Solvency of Insurance Undertakings (Mueller-Report) - Eiopa

- 49 -In terms of frequency of occurrence, management risk (not specific to the insurancebusiness) in particular proves to be an intrinsic danger factor, directly related to observedfinancial difficulties. Other significant risks include investment risk, in all the guisesmentioned in the risk paper DT/ D/ 154/ 94-Rev.1, valuation risk for technical reserves(potential danger of under-provision, especially for long-tail business), growth risk(especially in connection with rising costs and an inappropriate underwriting policy) and, tosome extent, reinsurance risk.The frequent emphasis on management risk is striking. Almost all the submissions describeas very serious the dangers arising from management that fails to meet the „ fit and proper“criteria. Most delegations also attribute the problems arising in the four core areas/ corerisks ultimately to inappropriate management behaviour (management information systemfailure), with the result that management risk represents a kind of overarching orexceptional risk.5. Possible consequences for the future framing of solvency regulationsThe starting point for further consideration of the framing of future solvency regulations isthe function of purpose of own funds requirements as applied to insurance undertakings.In its discussions to date, the working group has agreed that solvency measures can coveronly those dangers and risks that are not already covered by other measures (provision). Itshould therefore be regarded as an additional safety factor which can reduce the residualrisks that remain after risk provision. This raises the practical question of whether the risklinked to the difficulties recorded in the Member States in the areas of management,reserves, investment, costs/ growth and reinsurance contain residual elements (residualrisks) for which future solvency regulations should provide. The submissions containpractical suggestions on this matter, but as they are currently the subject of consultationand have also to some extent already been raised by the delegations in discussions, theyneed not be recapitulated here. As the concrete results will in any case be included in theworking group’s final report, the following comments again present only Member States’essential thoughts resulting from the difficulties experienced.Management riskIn the opinion of some delegations, this risk hangs over all other risks to which aninsurance undertaking operating on the market is exposed. From this point of view,controlling and ensuring sound and prudent management is far more important than thesolvency system, because management errors by their nature cannot be compensated bysolvency requirements. Supervisory authorities must therefore combat criminally disposedor incompetent management by drawing up a specific set of requirements against whichmanagerial aptitude can be assessed and by monitoring senior managers. Ultimately,however, deception and incompetence can never be