By Tim Edwards, Director, Insurance and Investment Management, PwC
What we found was that the London Market is broadly well prepared for Solvency II, as a result of the extended implementation date to 2016, but some concerns remain. The Lloyd’s market is generally better prepared than the wider London market, with credit being given to the clarity of messaging by Lloyd’s, and the imperative to recognise and respond to at least Pillar 1 and Pillar 2 requirements. To give more of a breakdown:
Pillar 1 – 75% readiness
Given the early focus on Pillar 1, as well as the experience gained under the ICAS regime, it is not surprising that Pillar 1 activity is generally very well progressed (with a few exceptions). All firms were able to explain their Solvency II SCR appropriateness, in the context of their risk profile, and in comparison to their ICA. There is a very good understanding in the market of the differences and challenges that result from different bases of valuation (e.g. IFRS, US GAAP, Solvency II).
Pillar 2 – 80% readiness
Solvency II’s Pillar 2 regime is, in many respects, a further iteration of existing UK requirements, and so the market is generally well placed. There is no discernable difference between the Lloyd’s and wider London market in most elements of Pillar 2 preparations, and we expect that Solvency II compliance will be achieved to the standard required by 1/1/16.
Pillar 3 – 20% readiness
Across both the Lloyd’s and London markets, Pillar 3 is considered the least well developed. The 2013 hiatus in Solvency II work is largely responsible for this. As a result, the market generally is going to struggle to be ready for 1/1/16 implementation. In a PwC industry meeting in late 2013, over 90% of some 80 firms present identified Pillar 3 as their major concern. In the London market, there was recognition from several firms that they have a key dependency on stable Pillar 1 (modelled) output, which adds further complexity. Solvency II will provide opportunities for analysts, investors, rating agencies and journalists to compare firms, and draw conclusions about performance and strategy – the implication of this on firms did not appear to be at an advanced stage.
What is clear is that there are still some important things to tick off the SII task list, namely:
• Review all Directive requirements to ensure that ‘3 pillars’ approach has not created programme gaps
• Ensure fully costed and resourced plans are in place to conclude the implementation of Solvency II
• Internal models (where applicable) that are under ‘business as usual’ include full use, cyclical validation and change control – or at least a plan to achieve that status
• Ensure requirements of EIOPA’s Preparatory Guidelines are met - a useful interim step, especially for those firms with most to do. Many firms have – rightly - chosen to base their preparations on the final implementation requirements, picking up any Preparatory Guideline requirements along the way (e.g. interim reporting regime). Firms should therefore consider their roadmap to implementation.
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