Solvency II Readiness in the Insurance Market

Written by 
Rate this item
(0 votes)

There is no doubt that Solvency II is making a huge impact on the Insurance Market in terms of demand for specialist resources, system and data improvements and changes to capital requirements but just how well are the preparations for compliance progressing?


To find out how various organisations are progressing towards compliance we have been talking to our insurance clients to get their views on Solvency II, their state of readiness and their confidence of achieving compliance.  All conversations were conducted on an anonymous basis.

On a general level, all organisations we spoke to were 100% confident of achieving the end goal of Solvency II compliance although we observed a myriad of approaches that are being taken, ranging from the very sophisticated to the slightly more simplistic.  We were pleased to note that the majority of organisations have established strategic committees to organise and tackle the increased workload and have made an initial internal assessment of their capability, taking on extra resources to cope with the demands.

Whilst most people that we interviewed were, as expected, extremely familiar with the 3 pillars of Solvency II, most of them reported that their organisations are now focussing a combined effort across the entire programme rather than on the individual pillars.

During our research a number of themes emerged:

1)    The majority of firms are well prepared. 

   We found that;

  •  
 

Whilst the final deadline is still some way off, a number of organisations that would like to be compliant for the start of 2011 are now admitting that this is looking increasingly less likely.

  •  

2012 does seem achievable, well in time for the 2013 deadline date.

  •  

Changes requiring new procedures are taking priority over the fine tuning of existing procedures but getting the data correct is still seen to be the highest priority and the most difficult to get right.

  •  

 

The advice provided so far by the Committee of European Insurance and Occupational Pension Supervisors (CEIOPS) in their Quantitative Impact Studies (QIS) has been helpful in providing a platform upon which insurers can communicate to their Executive Board the importance of compliance from both a regulatory survival viewpoint as well as from a best practice and good governance basis.

  •  

Organisations have identified the need to establish stronger contractual terms with suppliers with regards to providing information and access that will be required by the regulators as well as being more aware of how the performance of those suppliers can affect the business of the insurer.

 

2)    On the whole Solvency II is proving to be a very useful enabler. 

   We found that;

  •  

Without exception the organisations that we spoke to are investing in improving systems and data as a direct response to the demands of Solvency II.

  •  

Without Solvency II many projects would still be on hold.

  •  

A relatively small number of organisations are replacing or re-engineering their existing back office systems in order to comply with Solvency II.

  •  

Solvency II has been a much needed catalyst for the approval of capital expenditure.

  •  

IT projects that are not related to Solvency II are suffering as a consequence.

  •  

Organisations in the run-off market feel that Solvency II does not bring much value or benefit and that compliance is just an extra cost.

 

3)    Assistance from the regulator could be improved.

   We found that;

  •  

The latest Quantitative Impact Study (QIS 5) is causing frustrations and confusion as capital requirements are expected to increase as a result.

  •  

More information is required in a timelier manner, especially around the interpretation of the requirements of Pillars 2 (governance and risk management) and 3 (disclosure and transparency).

  •  

Common feeling is that the regulator is at times somewhat of a bottleneck, the effect upon insurers being felt for example in the late distribution of the final updated QIS 5 spreadsheets.

  •  

In general, organisations believe that they are getting better value from the use of several distinct external specialists but are still using internal resources to manage the process in order to retain control.

  •  

A number of people said that they would like more guidance with specific requirements. The majority of organisations are finding that the completion of their internal model is extremely complex and time consuming.

 

It would appear that on the whole the insurance market has its ducks in a row although some of the confidence that we experienced could well be thinly masked bravado.

Perhaps recent press reports concerning the flaws contained within the Solvency II directive and the predictions of further delays and possible postponements of the legislation are giving organisations a false sense of security?

For further details of our research and our Solvency II readiness assessment model contact This email address is being protected from spambots. You need JavaScript enabled to view it.

Brian Browne

Business Development Director and Capital Markets specialist, Wisereach

 View Brian's LinkedIn profile View Brian's profile