The Danish insurance regulator is set to tighten the rules for calculating insurers' solvency capital requirements, in a move to aid the transition to the Solvency II regime.
Finanstilsynet, the Danish Financial Supervisory Authority (FSA), will unveil on Friday a draft plan to introduce in 2014 a standard solvency capital methodology for insurers. The technical specifications of the new standard will be in line with those used in recent Solvency II quantitative impact studies.
Danish insurers currently have the flexibility to decide on the size of the shocks they use to calculate their capital buffers, in order to better reflect the firm's risk profile. The proposed changes aim to ensure an equal level of policyholder protection, according to Per Plougmand Baertelsen, director of the life assurance division at Finanstilsynet.
The Danish insurance industry has welcomed the regulator's aim of bringing the rules more in line with Solvency II, but has concerns about the rules' potential complexity and the short time for implementation.
The new requirements are likely to put the pressure back on insurers, after a period when some have relaxed their efforts to prepare for Solvency II, in response to repeated delays in the legislative process, say experts.
The proposed rules might result in an increase to capital requirements for firms that have been using lower stresses for their calculations, according to Simon Stronkhorst, head of the life practice for the Nordics region at Towers Watson, based in Stockholm. The greater impact, he adds, will be on processes. For instance, those companies developing internal capital models are expected to have to do some significant additional work around documentation and validation, while they are still able use their models.
The details of the standard methodology have largely dominated the pre-consultation discussions between Finanstilsynet and the industry during the past few months. The regulator has signalled it is ready to make concessions and allow insurers to make calculations in a more simplified way, as long as the shock levels remain as stringent as those in Solvency II.
Denmark will make a final decision on whether it intends to comply with interim guidelines to be issued by the European Insurance and Occupational Pensions Authority (EIOPA) at the end of the year.
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