UK firms concerned over Solvency II MCR approach

UK insurers are concerned that the approach most recently tested by Ceiops to calculate the minimum capital requirements (MCR) under Solvency II is not sufficiently risk sensitive. The Financial Services Authority, which conducted the UK’s report for Ceiops’s fourth quantitative impact study (QIS 4), recently published the results for UK firms and found that the linear approach “reflects the lack of risk sensitivity of the MCR” while firms were concerned that the linear approach calculations would not move in a consistent way from year-to-year, making it hard for firms to plan their capital requirements.