On the road

MM

There has been a lot of press coverage about Solvency II (or 'SII'). What is it?

GS

SII is a new European-wide regulatory regime bringing in, among other things, a common standard for insurers' solvency. This will affect the amount of funds insurers need in order to trade. Although SII doesn't come into effect until 2012, it's a bit like the Olympics - there is a huge amount of work still to do in order to be ready for the challenge ahead. There are three main elements to SII. The first is quantitative, a calculation of how much capital each insurer needs relative to its risk. The second is qualitative, an assessment by both insurers and their regulators of all the risks an insurer faces. The third is disclosure; insurers will have to publicly disclose more information than before.

MM

The press are saying that people in the industry are unhappy with SII. What is this all about?

GS

The industry welcomes the principles of SII, because it means harmonisation of European regulation for all insurers, with solvency requirements set according to risk. However, the devil is always in the detail and it is the implementation of these principles that is increasingly concerning the industry as there is a belief that capital requirements will be significantly higher and the regulatory regime will be onerous.

MM

What effect will SII have on the insurance industry as a whole?

GS

It is difficult to predict this with any certainty, but some insurers with many legal entities in different European countries are already consolidating so that they have only one legal entity in the EU with branches in the rest of the EU. There have also been suggestions that there may be consolidations within the market, either through acquisitions or mergers. The European-wide association of insurers, the CEA, is predicting that the price of insurance will have to increase if capital requirements go up.

MM

SII only affects countries within the European Union. Will other countries adopt similar regulation to SII?

GS

The Swiss already have similar rules and Bermuda is intending to implement the same type of regime. There has been some debate in the US over whether they should adopt something similar, but my understanding is that, while some elements of SII may be of interest to US regulators, they are unlikely to adopt the whole thing.

MM

What about Markel International? How are your preparations going?

GS

We have a SII project team with representatives from different areas of the business and have increased and/or reallocated resources to implement it. Our company, Markel International Insurance Company Limited (MIICL), is applying to the FSA so that we can use our own internal model for the quantitative aspect of SII. Lloyd's is applying to gain approval to use its internal model for the whole market so, of course, our syndicate is working with Lloyd's to achieve that. We are also undertaking further work internally on areas like communication, reporting and governance. We are making good progress, but again it's like the Olympics - a lot of work, but an exciting challenge.