Willis Re Solvency II | �

QIS5: SOLvENCY II NEARS THE FINISHING LINESeptember 2010

Contents

Minimising the negative, maximising the positive ...........................................................2

Almost there ......................................................................................................................3

QIS5 Highlights .................................................................................................................6

What does this mean to you? .......................................................................................... 12

How Willis Re can support you though QIS5 and Solvency II ....................................... 13

Willis Re Solvency II | �

QIS5: Solvency II nears the finishing line

Minimising the negative, maximising the positive

Over the past six years Solvency II has been much talked about but easy for most insurance professionals to ignore.

It cannot be ignored any longer. Solvency II is very likely to be implemented in 2013, with its impacts felt far earlier.

Solvency II can be a very dry, very technical subject. It has developed into a very complicated process, creating an industry of

commentators, consultants and practitioners who dissect every 400+ page consultation and guidance document released. The aim

of this intentionally brief and non-technical paper is to update you about the latest changes to Solvency II and particularly the

current QIS5 exercise with a focus upon:

The non-life underwriting elements of QIS5.

Identifying where QIS5 and Solvency II could impact upon you.

The 10 key areas where Willis Re can help you navigate the process.

Solvency II is more than just a compliance issue. Properly implemented it can provide a framework for better, more focussed,

more transparent decision making within your firm. Willis Re is well positioned to help you minimise the negatives and

maximise the positives of the Solvency II experience; ease the pain and make the gain.

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Willis Re Solvency II | �

Almost thereDespite its slow start, Solvency II is now gathering momentum. Whilst changes may still occur, and much remains to be finally defined, it now seems highly likely that the start date of January 1, 2013 will be met.

QIS5, the final quantitative impact study, was launched in August 2010. QIS5 will, with some amendments, form the core of the standard Solvency Capital Requirement (SCR) calculation when Solvency II comes into force.

The impacts will be profound. Currently few firms in Europe are regulatory capital constrained under Solvency I regulations. The QIS4 exercise in 2008 was completed by over one thousand four hundred firms across the European Economic Area (EEA). Of these eleven percent failed to meet the SCR, and QIS5 is expected to produce higher failure rates; some formulae have been tightened under QIS5, in addition calculations must be made on post credit crunch data and balance sheets (year end 2009 for QIS5, year end 2007 for QIS4).

QIS5 – Summary of major changes from qis4

Insurance risk Premium and Reserve Risk Factors increased from QIS4 but scaled back from initial

CEIOPS proposals.

Premium and Reserve Risk diversification factors retained but simplified. 54 regions reduced to 18.

The Standard Formula now attempts to recognise the value of Risk Excess of Loss reinsurances.

Charge for lapse risk added for non-life business.

The Natural Catastrophe charge for European exposures now set by a scenario model driven by

CRESTA level aggregates by peril and country with defined intra-country and peril, cross peril

and cross country correlations.

Firms with non-European catastrophe exposures and/or non-proportional inwards business

will need to revert to a simple factor model.

The standard Natural Catastrophe calculation can be replaced by approved partial internal

peril modelling.

Man-made catastrophe charges are calculated by defined scenarios similar in concept to

Lloyd’s Realistic Disaster Scenarios.

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Market risk Shock factors for property, interest rate and foreign exchange increased but down from original

QIS5 proposals.

Increases in correlation factors proposed generally unwound back to QIS4 levels.

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Operational risk Charges 50% higher than QIS4 but reduced from earlier QIS5 proposals.•

Counterparty risk Correlation introduced between type 1 entities (includes reinsurance counterparties).

Changes to recovery assumptions proposed in earlier iterations of QIS5 unwound.

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The financial impacts of QIS5 will be very specific to each organisation, for some they will be profound. Solvency II impacts not only upon solvency capital but also upon the eligibility of capital or ‘Own Funds’. For example, a leading consultant in one major European country estimated that average market SCR increased by over 60% between QIS4 and an earlier draft of QIS5. But worse, the valuation of held assets fell by over 20%, resulting in a halving of the average solvency ratio. A similar result across Europe would have profound implications, almost certainly necessitating a re-think of the basis of the Solvency II calculations.

The only way to tell if your firm will be affected to anything like the same degree is to complete the QIS5 spreadsheets. Sixty percent of re/insurance entities and seventy-five percent of re/insurance groups within Europe are expected to take part in the QIS5 exercise, to be completed by November this year.

� | Willis Re Solvency II

In the autumn, the EC will also publish draft proposals detailing the wider risk management requirements of Solvency II. These will include the rules and procedures that firms must follow if they are to be able to benefit from their own internal models, either fully or partially, rather than use the standard solvency calculations. We expect many to follow this course, subject only to the ability of some national regulators to manage the approval process.

The impact of Solvency II will be felt beyond the EU, with many other national regulators likely to introduce similar schemes, driven by peer pressure and the carrot of European Union (EU) regulatory ‘equivalence’. A recent consultation paper, CP81, produced by the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS), identifies Switzerland and Bermuda as being in the first wave for assessment for equivalence, with Japan for reinsurance only. Solvency II is not going to go away.

Solvency II timeline

Action

STANDARD FORMULA

Bureaucracy

Draft level1

Consultation process

Dry–Run S2 In use

2006 2008 2010 20122007 2009 2011 2013

STANDARD FORMULA

QIS2 QIS5QIS3 QIS4

Draft level 2+3

Adopt level 2+3

S2 in force

Adopt level 1

UK Pre–Approval

Standard formula

Willis Re Solvency II | �

Glossary of terms

CEIOPS – Committee of European Insurance and Occupational Pensions Supervisors: works with the EC to draft and define solvency II , issuing consultancy papers and guidance notes and running the QIS exercises.

CP – Consultation Paper; a series of papers produced by CEIOPS covering various aspects of Solvency II.

EEA – European Economic Area: area that will be subject to the final directive, includes EU states plus Norway, Iceland and Liechtenstein.

EC – European Commission: the executive body of the EU, responsible for formulating draft directives for Solvency II.

ERM – Enterprise Risk Management: the process to indentify, manage, quantify, mitigate and control the risks that an organisation faces.

EU – European Union: association of 27 European States, with a single market in goods and services. Solvency II is to be the new, common regulatory regime for insurance within the EU.

Level � – Framework Principles: the enabling legislation for Solvency II, passed by the European Parliament on April 22, 2009 and agreed by the Council of Ministers on May 5, 2009.

Level � – Implementing Measures: prepared by the EC with advice from CEIOPS – various guidance papers have been published, with final drafts to be issued from late 2010 to mid-2011, for consideration by the European Parliament and Council of Ministers by the end of 2011.

Level � – Guidance: CEIOPS works on joint interpretation recommendations, consistent guidelines and common standards. It also conducts peer reviews and compares regulatory practice to ensure consistent implementation and application. Process also to complete by the end of 2011.

MCR – The absolute minimum capital required to operate as a going concern. Calculated as a percentage of the SCR, between 25% to 45% dependent upon business mix, but subject to a floor of €2.2 million for non-life insurers including captives, €3.2 million for life insurers, reinsurers or composites.

ORSA – Own Risk and Solvency Assessment: means by which a firm demonstrates that it has proper process and controls to identify, manage and quantify the risks it faces.

QIS – Quantitative Impact Study: QIS5 was launched in August 2010. Each QIS exercise gives firms the opportunity to test the current proposals and make representations to CEIOPS and the EC. QIS 5 is likely to be the last exercise, to complete by October 31, 2010.

SCR – Solvency Capital Requirement: the minimum capital a firm must have to avoid regulatory action. Calibrated to the 1 in 200 level. Calculated by standard formula, an approved internal model or a combination of standard calculation and approved partial models.

� | Willis Re Solvency II

QIS5 Highlights

1. Standard calculation vs internal model

Insurers have the choice to replace the standard calculation with their own internal model either totally or partially, subject to relevant national regulator approval. There has been a varying level of enthusiasm for internal models from regulators across Europe, with some explicitly limiting the number of internal models to only the largest firms, and others offering internal model pre-approval to any firm that can pass the tests. There is concern that some regulators may lack the resources to undertake a broad model approval process.

To be approved the model must pass a number of tests.

Requirements for an internal model

Taken from CEIOPS’ Advice for Level 2 Implementing Measures on Solvency II: articles 120 to 126, Tests and Standards for Internal Model Approval October 2009 (previously CP56).

Use test The model must be ‘widely used’ and ‘plays an important role in their system of governance’.

Statistical quality standards

Statistical methods used in modelling must be ‘adequate, applicable and relevant’. Data used in modelling must be ‘accurate, complete and appropriate’.

Calibration standards The model must be able to produce output consistent with defined Solvency Capital Requirements.

Profit and loss attribution

The firm must demonstrate that it regularly reviews causes of profit and loss. The model must be structured to be consistent with this review.

Validation standards The model and its assumptions must be subject to regular review in light of experience.

Documentation standards

Model design and operational details must be documented including ‘the theory, assumptions and mathematical and empirical basis underlying the internal model’.

The use of external models and data does not exempt a firm from any of these requirements.

It is estimated that the cost of preparing a full internal model could be over €1 million. Is it worth the cost? QIS4 results imply yes; on average self-assessed (though not approved) models produced a capital requirement on average 20% lower than the standard calculation. If QIS5 standard calculation numbers are significantly higher, the rewards will be even greater.

Some companies will decide to apply for partial models only, for areas where the standard calculation does not suit their business or if reinsurances are particularly complex. A prime area will be peril modelling. Many companies will wish to substitute catastrophe model results for the standard catastrophe formulae. So should your organisation consider developing an internal model? There are a number of good reasons for doing so other than capital impacts; it will provide a framework to test a wide variety of other management decisions and it will also serve to align an internal understanding of risk with the regulatory view. But cost is not only one of development; it is also one of impact on the organisation. The internal capital model must become one facet of a well defined ERM framework,

with all the cultural and procedural changes this implies. Senior management will need to prove their understanding of the model; its assumptions, sensitivities and frailties, and demonstrate the model’s use in all aspects of decision making. These requirements also apply to ‘external models’ such as commercial catastrophe models, necessitating a greater openness for model vendors and/or brokers running the models for clients.

The standard calculation can penalise firms with a particular business mix and/or particular reinsurance protections. But modelled capital can be very sensitive, subject to changes in loss assumption. For example after a large catastrophe loss, vendor/commercial peril models may be recalibrated and reassessed. Some organisations with a reasonable capital cushion may prefer the comparative simplicity and stability of the standard calculation to the uncertainty and cost of an internal model.

The decision what to model, how to model and when not to model may not be so simple, but we do expect the majority of large and medium insurers to begin to follow the path towards partial or full internal capital modelling, as quickly as their regulator allows.

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2. Non-catastrophe underwriting risk

The Standard Calculation is more penal and a little bit more complicated for QIS5 in comparison with QIS4. Factors applied to premium and reserves have generally increased over QIS4, although the European commission has scaled back some of the earlier CEIOPS recommendations for QIS5.

QIS5 considers twelve broadly-defined lines of business, including two motor lines and three inwards excess of loss reinsurance classes. Diversification credit is allowed between each business line, but not within in it by sub-class. After some debate, geographic diversification credit will now again be allowed, but within eighteen broad regions. All regions comprise a number of countries, with the exception of the United States, which is split into four.

QIS5 non-life geographic diversification

Mid-West

North-East

South-East

Western

United States of America

Caribbean & Central

Eastern

Northern

Southern & Western

Rest of Americas

Eastern

Southern

Northern

Western

Europe

Northern

Southern

Africa

Central & Western

South & South-Eastern

Eastern

Asia

Single region

Oceania

Many firms will find that many of the disparate classes they write will be treated within the same line of business in QIS5. The most extreme case is for those firms who have a large portfolio which falls within the classification ‘Miscellaneous’. For those firms whose underwriting portfolio does not align well with QIS5 it could be necessary to develop at least a partial internal model for their underwriting risk, or else accept a higher capital charge.

QIS5 has attempted to find a solution to allow firms to get full benefit from non-proportional risk reinsurance. It relies on a number of major assumptions which are unlikely to provide a true reflection of the actual reinsurance benefit. It is also difficult to calculate for a multi-line non-proportional reinsurance programme. Where firms rely heavily on per risk excess of loss reinsurance, this could be another reason to consider a partial internal model option.

As in previous QIS exercises, the QIS5 underwriting risk methodology uses the historical net loss ratio to estimate the potential variability within each class of business. Clearly this means that the charge reflects past reinsurance arrangements as well as current. Impacts can be non-intuitive, reinsurance changes perhaps increasing the apparent volatility of the net result and so the capital charge. The full benefits of current reinsurances to control volatility may not be reflected , again encouraging use of internal models.

It should be pointed out that nowhere in the legislation is there anything to suggest that internal modelling has to be stochastic. More details on the rules governing internal model development are due to be published in the autumn.

� | Willis Re Solvency II

Willis Re Solvency II | �

3. Natural catastrophe risk

Natural Catastrophe handling has changed radically between QIS4 and QIS5. Under QIS4 companies had three options: ‘personalised scenarios’ using peril models, standardised scenarios or a factor method based on net written premium.

QIS5 has now redesignated the ‘personalised scenario’ as a partial internal model subject to separate approval. The standardised scenarios approach, much enhanced, is the default methodology. But where there is inwards non-proportional business or for business outside of the EEA the factor method must still be used.

For all European countries, QIS5 effectively provides a simple aggregate catastrophe model for all significant perils; windstorm, flood, earthquake, hail and subsidence (France only). Countries affected are shown diagrammatically below:

Peril distribution charts

Windstorm

Windstorm

Flood

Flood

Earthquake

Earthquake

Hail

Hail

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The calculation process is as follows:

Firms have to provide their total sums insured by CRESTA zone.

These exposures are then multiplied by specific risk factors by peril within country, with correlation applied between Cresta zones, to estimate the gross 1 in 200 year event cat loss for each peril within country.

Total reference gross loss amounts per peril are calculated by applying cross country correlation factors per peril.

An overall gross loss amount for all perils and all countries is calculated by applying cross peril correlation factors

A complication is that whilst the peril calculations above are designed to broadly represent a 1 in 200 event loss per peril, a 1 in 200 annual aggregate number is required to be consistent with capital measures.

To achieve this firms must consider two scenarios;

one full reference loss and a smaller loss,

two ‘medium’ size losses,

both scenarios totalling the same overall amount.

Reinsurance is applied to both scenarios to estimate the net loss – the larger is taken. For the majority of firms, this number will be equivalent to two catastrophe retentions, plus any related reinstatement costs, assuming that they purchase reinsurance up to their calculated 1 in 200 event loss.

This approach has the virtue of simplicity and relative ease of calculation (a spreadsheet will be supplied). But it does raise issues which include:

There is no differentiation by type of property. The numbers are calibrated to reflect an average portfolio. Thus an insurer with a high commercial, contents or agriculture element to its portfolio will get a similar number to another with mainly residential buildings portfolio.

The process will require a full understanding of aggregates by Cresta zone, not just property but also for motor (loaded for some perils) and static marine/aviation/transport. These numbers must be defensible to the regulator.

Whilst explicit allowance can be made for non-proportional reinsurance, there could be anomalies for country or peril specific covers. Programmes can be structured to minimise the net number. The full benefit of some covers will not be given by the standard formula.

If a firm writes inwards reinsurance business or business from outside Europe, it will be required to use simple premium ratio factors or an internal model.

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We expect that most large and medium sized insurers will use peril model output, whether run internally or by a broker, as either part of a full internal model or a partial model. There will be requirements upon both the firm and any external service provider used to demonstrate understanding, relevance and competence. Willis Re and vendor modelling companies are already preparing documentation to support this process.

4. Man-made catastrophes

Although man-made catastrophes were supposed to be assessed as part of QIS4, many firms failed to include it in their submissions. For the majority of firms we expect man-made peril exposure will be small compared to their natural catastrophe numbers, and so their more formalised inclusion in the calculation is unlikely to have a significant bearing on industry solvency.

In contrast to the natural catastrophe approach, exposure to man-made perils is estimated through the application of targeted scenarios by lines of business. This approach will be familiar to those acquainted with the Realistic Disaster Scenario methodology followed by Lloyd’s of London and others. In some cases, these are related to the underlying exposure (the more business you write, the higher the capital charge), for instance with motor. But in other cases the loss scenario is the same if you write one policy or a thousand, adjusted only by maximum line written.

For example, one marine scenario is a gross of reinsurance man-made catastrophe 100% loss of USD 3.6 billion, applicable to every firm that insures a gas or oil tanker.The scenario involves a tanker negligently colliding witha cruise ship, causing numerous deaths and casualties. The resulting claims (including pollution) are to be litigated in the U.S. and liability cannot be limited.

Whilst for most insurers the net loss will be comparatively small, the reinsurance recovery may attract a significant default risk charge, introducing a significant increase in the capital requirement compared to the QIS4 figure.

Another example is the Credit and Suretyship class, where the catastrophe charge will be dominated by a recession scenario. The recession scenario uses the firm’s recent historical loss ratios in its calculation. Perhaps counter-intuitively, firms with lower historical loss ratios will receive a higher recession scenario charge due to attempts to build counter-cyclical features into the calculation.

Many firms will find elements of these charges punitive. Whilst for most they may not be material, many will choose to use internal models to better reflect the portfolio that they write, the risks that they face and the reinsurances that they purchase.

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5. Counterparty default risk

For the majority of firms, underwriting risk will be the largest contributor to their capital charge. Reinsurance provides a flexible and efficient tool to reduce the underwriting risk charge. The default risk associated with this reinsurance tends to be very small compared to the amount of capital benefit it provides, particularly where reinsurance providers are A rated or better.

The latest revision to QIS5 reversed an earlier change to the amount of reinsurer default that is deemed recoverable. But changes remain, one of which that does adversely affect the calculated charge is the addition of correlation. In QIS4 all reinsurer defaults were considered to be independent events, but in QIS5 there is some correlation assumed, i.e. if one reinsurer fails there is an assumption that others are also more likely to fail due to some underlying market condition.

This factor, coupled with overall increases in premium and catastrophe risk charges, and so higher implied reinsurance recoverables, could result in a near doubling of the default risk charge for many firms.

So what drives the calculation? We need to consider potential reinsurance recoveries from current business, proportional and excess of loss, as well as reinsurance assets currently on the balance sheet from prior years. A firm needs to consider both expected annual reinsurance recoverables (effectively covering proportional arrangements) and the extent to which the firm relies on reinsurance to reduce their 1 in 200 year underwriting risk charge (effectively assessing non-proportional reinsurance).

The risk of default is calculated by looking at the rating of the reinsurers used and the spread of the reinsurance panel. The reinsurers’ credit rating will be the key driver in the default risk charge for most firms. Once you get beyond about five equally used reinsurers, increasing the number of reinsurers does not affect the calculation materially, so reinsurer concentration will only be a concern for those firms with large quota share arrangements with a few partners. A special case will be where catastrophe protections are bought at a group level, with internal reinsurances provided by the group to local companies. Here issues of regulatory equivalence of the domicile of the mother company may also apply.

Whilst default risk tends to be fairly small, it can increase significantly following a key reinsurance counterparty downgrade. It will be important not to rely too heavily on any one reinsurer, and to seek to manage panel participations, perhaps by use of break clauses in the event of a material downgrade.

There is a significant change in the default charge as you move from A rated counterparties to BBB and beyond. It will be interesting to see whether the enhanced ability of A and above rated reinsurers to reduce the capital benefit will be reflected in their pricing. We also expect the trend for reinsurers to price higher for business with less information to become more widespread, as they use prudent assumptions to run their own Solvency II internal models.

Solvency II will impact directly and indirectly on every firm and individual in the European insurance and reinsurance industry. It will introduce a significant additional compliance load upon every European insurance firm and it will increase the regulatory capital that an affected firm needs to hold. Various consultants have sought to quantify the impact of QIS4 and QIS5 compared to Solvency I. Some of the numbers produced have been alarming. But the impacts will not be uniform; they will depend heavily upon the size of the operation, the type of business written and the structure of the firm. The only way to truly assess the potential impact on your firm will be to complete QIS5.

Many firms will already be well prepared for Solvency II and may have taken part in earlier QIS exercises. Others will be embarking on QIS for the first time with QIS5. Some companies may have internal models already in use, others will have models in development, others will be considering whether it is appropriate to develop a full or partial model.

Willis Re recognises that every client is different and does not offer a ‘one size fits all’ solution. Rather we aim to work with clients to identify areas where they need support and design an appropriate solution. Solvency II is not just a compliance issue, properly implemented it could and should provide a framework for better, more transparent governance and decision making.

Below we outline 10 services related to Solvency II which Willis Re can offer. We look forward to working with you through this process. It will be an interesting ride.

What does this mean to you?

�� | Willis Re Solvency II

Willis Re Solvency II | ��

How Willis Re can support you though QIS5 and solvency ii1. Reinsurance optimisation

Reinsurance is Willis Re’s business. Willis Re can help you to design reinsurance programmes that minimise your capital requirement, be it calculated using the standard formula or internal models, at minimum cost. This may involve fine tuning current placements (e.g. switching to pre-paid reinstatements) or more profound changes including buying at a local level and/or the use of umbrella or aggregate covers. Willis Re can also help you identify risk mitigation opportunities elsewhere in the calculation, for example retrospective covers (e.g. adverse development) to manage reserving risk and/or operational risk insurances.

But, in reality, although now more important, regulatory capital management will not be the only reason that your firm will buy reinsurance. Many firms will be more driven by a desire to protect their credit rating, or a wish to meet plans announced to investors. The ERM element of Solvency II will require firms to clearly identify their risk appetite and to demonstrate that their risk mitigation is consistent with those goals. Reinsurance purchased must be shown to be appropriate for the firm. Willis Re can help you design appropriate risk measures and targets in a clear, unambiguous way and then optimise your reinsurances to meet them.

2. Internal model – natural catastrophe risk

For property insurers and reinsurers, natural catastrophe risk is the key component of underwriting risk: catastrophe models will play a major role in any internal model, whether the insurer licences catastrophe model software or accesses these models through their reinsurance broker.

Willis Re Analytics has developed a reputation for excellence in the development, application and use of natural hazard catastrophe models. For example, the first insurance wind and flood models for the U.K., and the first pan-European Wind model, were developed by current members of the team. A specialised team is tasked with analysing the vendor perils models, understanding how they work and their impacts by territory, peril and portfolio type. Another team builds advanced peril models where no adequate vendor model exists. This expertise is augmented by the growth of the Willis Research Network (WRN) in size, influence and prestige.

WRN is the World’s largest academic network focussed on the insurance industry, with over forty affiliated institutions, all leaders in their field of study. Willis Re and its academic partners can give unparalleled insights into not only the models but also the science underpinning them. Willis Re and WRN’s reputation means that these opinions will have maximum credibility.

External models (ie broker models, vendor models, a blend of those models or a modified vendor model) will be subject to the same tests as the insurer’s internal model. Additionally insurers will be expected to justify why a particular model is used and how it is used, to demonstrate their consideration of alternative models (even if the insurer licences just one particular model), to explain the limitations of the models, to implement a strategy for the regular review of external models, and to provide substantial documentation to the regulator regarding the external models to ensure compliance with the Solvency II regime. Willis Re is developing a service to assist insurers specifically with this requirement from 2011.

3. Internal model – man-made catastrophes

Willis Re offers various tools and services to help assessthe loss to the defined scenarios within QIS5. For example, the terrorism scenario requires identification of peak exposure within a 300m radius, our Wills ctrl modelling software is ideally suited to that purpose. For each scenario we are ready to give advice and guidance, including advice to optimise your net position for each scenario.

4. Internal model – underwriting risk

Many insurers will wish to consider replacing the underwriting risk element of the standard calculation with an internal model. Willis Re can to give you advice and guidance through this process, including guidance with model structuring, parameterisation and implementation.

Willis Re is unique in offering web-enabled stochastic financial modelling software, Willis iFM, which allows complex organisational, insurance and reinsurance structures to be modelled and the results to be accessed through the user’s web browser via the internet, with no cost of software licensing or issues of hardware installation.

�� | Willis Re Solvency II

5. Internal model – full dfa

Where a firm wishes to run its own complete internal model, Willis Re and its business partners can provide a one stop solution centred around Risk Explorer, the Dynamic Financial Analysis (DFA) analysis software chosen by one of the World’s largest reinsurers and many of the World’s largest insurance groups.

Willis Research Network partners can augment this with world-renowned expertise in areas such as natural hazard risks, operational risk and credit risk to help you demonstrate that your modelling is robust and current. New academic partners will shortly be added to the WRN to provide advice in other modelling areas.

Some larger companies may wish to undertake a tender process to select their financial modelling package and ERM consultants. Willis Re has the market knowledge and practical experience to assist you through the selection process, consistent with the requirements of best ERM practice.

6. qis5 completion and standard model optimisation

Willis Re can advise on completion and optimisation of the standard solvency calculations under QIS5 and its successors. Willis Re has deep expertise in all areas of underwriting risk and reinsurer credit risk, including balance sheet analysis. With our business partners we are able to assist a firm to optimise its standard solvency calculations based upon defensible data and assumptions.

Willis Re is able to assist with training, impact assessments, peer comparisons, GAP analysis, sensitivity analysis and internal communication.

7. ERM support

Solvency II is not just a numeric capital calculation but rather an all embracing risk management process. Final detail of ERM requirements, including companies’ Own Risk and Solvency Assessment (ORSA), will be published later this year. Willis Re is able to advise on all aspects of ERM, not only in connection with Solvency II but also for rating agency compliance and best business practice.

8. Rating agency advice and support

In parallel to regulator movement towards self assessedcapital calculation and ERM, rating agencies, particularlyStandard and Poor’s (S&P), are moving in a similar direction. S&P have recently released a draft consultation paper regarding internal Economic Capital Models (ECM). Willis Re will publish a review and comparison to Solvency II in the near future. There is convergence, but there are also differences. Willis Re has deep rating agency expertise, particularly in the difficult area of ERM compliance.

9. Capital advisory

Solvency II impacts not only upon regulatory capital, but also upon capital admissibility (own funds). Solvency ratios may be hit by an increase in one and a reduction in the other. The Willis Capital Markets team are able to advise around issues of capital admissibility, capital structuring, capital raising, group structuring and mergers and acquisitions in the context of Solvency II.

10. Training

Willis Re is able to provide training on any of the above areas and/or provide general presentation to senior managers and/or key staff on Solvency II and how it may affect them. Training is customised to the client’s changing needs as Solvency II moves towards implementation. Training is, of course, also available on our core business strengths including exposure data cleansing, peril modelling, understanding peril science, financial modelling and, of course, reinsurance.

Willis Re Solvency II | ��

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© Copyright 2010 Willis Re Inc. All rights reserved:The views expressed in this report are not necessarily those of Willis Re Inc., its parent companies, sister companies, subsidiaries or affiliates (hereinafter “Willis”).This report and its contents are provided for informational purposes only, do not constitute professional advice and are not intended to be relied upon. Willis is not responsible for the accuracy or completeness of the contents herein and expressly disclaims any responsibility or liability for the reader’s application of any of the contents herein to any analysis or other matter, or for any results or conclusions based upon, arising from or in connection with the contents herein, nor do the contents herein guarantee, and should not be construed to guarantee, any particular result or outcome.

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