In the past, with solid reserving, run-off pro- duced income for insurers in the future. Under Solvency II this income will have to balance the associated cost of submitted capital. If this cannot be achieved, then it is probably better that this run-off business be neutralised in some way, to free up that capital. 


for capital instead of using it for ceased busi- ness,” says Gossmann. Pillar II will affect smaller insurers more than


       complex governance systems in place to respond to group matters, smaller insurers often do not, as it is easier for them to oversee the business. Solvency II requires them to formalise this ‘look- through’. However, every insurer will have to provide an explanation of its strategy for run-off within the group, regardless of where it is located. Pillar III will affect both large and small in-


10 | INTELLIGENT INSURER —BADEN-BADEN TODAY | Monday October 22 2012


surers. Large insurers will be forced to apply the group requirements (which are usually more - ers) to all entities, however small the subsidiary - pecially in terms of the levels of data required. These reporting requirements will also include lines and entities in run-off. “This means that it makes little sense to maintain business in run-off, which has been stopped for good reason, when capital will now be bound to it and it will become the subject of a thunderstorm of reporting,” Gossmann says. None of the transactions completed by


  has been driven by Pillar I. All of them relate to reduction of complexity for insurers and the expectation that Solvency II will make life even more complex than it is today. “The transfer of run-off to a third party risk


carrier helps to reduce complexity. Insurers can externalise the tail of a business which is not crucial to their future development any more,” adds Gossmann. 


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