A critical analysis of Maltese Insurance Firms Perspective of Solvency II

Abstract

Purpose: The aim of this study is to critically analyse the risk regulatory requirements under Solvency II, Pillar1, in particular, accessing their adequacy for MFSA licenced firms. Specifically, the study assesses the effectiveness of the standard formula with respect to riskprofile representation, the importance deemed by firms of such capital requirements, and whether it worthwhile to develop an internal model, amongst others. Design: The study makes use of both qualitative and quantitative research. The core of the study is based on the results obtain from fifteen (15) likert-scale questions. However, descriptive feedback on each statement was recorded and noted with the results. Indeed, particular attention was given to the nature of the business of the participant in order to try to analysis certain common tendencies. Findings: From the data collected, it can be clearly understood that smaller firms, captives, and firms with specific lines of business have been misrepresented the most under this Pillar. Additionally, larger insurers felt that the standard formula misrepresented them and considered the development of an internal model/ partial model essential. Those most comfortable with the standard formula seemed to be insurers, that although small under a EU perspective, still manage to write a considerable amount of business, both in terms of premium and variety. Conclusion: Overall, the concludes that for Solvency II to be truly a representative of the firm‟s risk profile, work needs to be done for smaller firms, captives, and firms that have a specific line of business. Indeed, the adjustments and principle of proportionality were criticized for not being an efficient tool in serving smaller firms as was intended. Furthermore, the regulation was also questioned from a cost-benefit point of few. Participants were keen to point out if the aforementioned firm types should be exempted from certain parts of the directive that seem to be there for larger firms.