QIS2 Exercise for Non-Life Insurers

The IOM Financial Services Authority launched a Quantitative Impact Study (“QIS2”), the first QIS exercise to apply to non-life insurers, on 30 October 2015. QIS2 required all non-life insurers to produce, on a best efforts basis, balance sheets and capital requirements using an approach reflecting the Authority’s initial proposals for the framework for valuation and capital adequacy for the new regulatory regime, by 30 April 2016. The proposed framework to be tested was based on the requirements of ICP14 and ICP17.

In our consultation paper CP15-07 accompanying QIS2 we stated that we would use responses to CP15-07 and the results of the QIS2 exercise as input to our further consideration of the proposed valuation and capital adequacy, and that further consultation and QIS exercises would therefore be run as we develop more concrete proposals.

We are grateful to the non-life sector for its engagement in this process and for the feedback provided to date. A number of themes have emerged from this feedback, several of which we believe it would be appropriate to address, by refining the proposals for the framework for valuation and capital adequacy, before further work is undertaken by industry.

These themes include:

• The desirability of reflecting the impact of contractual coverage limits, such as aggregates, in the standard formula
• Further clarifying of instructions for completion of the exercise, including when approximations may be applied (subject to proportionality)
• Potentially reducing the capital requirements in respect of loans to other members of the insurer’s group of companies, particularly for insurers only insuring the risks of such members
• Potentially further simplifying the proposals, particularly for insurers only insuring the risks of related parties

The latter two aspects would require guidance to be included in the QIS exercise on the nature of business for which such reductions or simplifications would apply.

The Authority therefore proposes ending the current QIS2 with immediate effect early, in order that:

• Industry can provide the Authority with data on the extent to which the risks underwritten by each company are in respect of related or unrelated parties. We will provide details of the data required shortly.
• The Authority can prepare refined proposals to be tested in a QIS3 exercise. We expect that this exercise will be launched in the summer of 2016, to be completed within 4-5 months. The QIS3 exercise will use data as at 31 December 2014, as for QIS2, in order that work already done for QIS2 can be re-used where appropriate.