(Re)insurance group supervision : an analysis

Abstract

Solvency II is predicted to have an impact on the future shape and operation of insurers. It promotes a more holistic and risk-based approach towards insurance supervision, hence the promotion of insurance group supervision as a means of capturing all the effects and risks of an insurance group. The requirements of the new Directive are demanding requirements which need well planned preparation. Purpose – The study seeks to define the concept of insurance group supervision. The reasons for insurance group supervision will be highlighted and the details of the methods employed in insurance group supervision will be provided. The study will identify the benefits for insurance group supervision and analyse the differences, if any, between the current and proposed Solvency II regime. Through enquiry, the study will assess the awareness and perception of insurance group supervision among the locally registered insurance undertakings, auditors/advisors to insurance undertakings and insurance managers. Such interviews will also extract the challenges, if any, faced by them in order to cater/be prepared for insurance group supervision. Through interview with the regulator, the study will assess the local regulator’s present process of insurance group supervision and learn about forthcoming changes, in this area. The perception of the local market from the regulator’s point of view will be analysed and matched to enquiries with local licence holders. The study will conclude by highlighting the actual state of insurance group supervision in the insurance market in Malta, preparedness for insurance group supervision in accordance with Solvency II, and provide possible suggestions to enhance the benefits of insurance group supervision in Malta. Design/methodology/approach – In-depth semi-structured interviews were used in the study in order to gain an insight of the situation of insurance group supervision locally and the present level of preparedness for insurance group supervision under Solvency II. Interviews were held with a selection of Maltese IUs, four insurance managers and two of the Big4 auditors/consultancy firms who provide services to local IUs and the Maltese insurance regulator. The data collected from the interviewees’ answers was analysed using thematic content analysis. Findings – Currently insurers may be focusing on the solo aspect of supervision under Solvency II. This may also be due to the fact that preparedness for insurance group supervision is not being assessed in the preparatory period for Solvency II. Given the nature of insurance groups in Malta, most insurance undertakings are considering insurance group supervision as a burden. The challenges seem to be outweighing the benefits. It seems that the insurance undertakings are not identifying any benefits for themselves or for the regulator, hence this regime might currently be depicted as solely a regulatory exercise which needs to be complied with. Knowledge by all the parties involved is still being gathered, however progress is being registered as implementation draws nearer. Originality/Value – This study provides an overview of the situation with regards to insurance group supervision in Malta. Qualitative evidence depicts the level of preparedness among Maltese IUs, auditors/advisors to IUs, insurance managers and the regulator. It is to be noted that this area is undergoing major developments in view of the implementation of Solvency II in January 2016.