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Reputability LLP are pioneers and leaders globally in the field of reputational risk and its root causes, behavioural risk and organisational risk. We help business leaders to find these widespread but hidden risks that regularly cause reputational disasters. We also teach leaders and risk teams about these risks. Here are our thoughts, and the thoughts of our guest bloggers, on some recent stories which have captured our attention. We are always interested to know what you think too.

Sunday, 1 February 2015

Solvency II Handbook makes Start on Reputational Risk for Insurers

As a textbook author for the Chartered Insurance Institute I am only too aware of the challenges of writing about Solvency II, the regulatory monster that hangs over the insurance industry. It has been 14 years in gestation, has continually changed, and became over- politicised and over- complicated. As a consequence publications on the subject are usually out of date, some are pitched at the wrong level and many are unintelligible to anyone who is not a qualified actuary. It therefore is refreshing to find that the new edition of The Solvency II Handbook largely avoids such problems and provides a practical reference book that merits a place on the shelves of every EU insurer. Best of all, it is well edited and very readable.

The previous edition that came out in 2009 coincided with the passing of the Solvency II Directive by the European Parliament. It was an aid to insurers as they began their preparations for the ‘imminent’ implementation of the legislation in the Member States. As we all know the EU totally under-estimated the task before it and so deadlines came and went and Solvency II does not actually come into force until 1 January 2016.

In contrast to its predecessor, the new edition focuses far more on the practical issues of implementation in insurance operations. Chapters represent the shared experiences of specialists from a range of disciplines including underwriting, actuarial, risk management, regulation, accounting and audit. They deal with all three Pillars of Solvency II and provide views from non-life, life, pensions, mutual and reinsurance sectors.

The timing of the Handbook is appropriate. It was put together in 2014 at the time of the approval of Omnibus II, the revised Solvency II legislation aimed at dealing with the shortcomings of the original. These included the impact of the Lisbon Treaty, the creation of the super-regulator EIOPA, and the numerous issues identified in the quantitative impact studies, particularly the potentially crippling effect on long term guarantees. Of course, nothing is perfect in the publishing world. The Handbook has just missed the Commission Delegated Regulation (EU) 2015/35. This has provided another 175 pages of detailed technical rules that will form the basis of a single prudential rulebook across the EU. Fortunately, the Handbook contributors generally anticipated the provisions but this new regulation and other rules in the pipeline should keep Risk Books busy for some time to come.

From my own perspective, I found that many chapters shone fresh light on the impact of Solvency II and it was useful to get a broad view of what is actually happening in insurers. I particularly valued the chapter on the comparison of insurance liabilities under IFRS 4 Phase II and Solvency II.

Finally, as a partner of Reputability LLP, I obviously welcome the chapter on reputational risk. One of the constant weaknesses of insurance regulation, even of Solvency II, particularly in the way it appears to be treated by insurers, is the lack of attention to behavioural, organisational and reputational risks. The problem is by no means new. Over decade ago William McDonnell in his report on insurance failures wrote, ‘Management problems appear to be the root cause of every failure or near failure, so more focus on underlying internal causes is needed’. It is encouraging that The Solvency II Handbook is drawing attention to the issue. But is anyone listening? 

Professor Derek Atkins
Reputability LLP

The Solvency II Handbook: practical approaches to implementation
Ed Rene Doff,
Risk Books 2014
ISBN 978 1 78272 188 8

1 comment:

  1. Dear Derek,
    there were listening. Damage to reputation is now number 1 risk on the top of board's agenda:
    Thank you for your review of the Reputational risk chapter!
    Ina Catrinescu