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 The Solvency II Framework Directive has now been passed by the European Parliament and the meeting of ECOFIN on 5 May is also expected to approve the regulation.
Phil Smart, KPMG’s Head of Solvency II in the UK, said: “The insurance industry now has a clear framework against which insurance regulation will be constructed in the future. This is a watershed event and one that should reinvigorate Solvency II implementation planning. Critically, the EU has confirmed that the implementation date for Solvency II remains October 2012, despite the delayed vote. Therefore, insurers have only a very short lead time to put in place what is required under the new regime and need to take action now.”
KPMG believes there are three key priorities on which UK insurers must focus in the coming months as they grapple with the weight of consultation papers from CEIOPS and the FSA, which support the Solvency II Framework.
Understand business strategy impacts
Solvency II will likely have a profound impact upon insurers’ business models and strategies. The removal of group support from this directive has taken away some of the potential capital advantages which could have otherwise been available to well-diversified groups. KPMG, therefore, expects that many insurance groups will have critical decisions to make on the structure of their insurance operations and group. Furthermore, as insurers consider the capital impacts of the current business strategy more fully, KPMG anticipates that many will seek to identify ways of optimising this, including the business mix and reinsurance arrangements, so as to remain competitive.
Undertake a comprehensive gap analysis: a critical task
Irrespective of whether an insurer intends to seek internal model approval or not, Solvency II implementation plans and gap analyses should be drawn up and finalised. Solvency II is not just about internal models. The exacting standards in respect of risk management and governance will require much more than a cursory review by all insurers over the next few years. Insurers will need to determine their business vision under Solvency II, and develop clear implementation timelines to deliver against their objectives and meet the necessary standards for compliance.
Secure senior management buy in; plan for cultural change
KPMG is clear that Solvency II will be pervasive throughout an insurer’s operations and this has been reinforced by the FSA in its communication with the UK insurance market. Insurers should seriously consider how they will achieve buy-in from senior management in delivering the Solvency II programme and managing the necessary operational and cultural changes that will be required. As prior experience has shown, the resources, both financial and non financial, that will be needed to support these plans should not be underestimated.
Smart concluded: “Solvency II fatigue is a real danger for the industry. The development of the regime is far from complete so insurers will need to carefully consider the detail of the implementing measures and further FSA guidance expected in the coming months.”
www.kpmg.co.uk
•Date:24th April 2009• Region: UK/Europe •Type: Article •Topic: Financial sector BC
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