While UK life insurers are on track to meet Solvency II requirements they remain under considerable pressure, despite the 12 month implementation delay, primarily due to the lack of clarity about the final requirements.
KPMG’s annual Solvency II Benchmarking Survey for life insurers reveals that documentation, uncertainty over transitional arrangements and Own Risk and Solvency Assessments (ORSAs) are the top three challenges facing the industry.
John Jenkins, insurance partner at KPMG, comments “The fact that 78% of respondents believe their implementation projects are on track is positive. However there are still significant challenges facing life insurers, and now is not the time to become complacent. The lack of guidance provided so far by the European regulators remains a problem and while the 12 month implementation delay gives insurers more time, firms urgently need clarity as the lack of specific guidance is stunting the progress of many programmes. In many respects the year’s extension may mean a further delay in clarification which is bad news for the industry.
External reporting challenges arising from Pillar 3 were identified as a key challenge, with 56% of insurers confirming that significant work is still required. Additionally, the preparation of ORSAs remains a major concern. 90% of respondents will be producing a formal ORSA report on an annual basis and 40% will be assessing their solvency position against their ORSA every quarter. Given that the majority are also planning to start their ORSA dry runs by the end of this year time is running out. Both insurers and regulators must work together to ensure deadlines are met and that clarity on outstanding aspects is gained quickly.
Further it is no surprise that documentation is the most common area identified as needing attention with over half of life insurers highlighting this as a key implementation challenge. Given just over one quarter (27%) are still in the early stages of meeting the internal model documentation requirements, this is an area that needs immediate attention.
“Over the past six months, insurers have started to assess the wider business implications in more detail. As the capital impact of Solvency II becomes clearer and risk models provide better information, insurers will start to reassess the economics of their businesses and re-evaluate their strategies. As part of this process, we expect insurers to begin to really assess and take action on which markets they wish to be in and what prices they intend to charge in the light of the new regulatory requirements. There is still significant market change yet to come as this process happens across the industry.”
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