Insurers face cost burden as Solvency II is pushed back

The FSA confirmed this week that the Solvency II start date had been pushed back from the beginning of 2013 to early 2014.

Insurers are expected to run the current ICAS (Solvency I) regime alongside Solvency II during 2013. However, well-prepared UK insurers - and especially Lloyd’s - believe that will be a waste of time and money.

Instead, they want the Solvency II regime to replace Solvency I in 2013 and are now pinning their hopes on a repreive from the FSA.
ABI director-general Otto Thoresen called for clarification from the regulator. “This delay poses some specific challenges to the UK market, since the current ICAS regime would require firms to run a Solvency I internal model in 2013. The running of the ICAS model as well as preparing for Solvency II would place significant strains on resources.

“In order to avoid a duplication of work, we are asking that firms that wish to do so should be able to use their Solvency II model as a proxy for their ICAS model during 2013. An early FSA opinion on this point is required.”

PricewaterhouseCoopers insurance partner Jim Bichard said: “Many insurers are concerned that an additional year will add unnecessary costs, as companies will have to comply with, and produce data and information for, parallel regimes in 2013.

“Nobody wants a loss of momentum, as insurers have been working towards Solvency II for many years and are eager to start embedding it into their businesses.”

The readiness of UK insurers contrasts to some continental insurers, which are trying to prepare for Solvency II at a time when the sovereign debt crisis is eroding their balance sheet strength.

JP Morgan estimates that the European insurance industry would lose around 10% of its capital if insurers wrote down current assets to market value.