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Are you ready for Solvency II?
The industry has generally been supportive of a higher standard of regulation,
but is increasingly worried about the true costs and implications of
implementation. In particular there is a concern that the final form of the new
regime could be unduly influenced by what some see as regulatory paranoia.
In recent months, captive and run off players have complained about a lack of
recognition of the issues which impact on their particular sectors. The European
insurance federation, the CEA, has been critical of many aspects of the project
for some time and has predicted dire consequences if the rules are implemented
as currently proposed. Some of the bodies which represent insureds are worried
that the regulations may harm consumers by driving up premiums and reducing the
number of competing (re)insurers in the market.
There have been calls for the timetable for implementation to be extended to
allow for real world testing of the new regime. In early March, the head of the
German insurance watchdog Bafin suggested the go-live date be put back to 2013.
Thomas Steffen (a former chairman of CEIOPS) said "when it comes to Solvency II,
I advocate the principle of quality before speed". This sparked press conjecture
that the timetable might indeed be put back.
The European Commission's response to this speculation was swift and
unambiguous. Unleashing the forces of (Karel Van) Hulle at an Insurance
Institute of London lecture, the point was unequivocally made - Solvency II will
come into effect in October 2012 and there is no room for negotiation.
If resistance is useless, although firms can lobby to try to influence the
regulations' final form, they need to remain focused on being ready in time and
on trying to make the best of the opportunities that being compliant from day
one can offer.
Fully integrated internal models which satisfy the "use test" should help in the
management and decision making process. Increased data and information
obligations can drive improvements in information technology infrastructure - it
was recently suggested that IT accounted for 40 per cent of Solvency II spend.
The enhanced reporting and supervisory obligations will improve transparency and
could enable well run firms to better communicate their messages. Firms which
have fully engaged with the demands and challenges of the new regime should be
better placed to compete on Solvency II's level playing field.
In addition to possible operational and management benefits, the capital
requirements of the new regime should prompt firms to look at the businesses
they operate and the structures they employ. Capital intensive businesses may be
disposed of or run-off, diversification and consolidation will be important
drivers and pan European restructurings with a focus on networks of branches
instead of subsidiaries may become more common. This in turn may lead to
acquisitions and disposals of companies and businesses, portfolio transfers,
schemes and the development of more effective and efficient run off and
commutation strategies.
There is a cost associated with this sort of activity but many of the changes
are not optional and the price for Solvency II related expertise is likely to go
only one way ndash indeed, the market has been compared to that for IT
specialists in the run up to Y2K.
Regulatory change is coming, and companies and groups should therefore take
advantage of the opportunity to ensure they are "fit for purpose" in the new
world.
The content of this article is intended to provide a general guide to the
subject matter. Specialist advice should be sought about your specific
circumstances.
The industry has generally been supportive of a higher standard of regulation,
but is increasingly worried about the true costs and implications of
implementation. In particular there is a concern that the final form of the new
regime could be unduly influenced by what some see as regulatory paranoia.
In recent months, captive and run off players have complained about a lack of
recognition of the issues which impact on their particular sectors. The European
insurance federation, the CEA, has been critical of many aspects of the project
for some time and has predicted dire consequences if the rules are implemented
as currently proposed. Some of the bodies which represent insureds are worried
that the regulations may harm consumers by driving up premiums and reducing the
number of competing (re)insurers in the market.
There have been calls for the timetable for implementation to be extended to
allow for real world testing of the new regime. In early March, the head of the
German insurance watchdog Bafin suggested the go-live date be put back to 2013.
Thomas Steffen (a former chairman of CEIOPS) said "when it comes to Solvency II,
I advocate the principle of quality before speed". This sparked press conjecture
that the timetable might indeed be put back.
The European Commission's response to this speculation was swift and
unambiguous. Unleashing the forces of (Karel Van) Hulle at an Insurance
Institute of London lecture, the point was unequivocally made - Solvency II will
come into effect in October 2012 and there is no room for negotiation.
If resistance is useless, although firms can lobby to try to influence the
regulations' final form, they need to remain focused on being ready in time and
on trying to make the best of the opportunities that being compliant from day
one can offer.
Fully integrated internal models which satisfy the "use test" should help in the
management and decision making process. Increased data and information
obligations can drive improvements in information technology infrastructure - it
was recently suggested that IT accounted for 40 per cent of Solvency II spend.
The enhanced reporting and supervisory obligations will improve transparency and
could enable well run firms to better communicate their messages. Firms which
have fully engaged with the demands and challenges of the new regime should be
better placed to compete on Solvency II's level playing field.
In addition to possible operational and management benefits, the capital
requirements of the new regime should prompt firms to look at the businesses
they operate and the structures they employ. Capital intensive businesses may be
disposed of or run-off, diversification and consolidation will be important
drivers and pan European restructurings with a focus on networks of branches
instead of subsidiaries may become more common. This in turn may lead to
acquisitions and disposals of companies and businesses, portfolio transfers,
schemes and the development of more effective and efficient run off and
commutation strategies.
There is a cost associated with this sort of activity but many of the changes
are not optional and the price for Solvency II related expertise is likely to go
only one way ndash indeed, the market has been compared to that for IT
specialists in the run up to Y2K.
Regulatory change is coming, and companies and groups should therefore take
advantage of the opportunity to ensure they are "fit for purpose" in the new
world.
The content of this article is intended to provide a general guide to the
subject matter. Specialist advice should be sought about your specific
circumstances.
Sulle ciofeche non entro mai deciso... 
