Solvency II - the new prudential system for the supervision of insurance undertakings : its effect on the Maltese insurance industry

Abstract

The aim of this study is to determine whether local insurance undertakings are sufficiently prepared for the new EU Solvency II prudential regime. The research seeks to determine whether insurance undertakings have adequate systems in line with the possible requirements of the Solvency II framework Directive. The research explores: • The corporate governance framework; • The internal controls framework; • The risk management systems; • Internal models; • Reporting; and • Disclosures. All the above are measured through a questionnaire disseminated to local insurance undertakings. The findings are then compared to the literature. The study has shown that local undertakings are employing systems that are based on best international practices that embrace the concepts being developed in the Solvency II regime. Although room for improvement exists with regards to the public disclosures mentioned in Pillar III, the corporate governance, internal control and risk management frameworks satisfy the qualitative requirements of Pillar II and the internal risk models that will be used by the undertakings satisfy the general recognition criteria contained in Pillar I. These findings provide a positive answer to the main research question, that is, local insurance undertakings are sufficiently prepared to adhere to the provisions of new EU solvency regime.