Guy Carpenter & Company, LLC, the leading global risk and reinsurance specialist and a part of the Marsh & McLennan Companies (NYSE: MMC), today published Internal Models - A Winning Solution for Solvency II. The new report examines the implementation of internal capital models in companies' enterprise risk management (ERM) strategies for compliance with the impending Solvency II provisions of the European Union's (EU) revised insurance law.
"For most small companies, using a formulaic standard model in order to comply with Solvency II's solvency capital requirement will likely be adequate," said Frank Achtert, Senior Vice President, Guy Carpenter. "For larger organizations, however, developing an internal capital model as part of a broader ERM strategy offers a number of distinct advantages, in addition to regulatory compliance."
Mr. Achtert added, "These advantages include a better evaluation of a company's risk profile in light of its risk appetite, the implementation of an accurate capital management approach, better measurements of returns on risk-adjusted capital for individual business segments, a more complete understanding of the relative contribution of the major categories to a company's overall risk profile and the ability to provide quantitative input into an M&A process. In this sense, integrating an internal capital model can turn a regulatory burden into a competitive advantage."
According to current projections, Solvency II requirements will likely be fully implemented at the end of 2012. The EU's proposal for a thorough revision of its insurance law provides a two-tiered approach for determination of regulatory capital adequacy. The first tier, or minimum capital requirement (MCR), is the threshold below which an insurer will not be able to write business. The second, the solvency capital requirement (SCR), is the threshold below which an insurer will likely need to discuss remedies with regulators. To calculate the SCR, companies will have the choice of a standard model, an internal capital model or a combination of both.
A copy of the full report is available for download at www.guycarp.com. Printed copies can be obtained by contacting Guy Carpenter at marketing@guycarp.com.
Guy Carpenter & Company, LLC is the world's leading risk and reinsurance specialist and a part of the Marsh & McLennan Companies. Guy Carpenter creates and executes reinsurance and risk management solutions for clients worldwide through 2,600 professionals across the globe. The firm's full breadth of services includes 16 centers of excellence in Accident & Health, Agriculture, Alternative Risk Transfer, Environmental, General Casualty, Investment Banking*, Life & Annuity, Marine & Energy, Professional Liability, Program Manager Solutions, Property, Retrocessional, Structured Risk, Surety, Terror Risk, and Workers Compensation. In addition, Guy Carpenter's Instrat® unit utilizes industry-leading quantitative skills and modeling tools that optimize the reinsurance decision-making process and help make the firm's clients more successful. Guy Carpenter's website address is www.guycarp.com.
*Securities or investments, as applicable, are offered in the United States through MMC Securities Corp., a US registered broker-dealer and member FINRA/SIPC. Advice on securities or investments in the European Union is provided through MMC Securities Ltd., regulated by the Financial Services Authority for the conduct of investment business in the United Kingdom. Reinsurance products are placed through qualified affiliates of Guy Carpenter. MMC Securities Corp. and MMC Securities Ltd. are affiliates of Guy Carpenter.
