PwC comments on the FSA’s publication of two consultation papers on the transposition of Solvency II and Solvency II and linked long-term insurance business. These proposals follow yesterday's EIOPA consultation on reporting under Solvency II.
Although the Solvency II Directive has not been finalised, the FSA believes it is the right time to start consulting on transposition to allow both firms and the FSA itself enough time to prepare for implementation. Another consultation is expected at some point in 2012 to incorporate any changes brought in by the adoption of the Omnibus II Directive and level 2 implementing measures and, more importantly, to consult on national level reporting templates.
Jim Bichard, insurance partner at PwC, said:
“The consultation provides useful clarity over the implementation of Solvency II in the UK and member state options. The FSA estimates Solvency II will cost the UK insurance industry £1.9bn to implement, with £200m annual costs to maintain compliance post implementation. This provides a stark reminder of the scale and challenge of the task ahead for insurers.
“The FSA has limited scope for discretion on how Solvency II is implemented and much of this will be dictated by the adoption of Omnibus II and national level reporting templates, which are expected in 2012. The FSA is using this opportunity to articulate how the new UK regulatory reform model will align with the Solvency II regime.
“The proposed changes to the permitted links rules will expand the range of assets that can be used by insurers writing linked business. This may give these insurers the opportunity to develop new offerings to their linked policyholders.
“Small insurance firms (mainly friendly societies) that fall outside the scope of the Solvency II Directive will now be able to apply to comply with the requirements, but this will not be enforced. A review of the handbook to apply to these non-directive firms will be carried out post Solvency II implementation.
“Composite insurers will be pleased that the FSA has confirmed that the concept of a long term fund will disappear under Solvency II as this will allay fears that maintaining this concept would result in ring-fencing of the long-term fund, which could place composite insurers at a competitive disadvantage.
“The biggest challenge for most insurers will be digesting the huge amount of Solvency II-related consultations and understanding how the proposals affect their implementation plans and on which areas they should aim to respond to the consultation to try to influence the final requirements.”
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