Guy Carpenter briefing - succeeding under Solvency II

Nice all round document from the guys at Guy Carpenter on Solvency II, which touches (naturally) on impacts on the reinsurance industry, but also covers broad trends across the insurance industry, particularly in the world of cost-effective/capital lite risk mitigants. The following aspects stand out;

• Benefits of transparency and security felt to be outweighed by the challenges of Solvency II
• Nicely merges the added cost of compliance for reinsurers with the additional business which will be generated by market demand for reinsurance as mitigant.
• They feel Solvency II will help with consistent analysis of reinsurer strength
• ILS market again cited as one which benefits from Solvency II pressures on capital bases
• Stress the drawbacks of the current standard formula for cat risk, which pretty much forces carriers of non-EU cat risk to apply for internal model approval due to the capital charges as currently calibrated
• Strange stats on UK multinational Solvency II costs (£100m quoted as being set aside) - I am assuming this is non-Lloyds reinsurers only, as that barely covers the last 6 months for the Tier 1 companies.
• Section entitled "costs may be exacerbated by potential regulatory inefficiency" made me chuckle!
• COver the main mitigants available (and of course where their expertise can help!) such as reinsurance, ILS, hedging, diversification techniques and M&A
• Good material on the underwriting cycle and how the standard formula simplifications work contrary to it.

Guy Carpenter briefing - jumped the gun here guys?

I was quite alarmed to read this document from the Guy Carpenter crew on Reinsurance and Counterparty risk thoughts under Solvency II.

In particular, they are assuming the transitionals will actually materialise and be applied at their (currently draft) stated limits (bottom of p2) - "Allowed up to 10 years to fully implement areas of Solvency II such as the fair valuation of assets and liabilities"!

I still think I must be reading this wrong, as that would be a hideous and, according to the EIOPA Chair, utterly inaccurate way to interpret the purpose of the transitionals.

They do however give a nod towards the obvious regulatory shortages, as well as an intriguing piece about a conference call with the French regulator about the potential of a "trial year" with parallel operation of Sol I and II