Smaller firms preparation for Solvency II may have slipped behind their bigger counterparts, the Prudential Regulation Authority's director of insurance has warned.
Julian Adams spoke at an industry briefing in London on December 12, and subsequently the PRA released a statement - Solvency II: applying EIOPA's preparatory guidelines to PRA-authorised firms' - clarifying its expectations of firms over the next two years.
Adams noted that delays to the Solvency II timetable had made it difficult for insurers, but said there was now certainty on the timetable for implementation. He added that both the PRA and insurance firms will need to 'step up' their work to have everything in place 'to be truly ready', by January 1 2016.
Adams said he realised that the delays meant a number of firms downsized their Solvency II programmes and reallocated resources to other initiative and priorities. He said now is the 'time to reassess priorities and make a concerted push to be able to demonstrate compliance with the new regimes two years from now'.
To successfully apply the European Insurance and Occupational Pension Authority's preparatory guidelines to PRA-authorised firms, Adams said the regulator expected 'all firms - including smaller firms - preparations to be made in a way that is appropriate to the nature, scale and complexity of their business'.
He continued: 'This is what we mean by proportionality. It does not mean that firms can select which requirements to comply with or not. When it comes to groups, we will be asking firms to have discussions with their supervisor on how they intend to plan to be ready for the new regime and the specific requirements it places on groups.'
Adams also said that, although two years seemed like a reasonably long period of time to prepare, firms should not be complacent. He said: 'Working backwards - and taking into account the time needed to make decisions - shortens [the preparatory period] markedly from 24 months to closer to 15 months - which ties in with transposition on 31 March 2015.
'If our experience of Solvency II is the same as for the introduction of the ICAS regime in the UK - and taking into account transitional arrangements - we may be looking at the best part of a decade for us and firms to be able to use the regime.'
Adams also said that the PRA expected insurance firms to be ready six months before the implementation date. He said firms needed to 'submit their reports in July 2015 which will be in line with the usual half-yearly financial reporting cycle for the majority of firms'.
But Rob Murray, a partner at actuarial and financial consultants LCP, said that the PRA's requirements did not really leave firms much time to prepare.
He said: 'Those firms who are not yet well advanced with their plans are likely to find the next 18 months a challenging time.'
Cherry Chan, partner and head of general insurance at Barnett Waddingham, observed that it was smaller insurers who had had more work to do to ensure compliance with the regulations when Solvency II comes into force.
'While a lot of the bigger insurers have made good progress with their reporting and own risk and solvency assessments, we've seen very few smaller insurers having made the same progress. These companies need to up their game over the next two years,' she said.