Timetable for Solvency II is on knife edge, warns ABI

The delivery of the European Commission’s timetable for implementing Solvency II will cut it very fine, the ABI warned this week, following the publication of the results of the latest test run.

Insurance regulator Eiopa published Quantitative Impact Study 5 (QIS5), which assesses the impact that the new directive’s rules will have on European insurers’ balance sheets

this week. It shows that while insurers and reinsurers have less surplus capital available than under the existing Solvency I framework, this figure is largely wiped out if the companies apply internal models and the commission’s proposed transitional measures.

According to Eiopa’s QIS5 results, insurance groups have €86bn (£74.7bn) less surplus capital available – a reduction of 44% – than they would have done under Solvency I. This figure comes down to €3bn once bespoke internal models and transitional measures are used.

Overall, Eiopa says QIS5 demonstrates that the financial position of the European insurance and reinsurance sector is “sound” under the proposed Solvency II framework.

But it shows that a fifth of UK companies, including a concentration of smaller insurers, would not meet the new directive’s more demanding capital-raising requirements.

But ABI director of financial regulation and taxation Peter Vipond raised concerns over the timetable for implementing Solvency II outlined in the commission’s recently published Omnibus II framework of transitional measures.

According to the commission, insurers are meant to implement the new directive by 1 January 2013.

Vipond said: “The current schedule – in view of Omnibus II – is on a knife edge in terms of what is practically achievable.”

KPMG insurance partner Ferdia Byrne backed up Vipond’s concerns. She said: “This could be a significant challenge in some areas, especially as the European parliament is not planning to finish its considerations of Omnibus II until November 2011.”

But Moody’s senior credit officer Dominic Simpson commented that the QIS5 results mean another such field exercise will not be needed.

He said: “We view the QIS5 results cautiously, but believe that the QIS5 results at a sector level are better than the market expected and probably preclude the need for another comprehensive field test.”