Solvency II proposals have been severely criticised by analysts for placing insurers in a "hazardous" position.
In a new position paper by the EDHEC Business School, researchers have warned that the approach being suggested by the Committee of European Insurance and Occupational Pensions Supervisors could be "hazardous" for insurance companies.
The paper focused on certain aspects of modelling suggested by the committee on behalf of the European Commission and included within the Quantitative Impact Study 2, which lays out proposals for the basis of a standard solvency formula.
The paper's authors, Philippe Foulquier, director of the EDHEC Financial Analysis and Accounting Research Centre, and Samuel Sender, research associate with the EDHEC Risk and Asset Management Research Centre, said: "In light of the changing face of risks and how they are perceived, the existing prudential rules are totally inadequate and the European Commission has established a vast project to overhaul the methods used for calculating the solvency of insurance companies."
The choices of concepts, measures and calibrations for the solvency formula were not only hazardous, but above all could lead to strategic management decisions being taken by insurance companies that were totally at odds with the goal of controlling financial risks put forward in the Solvency II project, said analysts.