Guy Carpenter Introduces Solvency II Capital Benchmarking Tool

January 7, 2005

Guy Carpenter & Company, Inc., Marsh & McLennan’s risk and reinsurance specialist, has announced the introduction of “Capital Adequacy Projector” (CAP), described as a “capital benchmarking tool designed to help clients prepare for the anticipated regulatory changes as a result of the European Union’s Solvency II directives.”

“While the Solvency II directives are not expected to be announced until 2006, they may have far-reaching impact in terms of how European insurers view, manage and disclose the risks they face stated David Lightfoot, a Managing Director responsible for Guy Carpenter’s Instrat(R) unit in Europe and Asia Pacific. “Accordingly, those who begin planning early will have the most flexibility to evaluate available options and establish appropriate systems and procedures. Since CAP provides a reasonable view as to what insurers may face under Solvency II, it’s a logical first step,”

The bulleting said: “CAP was developed as a result of analysis conducted by Guy Carpenter that suggests that regulatory systems and capital adequacy models around the world are converging and that existing capital adequacy models might be a reasonable predictor of Solvency II requirements. This analysis was first presented in a paper published in August 2004, Convergence in Capital Adequacy Measures and Financial Reporting Rules, which is available by contacting: marketing@guycarp.com

To assist the evaluation of target capital under Solvency II, CAP provides estimates for the following regulatory and rating agency capital benchmarks:
— the United Kingdom’s Enhanced Capital Requirement (ECR)
— Australia’s Minimum Capital Requirement (MCR)
— the United States’ Risk-Based Capital (RBC)
— Standard & Poor’s European Capital Adequacy Ratio (SPCAR)
— A.M. Best’s Capital Adequacy Ratio (BCAR)

“Since there appears to be some convergence of methodology and ultimate capital adequacy amounts among these models, CAP may help clients gauge how their capital may compare to the potential Solvency II requirements. CAP can also estimate the impact of reinsurance on each of the estimated target capital amounts, enabling an analysis of how reinsurance might impact capital adequacy,” added Frank Achtert, a Munich-based Senior Vice President and specialist in accounting and finance.

To learn more about CAP, contact David Lightfoot in London at: david.m.lightfoot@guycarp.com or Dr. Frank Achtert in Munich at: frank.achtert@guycarp.com.

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