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21st October 2012

Survey indicates insurer progress on Solvency II

While 57% of insurers across Europe think they are on track to comply with Solvency II by January 2014, readiness varies significantly country by country, according to the Ernst & Young European Solvency II Survey, a survey of 160 large insurance companies across Europe.
70 to 90 of British, Dutch, Greek, Polish and Spanish insurers (self-assessed) expect to be ready to comply before 1st January 2014; whereas 60% to 70% of Belgian, French, German and Italian insurers won’t be ready until after 1st January 2014. However, while almost 90% of respondents are on track to meet the 1st January 2015 deadline proposed by the European Commission, 34% of German, 17% of Italian and 13% of Spanish insurers do not think they will be ready to comply until after 1st January 2015.
Pillar 3 is insurers’ biggest compliance problem
Readiness for Pillar 1 is fairly consistent across Europe, with insurers in almost all countries saying that they will meet most Pillar 1 requirements. Readiness for Pillar 2 is more divided–insurers in the UK, Germany and the Netherlands are confident that most requirements will be met but the rest of the market is only on track to partially meet the requirements. Readiness for Pillar 3, however, is lagging. 80% of respondents acknowledged that they have made little progress to date not in meeting the Pillar 3 requirements. Insurers in Britain, France and the Netherlands are relatively well prepared in comparison to others, but even in those markets 60% to 70% of insurers have yet to meet most of the requirements for Pillar 3.
Martin Bradley, partner in Financial Services and Global Solvency II lead at Ernst & Young comments “We know from those organisations that have started their Pillar 3 projects, the emerging data deficiencies and significant process, control and IT challenges present an ambitious target to achieve within the current timeframes.”
Only 17% of insurance companies have formally assessed their risk management systems and determined their effectiveness in relation to outcomes.
Martin says “There is a risk that respondents have overestimated their readiness for Pillar 2, perhaps by placing greater emphasis on the existence and nature of a component than on the effectiveness of their risk management systems.”
Nearly 69% of insurers say they have only met some or have not yet met any of the Solvency II data management requirements. 81%are struggling in particular with data integration standards and their applications across group and external partners.
Jan Leiding, partner in Financial Services at Ernst & Young says “Making the data landscape work requires firms to integrate multiple complex IT systems and is a massive challenge. The survey shows that progress in implementing appropriate ownership, governance and controls is particularly slow. The shifting EIOPA deadlines have offered excuses but these will be viewed as fundamental failings and now require prompt attention.”
70% of insurers plan to focus on a range of capital optimization strategies during 2013 and beyond. Almost 50% of respondents are already working on asset matching and hedging strategies and counterparty credit risk management.
Martin says “Capital optimization is too important for insurers to wait for either complete certainty in the rules or a full set of metrics to explore opportunities. Instead they are engaging in activity where the impact is either relatively certain or where they see an opportunity to mitigate a negative impact of Solvency II.”
Our survey shows that half of respondents are now developing partial or full internal models. Insurers currently estimate an average decrease in SCR of 16% from using an internal model and many insurers expect the savings to be much more substantial: 26% of insurers expect their SCR to decrease by 20% to 30% and 14% of insurers expect it to decrease by more than 30%.
Meanwhile, EIOPA chairman Gabriel Bernadino, speaking to the Wall Street Journal, predicted a start date delay of one or two years, with the latter being more likely.