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The Actuary The magazine of the Institute & Faculty of Actuaries

Round-up of response to Solvency II delays

The Council of the European Union has proposed a one-year delay to the deadline for the introduction of Solvency II as part of its fourth Presidency compromise text on the Omnibus II directive.

Under the proposals, Solvency II’s legal requirements will need to be transposed into national law by 31 March 2013, and further details were announced regarding the transitional arrangements for own funds and additional guidance for the solvency capital requirement.

The full text of the Presidency compromise can be found here.

Below we round up comments from across the industry.


Paul Clarke, global head of Solvency II:
"The Council of the European Union’s recommendation that the full requirements of Solvency II should not be implemented until 1 January 2014 is an interesting step forward, but it is not the full story.

"The European Parliament still needs to put forward its recommendation ahead of negotiations between the two groups before the market can fully understand where the issues around the Level 1 text and implementation date will end.

"It is unlikely the issue will be fully resolved until later this year, so it is vital insurers press ahead with their current plans and timetable. Any distraction now could prove potentially costly in the long run."

Phil Smart, UK head of Solvency II:
"While many in the industry will welcome the delayed implementation, there is a significant proportion that have invested heavily in preparing for the original deadline and would now prefer to move quickly to the new regime. This is especially true for those who have been working over the last few years towards internal model approval and are now keen to begin seeing a return on their investment. Our preference would have been to accelerate the legislative process rather than the blanket deferral that has now been announced, and it is difficult to see how these firms will get the benefit of their early progress.

"It is very late in the process to announce delays. On 23 June, Carlos Montalvo, executive director of the European Insurance and Occupational Pensions Authority (EIOPA), confirmed at the ABI Conference that there would be no delay and yet we now have the latest draft of Omnibus II confirming a one-year delay. There is likely to be confusion about what regulators will expect to see in the "implementation plan providing evidence of the progress made" that (re)insurers will be required to submit by 1 July 2013.

"The biggest risk is that this announcement will result in the foot being taken off the pedal - both by firms in their preparation and in the legislative process. Until Omnibus II is approved by the European Parliament and the Council, this date will not be fixed in stone. We have previously expressed our concern at the speed with which the implementing technical measures are being prepared.

"We will continue to push for disclosure of the draft Level 2 text this year in advance of Omnibus II’s approval to enable firms to get better clarity on the likely final rules. It is critically important that this new proposed implementation date does not lead to delays in any of these processes, especially the timeline for Parliament’s discussion of Omnibus II, which has already been moved back a few times. Without the certainty that the Level 1 text is finally fixed, the Level 2 and Level 3 requirements run the risk of further changes. The time has definitely come to clarify the remaining issues, get certainty on the remaining transitional measures and allow everyone to progress against a stable future regime."

Barnett Waddingham
John O’Neill, head of insurance consulting:
"The date is almost certain to be pushed back to accommodate European member states that are further behind than the UK in terms of readiness for the January 2013 deadline. Other countries will not have the same sense of urgency as we do, so the FSA’s assertion that all will be on time is highly unlikely.

"This has massive implications for the costs of introducing Solvency II, both for consultancy and in-house costs as well as in terms of the uncertainty it brings. For those with in-house models, it will be almost farcical as no Regulator will ever give more than conditional approval to an own-company model.

"There will be massive disruption to markets as insurers re-align assets to Solvency II requirements.

"Greece’s economic crisis could further impact Solvency II, if Greece defaults, who is going to bail out the insurers in Greece and elsewhere? How can they manage the additional capital requirements of the Greek economy as additional capital would not be easily found throughout Europe."

Michael Wainwright, partner:
"The implications of this become quite difficult when this is applied to companies with operations in different European countries. So, a UK group supposed to implement in 2013 with a subsidiary in Germany that is not meant to implement until 2014 means their consolidated reporting will be a challenge in that interim year.

"Unless the insurance industry and regulators across Europe can be persuaded to catch up, I think the EC has no choice but to bow to their requirements for more time."


From Solvency II update by William Coatesworth, John McKenzie, Neil Cantle:
"A number of companies will doubtless welcome the extended timeframe, both in allowing additional time to develop and implement their Solvency II plans and in helping to reduce the pressure on scarce Solvency II resources. However, the proposed timeframe appears to imply that the start of both the internal model approval process (IMAP) and the process for supervisory approval of own funds will now be postponed until 1 July 2013 - a delay which will likely be met with concern from companies already progressing down this path.

"We note the statement from the FSA on 20 June 2011, preceding this draft text, stating that UK companies should continue to target an implementation date of 2013, and EIOPA’s comments that Solvency II would not be pushed back from the 2013 implementation date. Due to the timing of these releases, it is unclear whether they were written with this text in mind.

"While the change in timeframe may give both companies and supervisors welcome breathing space to design and implement their Solvency II plans, we note any resulting delay to the IMAP process may be a cause for concern amongst companies already well advanced in this area."

Star Actuarial Futures

Louis Manson, managing director:
We do not envisage any let-up in the demand for actuaries with Solvency II expertise. However, such a delay could affect the balance between consultancy support, contract resource and permanent staff deployed by European insurers for Solvency II projects. Our advice to companies: Be decisive and positive in your Solvency II appointments. Our advice to candidates: Find a role that will give you the maximum opportunity to learn and influence during this key period for the insurance industry.

Financial Services Authority

Omnibus II update - 24 June
As part of the ongoing negotiations in Europe at Council level, discussions have taken place on whether general transitional provisions are needed to delay the implementation of the new regime. This is in light of the challenging timelines and the need to ensure sufficient time is given for all supervisory processes to be in place when the regime is implemented.

In this context, several proposals have been discussed under the Hungarian Presidency, in particular:

1. Bifurcation of the Directive.
1 January 2013 would remain the date at which the responsibilities of supervisors and EIOPA would be switched on (ie. transposition would have to be complete by 1 January 2013), but Solvency II requirements would not be switched on for firms until 1 January 2014. In the intervening year firms would continue to be regulated under the existing regime, firms’ progress towards Solvency II would be monitored by supervisors and firms and supervisors would be able to complete the necessary approval processes (eg. internal models, ancillary own funds).

There are two variants to this proposal:

a) "Best efforts" Solvency II reporting on key indicators of readiness during 2013 to allow supervisors to monitor firms’ preparations for Solvency II; or

b) Full Solvency II reporting during 2013.

2. Derogation of the SCR for one year from 1 January 2013.
Solvency II would go live as expected on 1 January 2013, but firms could derogate their SCR during this first year without disclosing this to the market. They would have to notify their supervisor and submit a recovery plan to them, which if approved would effectively allow them to enter an extended recovery period until 1 January 2014.

At this stage there is no agreement on any of these proposals. Discussions will resume under the Polish presidency, which will start in July 2011. Should Council reach an agreement on this issue, their proposal would need to be endorsed by Parliament to be formally adopted as part of the Omnibus II Directive.

Consequently, we continue to work on the assumption that the implementation date is 1 January 2013.

A number of specific transitionals have also been proposed and are subject to the same European policy adoption process. As such firms should continue their preparations, making clear assumptions and building flexibility into their plans so they can update them as more information becomes available.

We appreciate that firms are progressing their implementation plans, including those going through the internal model approval process. We are currently assessing the impact of the draft proposals and will continue to provide further clarification when we have a greater degree of certainty.