Legal environment

Solvency II

The changes to the European insurance supervisory system, referred to as Solvency II, that are to be implemented by all member states of the EU presented great challenges for insurance companies. Temporary uncertainty about the final details of Solvency II made it important for companies to provide a high deal of flexibility in their implementation plans.

After years of preparation, Solvency II came into force fully at the beginning of 2016. At the same time, the new Austrian Insurance Supervision Act (Versicherungsaufsichtsgesetz – VAG) also came into effect.

VIG was well prepared to fulfil the extensive requirements placed on the Company by Solvency II starting in 2016 and the VAG amendment since the middle of 2014. The Group-wide “Solvency II” project was successfully completed after almost seven years.

During the course of this project, which was managed centrally from Austria, legal developments were followed closely and necessary measures taken promptly so that all of the individual companies and the Group were adequately prepared for the introduction of Solvency II.

Standardised guidelines, calculation and reporting solutions and advanced risk management processes were developed and implemented with the assistance of experts from the Group companies.

The intensive work on the development and implementation of a partial internal model continued at both the Group and individual company levels as part of the Solvency II project. The calculation procedures have been established in the individual companies and the required expertise is available there to allow consistent management parameters to be determined both at the Group and individual company levels. The parameters calculated by the model are used in corporate management.

At the end of 2015, the supervisory authority responsible for the Group, the Austrian Financial Markets Supervisory Authority (Finanzmarktaufsicht – FMA) approved the partial internal model for use both at Group level and at individual company level in the most important markets.

With respect to qualitative risk management requirements, Vienna Insurance Group has established a uniform governance system appropriate for Solvency II that includes all necessary key functions and clearly defines responsibilities and processes. Uniform Group-wide standards and methods for risk inventories and ORSA were also developed and successfully implemented decentralised and at Group level, thereby ensuring timely ORSA reporting to the supervisory authority at the end of 2016. A Group-wide unified internal control system helps to ensure compliance with the guidelines and requirements resulting from the risk management.

The focus in 2016 was on the first official solvency calculation under Solvency II, regulatory reporting and gradual automation of these processes. Ensuring adequate data quality and speeding up the reporting process were of key importance.

Other focal areas included further development of the Vienna Insurance Group internal model, and technical and organisational preparations for reporting in 2017, when a great deal of additional quantitative and qualitative information must be reported for the first time under Solvency II.

Vienna Insurance Group is monitoring and analysing developments in connection with Solvency II, in particular potential changes to the extrapolation of the riskless yield curve, which affects the size of underwriting provisions and, in turn, Vienna Insurance Group’s capital.