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. 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 Monitoring Act (VAG Versicherungsaufsichtsgesetz) also came into effect.
The interim measures published by the European Insurance and Occupational Pensions Authority (EIOPA) became binding in 2014 for the staged introduction of the insurance companies to Solvency II and were extensively applied by all national supervisory authorities in the EU in 2015.
Preparatory modifications were made to the previous VAG on 1 July 2014, making extensive reference to EIOPA’s interim measures, specifying the requirements of Solvency II on the core areas and concerning the following points:
- The system of governance
- Reporting to national supervisory authorities
- Forward-looking assessment of own risks (FLAOR) in preparation for the Own Risk and Solvency Assessment (ORSA) demanded 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 project “Solvency II” was successfully completed after nearly seven years. In the course of this project, which was managed centrally from Austria, legal developments were followed closely and the 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 individualcompany 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 core 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 (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 2015. A Group-wide unified internal control system helps to ensure compliance with the guidelines and requirements resulting from the risk management system.
In 2015, in addition to the final preparations for the approval procedure and the application for the partial internal model of Vienna Insurance Group, the focus was mainly on fulfilling the quantitative and qualitative reporting obligations under the EIOPA interim measures. This includes the first legally prescribed calculation of Group solvency under Solvency II as of 31 December 2014 and compliance with quantitative and qualitative regulatory reporting requirements as of the dates 31 December 2014 and 30 September 2015. VIG was able to send the needed reports completely and on time, both for the Group and for the relevant individual companies.