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 present great challenges for insurance companies. Uncertainty about the final detailed formulation of Solvency II made it especially important for companies to provide a high deal of flexibility in their implementation plans.

Based on developments and activities at the European and national levels, Solvency II can be expected to enter into force in full at the beginning of 2016. The interim measures published by the European insurance supervisory authority EIOPA became binding at the beginning of 2014 and are being applied by practically all of the national supervisory authorities in the EU. In addition, finalisation of the “Delegated acts on Solvency II” in 2014 and their publication in 2015 represents another major step in the direction of Solvency II.

In addition to activities at the European level, decisive steps were also taken in the individual EU member states to ensure entry into force of Solvency II at the beginning of 2016. The new Austrian VAG (Insurance Supervision Law) was published in the Federal Law Gazette in February 2015 and will enter into effect at the same time as Solvency II.

Preparatory modifications were made to the previous VAG on 1 July 2014, making extensive reference to EIOPA’ s interim measures, specifying the requirements of the core areas of Solvency II and concerning the following points:

The governance system
Reporting to national supervisory authorities
Forward looking assessment of own risks (FLAOR) in preparation for the Own Risk and Solvency Assessment (ORSA) under Solvency II
The approval of (partial) internal models under Solvency II

VIG is 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 has already existed for more than five years, is centrally managed from Austria, follows legal developments in detail and promptly implements needed measures in order to ensure consistent, timely implementation of Solvency II and the interim measures at both the Group and individual company level.

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

Intensive work on the development and implementation of a partial internal model is continuing 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 know-how 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. Regular consultations are being held with supervisory authorities in the individual VIG countries in order to ensure approval of the partial internal model when Solvency II comes into effect.

With respect to future qualitative risk management requirements, VIG is establishing 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 (for 2014 and FLAOR for 2015) were also developed and successfully implemented at the local and Group levels, thereby ensuring timely FLAOR reporting to the supervisory authority at the end of 2014. A Group-wide unified internal control system helps to ensure compliance with the guidelines and requirements resulting from the risk management system.

This Group-wide approach with intensive involvement of the local companies promotes the exchange of knowledge and experience and full acceptance of the guidelines and processes within VIG as a whole. As a result, based on the current regulatory requirements and the analyses and test calculations that have been performed, VIG is well prepared for the qualitative and quantitative requirements of Solvency II at both the Group and individual company levels.

Outlook for 2015

Aside from further preparations for the approval procedure and submission of VIG’s partial internal models, the main focus of the Solvency II preparations in 2015 is on fulfilling the requirements of EIOPA’s interim measures. This includes the first official calculation of Group solvency under Solvency II as of 31 December 2014 and compliance with quantitative and qualitative regulatory reporting requirements. In addition, final preparations are being made to fulfil all of the requirements of Solvency II and the final version of the VAG and make functional and technical modifications to existing processes to satisfy requirements that in some cases still need to be finalised.