Out-Law News | 29 Apr 2014 | 4:06 pm | 2 min. read
Although EY's latest European Solvency II survey showed that the industry was confident about its ability to implement the new balance sheet solvency requirements by the January 2016 deadline, almost 76% of respondents said that they were yet to meet most or all of the reporting requirements. With little change in this figure since the 80% recorded in 2012, EY said that many firms would be forced to meet next year's transitional reporting requirements manually.
"Uncertainty in implementation and timing delays may explain the lack of progress but it is now critical to accelerate these projects in 2014," said Martin Bradley, head of global risk and regulation for EY.
"Postponing the Solvency II regulatory deadline to 2016 has bolstered insurer confidence that they can meet the requirements in the timeframe. However, as companies become more realistic about their implementation readiness, it is clear that some are less prepared than they had expected – many simply delayed their plans by at least one year, which might cause them issues now. While insurers are sending a strong message that they are seeking to improve their risk management effectiveness, they have a long way to go in terms of reporting, data and IT readiness," he said.
The Solvency II regime sets out broader risk management requirements for European insurers and dictates how much capital firms must hold in relation to their liabilities. The Omnibus II Directive, which completes and finalises the new framework, was approved by the European legislative authorities earlier this year and is expected to be transposed into national laws by 31 March 2015, to come into force on 1 January 2016.
EY surveyed 170 insurers in 20 countries, including Europe's largest insurance markets, in order to update a previous survey conducted in 2012. Its report found a consistently high state of readiness to implement Pillar 1 balance sheet requirements, with 80% of insurers expecting to be ready in time. French, Dutch and Italian companies were best prepared, with Greek, Portuguese and Eastern European firms less confident, according to its findings. In addition, 67% of firms believed that their capital requirement calculation models would be ready for use from day one of the new regime.
Nearly 85% of survey respondents said that there was some room for improvement in their preparations for meeting Pillar 2, internal governance, requirements, according to EY. Most of the areas of potential improvement identified by firms related to front line risk management effectiveness, according to the survey. Dutch, UK and Nordic firms were more prepared to implement Own Risk and Solvency Assessment (ORSA) processes, EY found.
However, most firms' data and systems readiness for Pillar 3 reporting requirements continued to lag behind their preparations for Pillar 1 and Pillar 2, according to the survey. Only 25% of insurers said that they had already selected or designed a system to meet these requirements, while 66% of respondents said their existing data and systems were not designed to support longer-term ORSA assessments.
Insurers also revealed concerns with the level of regulatory support they were receiving in the run-up to implementation of the new regime as part of the survey. 79% of respondents said that they were not satisfied with the level of support they were receiving in relation to interpreting regulatory requirements, while 75% were not satisfied with feedback from regulators on company-specific implementation. 61% of respondents also said that they were not completely satisfied with the size of their supervisory teams; and EY said that taken as a whole the findings could reflect that national supervisors were insufficiently staffed as part of their own preparations.