On 15 April 2010, the European Commission (Commission) published for consultation draft technical specifications for the QIS5 exercise.

The draft QIS5 technical specifications are based on those produced by the Committee of Insurance and Occupational Pensions Supervisors (CEIOPS) for the Commission. The Commission notes that it has taken into account the argument that the CEIOPS specifications, if adopted unchanged, would have resulted in a significant increase in capital requirements as compared to the last quantitative impact study that was undertaken (QIS4). As a result, amendments have been made to the relevant risk free rate for calculating technical provisions, the eligibility of own funds and the calibration of the standard formula Solvency Capital Requirement (SCR).

Of particular interest, at paragraph OF.30 of the draft QIS5 technical specifications, is that the proportion of Tier 1 capital items must be at least 50% of the SCR. There had been some expectation that Tier 1 capital would be required to be at least 60% of the SCR. This amendment will make Lloyd’s compliance with Solvency II less onerous, since it currently holds a significant proportion of its capital as letters of credit, which are designated as Tier 2 capital.

Comments on the draft QIS5 technical specifications are being sought from selected stakeholders. The QIS5 exercise is expected to run between August and November 2010.

The draft technical specifications for QIS5 can be found at http://ec.europa.eu/internal_market/insurance/docs/solvency/qis5/draft-technical-specifications_en.pdf.