Only one third of respondents said they would undertake advanced recalculation in line with QIS4, said Watson Wyatt
While the majority of UK insurers say they will participate in Quantitative Impact Study 4 (QIS4) in some capacity, only a third will be undertaking advanced recalculation in line with the QIS4 specification, according to a survey by Watson Wyatt.
QIS4 is part of the process of assessing the impact of Solvency II proposals on insurance companies. It allows firms to assess the potential impact the latest proposals may have on the capital requirements.
The research also highlighted that only 15 % of those surveyed have performed a formal Solvency II gap analysis.
Watson Wyatt said that not undertaking early preparation for Solvency II could prove a costly mistake for insurers.
The survey found that up to 80 % of UK life and non-life insurers are likely to participate in QIS4. Of the 90 insurance professionals surveyed, only 34 % indicated that they would be undertaking advanced recalculation in line with the QIS4 specification, with the majority saying that their QIS4 submission would be based on simple calculations, for example using ICA figures to approximate the QIS4 specification.
By comparison, 60 % of insurers that attended a recent Watson Wyatt chief actuaries' forum indicated they would be undertaking advanced recalculation in line with QIS4 specification. The research also revealed that nearly 30 % of the UK insurers expect to spend more than 50 'person days' on QIS4.
Mark Chaplin, global head of risk and value management services at Watson Wyatt, said: "We assisted a number of insurers with their response to QIS3 and we are now seeing many more companies looking to participate in QIS4. However, we have been working with a number of leading European insurers and it is apparent these companies are carrying out more in-depth analysis for QIS4 compared to UK insurers and this is reflected in our research."
Solvency II will have implications for insurers’ capital requirements and profitability, but also their organisational structures, systems, people and processes. Significant changes may need to be made and firms without a clear plan of what will and will not need to be done are taking unnecessary risks, said Watson Wyatt.
Chaplin said early preparation is essential: “Insurers who discover early enough that parts of their business generate excessive capital requirements under the standardised approach are giving themselves time to react. Options include campaigning to change the relevant part of the framework, preparing to apply for internal model approval, altering the risk profile of the business, for example by taking risk mitigating actions or redesigning the products sold, or, if necessary, raising new capital. Delaying key preparation work runs the real risk of nasty surprises later in the process and may put companies at a competitive disadvantage to those taking earlier action.”