Solvency II is significantly different from Solvency I, and forces companies to re-look at the way they assess risks and how these risks can, in turn, impact the business. The advent of Solvency II will require insurers to implement a new set of capital requirements and risk management standards. Instead of the earlier approach wherein liabilities were the main factor for deciding upon solvency, the new regime will assess market, credit and operational risks to calculate the amount of money an insurer needs to maintain solvency. Solvency II has been designed to fully reflect the latest developments in prudential supervision, actuarial science and risk management, and allows for updates in the future. The link in the PDF/Presentation is not working due to some changes in the website. Please refer to the new link http://bit.ly/exC7wi

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Solvency II And The Resource Crunch For Actuaries
By Jeremy Owenson
October 2012 marks a huge change for insurance companies in Europe. It will be the year when all of Europe will see a
new regime coming into play - Solvency II. Companies involved in life and non-life insurance, and reinsurance in the EU
are preparing themselves for this new regime, which will cover those with gross premium income exceeding €5 million.
Walking a Different Path
Solvency II is significantly different from Solvency I, and forces companies to re-look at the way they assess risks and how
these risks can, in turn, impact the business. The advent of Solvency II will require insurers to implement a new set of
capital requirements and risk management standards. Instead of the earlier approach wherein liabilities were the main
factor for deciding upon solvency, the new regime will assess market, credit and operational risks to calculate the amount
of money an insurer needs to maintain solvency. Solvency II has been designed to fully reflect the latest developments in
prudential supervision, actuarial science and risk management, and allows for updates in the future.
The Actuarial Function in the New Regime
Article 47 of Directive of the European Parliament and of the Council for Solvency II lays down the reasons why insurance
and reinsurance companies should have an effective actuarial function. The actuarial team has to work for the effective
implementation of the risk management system, especially in risk modelling on which the calculation of the capital
requirements and the assessment are based. Actuarial professionals have to compare best estimates against experience,
express an opinion on the overall underwriting policy and on the adequacy of reinsurance arrangements.
Resource crunch
A key challenge arising out of the advent of the new regime is the need for actuarial resources as specified in the
directives. It’s a well-known fact that actuaries are part of a highly specialized talent pool. They are high-cost resources,
who are difficult to find. The new Solvency regime will require companies to have a team of actuaries - 85 percent can be
fresh actuaries and the rest can be in senior roles. With the dearth of resources, getting the team in place will be a tough
task - not just in terms of tapping into the right talent pool, but also keeping the costs under budgeting limits. Scarcity of
actuaries will obviously lead to burgeoning pay packages and widespread head hunting. Insurers in Europe will have to
brace themselves for the uphill task. Is there an alternative? A growing talent pool in India and Sri Lanka in actuarial
sciences could provide the much-needed solution to European insurance companies. For instance, The Institute of
Actuaries of India [the regulatory body for the development of actuarial profession and awarding the actuarial qualification]
has 203 Fellow Actuaries, 132 Associate Actuaries and 8,340 student actuaries as of May 2010. The numbers are growing
as more students in the subcontinent are opting to specialize in actuarial sciences. The Actuarial Association of Sri Lanka
was formed a couple of years ago to combat the shortage of actuarial professionals in the domestic insurance space. The
number of actuarial professionals in Sri Lanka is also growing as the domestic market makes it mandatory for insurance
companies to have certified actuaries for their business. The Association has 50 members qualified from actuarial
institutes in India, UK, USA and Australia, and has 30 students.
Another growing talent pool is that of distance learning. The Actuarial Profession, Edinburgh, has 1,600 students pursuing
the course through distance learning.
Apart from the institutes, organizations like WNS also train employees in the area of actuarial sciences and encourage
them to obtain the certification, while continuing with their work.
With such a growing talent pool of actuaries in the Indian subcontinent, insurers could consider outsourcing some of their
actuarial processes to these countries which have the resources with the requisite credentials.
It is necessary that the expected present value of insurance liabilities is calculated on the basis of current and credible
information and realistic assumptions, taking account of financial guarantees and options in insurance or reinsurance
contracts, to deliver an economic valuation of insurance or reinsurance obligations. The use of effective and harmonised
actuarial techniques should be required.
The calculation of the best estimate shall be based upon current and credible information and realistic assumptions and be
performed using adequate actuarial methods and statistical techniques.
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