Shifting gears for the new regime - The role of risk governance in Solvency II | Whitepaper
Governance is one of the most prominent features on the regulatory landscape for insurers. Intensive scrutiny over governance arrangements will be a characteristic of the Commissariat aux Assurances’ supervisory approach as announced in the Solvency II regime. The Directive indeed imposes a specific obligation on regulators to be ‘satisfied that the entity’s system of governance is adequate and requires entities to provide information that would enable the regulator to make that assessment’. But an equally compelling motive for insurers to reassess their systems of governance is that it forms an integral part of the Solvency II regime.
Although a number of existing governance regulations and guidelines impact insurers, including the forthcoming Code de Gouvernance prepared by Luxembourg’s Association of Insurance Undertakings (ACA), Solvency II will catalyse a re-examination of whether insurers’ governance models are fit for purpose. Embracing this opportunity for change could unlock cost efficiencies through improved organisational design, information and processes while failure to implement and communicate effective governance approaches to the regulator could lead to additional regulatory capital charges under Pillar 2.
In this article we explore those areas that insurers may find particularly challenging when trying to enhance their risk governance as part of Solvency II. In particular we focus on the need for an organisational structure that supports effective oversight and challenge of capital and risk management. In addition, we reflect on the importance of robust management information, as well as the governance challenges associated with developing and embedding an internal model. The distribution of rights and responsibilities relating to a firm’s broader corporate affairs, for example the relationship with shareholders, is not considered within our risk governance discussion here.
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