Insurers grapple with Solvency II economic capital projections

Solvency II’s requirement for insurers to project capital calculations forward over a number of years is a significant challenge for insurers that are still grappling with modelling their year-one requirements. As Clive Davidson finds, there is significant variation between insurers on how to model forward-looking balance sheets, with most companies still developing their approach

One of the major distinctions between Pillar I and Pillar II of Solvency II is that the first takes a snapshot of the here and now, while the latter looks more towards the future. The quantification requirements of Pillar I are based on a ‘time-zero’ balance sheet, with own funds and capital calculated to meet obligations over the next 12 months, whereas the Own Risk and Solvency Assessment (Orsa) of Pillar II is forward-looking and covers the business planning period.

With many insurers still