The Unexpected Benefits of Solvency II

For a mid-size European Union insurance provider, the transformation journey toward Solvency II is requiring a massive change of internal governance and process as well as an optimization of business decisions. So far, the business review has delivered approximately €150 million in capital savings and €30 million in additional profits.

Like all EU insurers, this Italian provider was faced with dramatically altering its business model to comply with the Solvency II Directive, which requires insurers to strengthen their governance policies and key business processes. It also mandates new methodologies to assess risk and calculate solvency capital, and advanced IT and data infrastructure to support new risk management requirements. Firms are required to explain and justify each choice made to the regulatory board that governs the standard. 

The company turned to BCG to help it navigate the required changes. Together, the team: 

  • Reviewed governance and key processes—from proposal preparation and syndication to board approval
  • Optimized the firm's capital calculation, moving from standard formula to undertaking specific parameters
  • Defined its risk appetite, including how operational limits cascade into various business functions both at a group and at a legal entity level
  • Embedded risk into business, aligning strategic plan to risk requirements and documenting it for the regulator

Capital optimization implied a detailed assessment of company-specific risks and delivered nearly €150 million in capital savings, leveraging on both business and methodological levers.

The optimization delivered nearly €70 million in capital savings; the strategic asset allocation review, €80 million in capital savings.

A strategic asset allocation created €30 million in profit.

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