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FSA warns: QIS5 is not a blueprint for Solvency II

This comment piece relates to the report published by the Financial Services Authority on the Fifth Quantitative Impact Study (QIS5) for Solvency II

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Background

On 30th March 2011, the Financial Services Authority (FSA) published the UK Country Report on the Fifth Quantitative Impact Study (QIS5) for Solvency II. The FSA stated that there might be material differences between the final requirements of Solvency II and the QIS5 test. The results are based on figures from 2009, so they cannot be used as an accurate predictor of the capital impact in the current market conditions. The FSA also pointed out that the overall result does not fully consider the impact that the use of the internal models may have.

Detail

One of the findings of the FSA was that many of the participating firms did not include the internal model results in their QIS5 tests; therefore the results may not reflect a true capital requirement as outlined in the Solvency II directive. In addition to this, the FSA stated that the figures did not, as a whole, fully convey the impact of the transitional measures under Solvency II in terms of own funds, or the discount rate.

The FSA indicated that the UK results show some very positive outcomes; for instance, respondents to QIS5 were 70% higher than QIS4 and three times as many small firms participated than before. They state the group participation doubled and the submissions across the spectrum of the size of the firm as defined by EIOPA were also encouraging. Of the firms tested, approximately 80% met their SCR under QIS5, and very few failed to meet their MCR which confirms that the UK firms’ results are in line with those reported by EIOPA as a whole.

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