Companies will need to demonstrate that their models are fully embedded within the business. Firms will need to create an economic capital model, implement policies and procedures, and develop tools to assist with embedding risk and capital management within the business.

Experience from Basel II in the banking industry demonstrates that the challenge this presents should not be underestimated. Solvency II may mean a redesign of the operating model across actuarial, finance and risk functions as well as the enhancement of risk evaluation practices in areas where risk assessment is currently limited. Management information approaches will need to be revised in order to provide appropriate updates on a regular and frequent basis. This may entail the enhancement and integration of underwriting, claims and risk systems to enable calculations to be performed regularly to support both the regulatory requirements and the decision making process. In addition, management information approaches must be integrated across the firm and the board and senior management will need to demonstrate they are directly involved and that consideration is given to risk and capital during strategy setting and business planning. For example, the board may adapt its approach to assessing diversification benefits and begin to use risk measures as a key factor in the allocation of capital.

Jump to: Pillar 1 | Pillar 2 | Pillar 3