QIS3 problems point to refinement in insurance capital modelling

Over 80% of UK insurance firms had capital in excess of the standard Solvency Capital Requirement (SCR) in the third Quantitative Impact Study (QIS3), which tested proposals for the Solvency II regime following publication of draft framework Directive text in July. QIS3 noted an aggregate decline in firms’ solvency ratios versus Solvency I, which, the FSA says, is not surprising in view of the different approach to valuation of technical provisions and recognised weaknesses around risk responsiveness in the existing capital requirements.