Solvency II a key driver of European ERM improvements

European insurers that slow their enterprise risk management (ERM) improvement efforts because of Solvency II delays could adversely affect the assessment of their ERM, says a report by Standard & Poor’s.

“Solvency II remains a major driver of ERM improvements in Europe,” said Standard & Poor’s credit analyst Miroslav Petkov. “In our view, the directive has firmed up insurers’ approaches to risk appetite, risk governance, and risk reporting, along with their application of internal models. More importantly, Solvency II has brought risk management to the fore in insurers’ strategic planning, and this is one of the main factors behind our upwardly revised ERM scores for a number of insurers.

“We believe the real value of ERM arises when insurers develop their risk management not only because it is a regulatory requirement, but also because they believe it delivers more effective management of their business. If we find that the delay of the Directive diminishes the role of ERM among certain insurers, we may review our existing ERM assessments on them.”

The report points out that there is a more widespread application of economic pricing frameworks and the use of models for strategic decisions such as designing reinsurance programmes. The ratings agency believes these developments have improved insurers’ strategic risk management capabilities.