Nearly 80% of European insurers expect to meet Solvency II requirements before January 2016, according to EY’s European Solvency II Survey 2014. Overall, Dutch, UK and Nordic insurers are the best prepared, while French, German, Greek and East European (CEE) insurers are less confident.
The survey of 170 insurance companies, conducted in the Autumn of 2013, is an update of EY’s 2012 pan-European survey and spans 20 countries including Europe’s largest insurance markets. The findings reveal a consistently high state of readiness to implement the Pillar 1 balance sheet and fulfill most of Pillar 2, systems of governance, but Pillar 3, the reporting requirements, still presents a major challenge.
Martin Bradley, EY’s Global Insurance Risk and Regulation leader, comments “Postponing the Solvency II regulatory deadline to 2016 has bolstered insurer confidence that they can meet the requirements in the timeframe. However, as companies become more realistic about their implementation readiness, it is clear that some are less prepared than they had expected-many simply delayed their plans by at least one year, which might cause them issues now. While insurers are sending a strong message that they are seeking to improve their risk management effectiveness, they have a long way to go in terms of reporting, data and IT readiness.”
Insurance companies appear to be generally well prepared on all aspects of Pillar 1, with French, Dutch and Italian companies approaching compliance and Greek, Portuguese and Central Eastern European insurers showing a lower level of readiness. However, nearly 85% of respondents see room for improvement in the effectiveness and/or efficiency in meeting Pillar 2 requirements.
Martin says “Insurers know that they need to tackle embedding risk culture at the front line more effectively. The top four improvements identified by insurers as delivering improved risk management effectiveness all related to interface with the front line, but these changes were also ranked as being the hardest to achieve.”
For another key element of Solvency II, the Own Risk and Solvency Assessment(ORSA), there is a significant spread in readiness from lowest to highest by country. The Netherlands, Nordics and UK are more prepared, with Greece, Portugal and CEE less prepared.
Almost 76% of respondents say they have yet to meet most or all Solvency II reporting requirements(only a marginal improvement compared to 80% in 2012). Martin says: “The level of implementation readiness has made little progress since 2012. Uncertainty in implementation and timing delays may explain the lack of progress but it is now critical to accelerate these projects in 2014. Given the current status, the reality for many is that the 2015 transitional reporting will need to be done largely on a manual basis.”
Data and systems readiness for Pillar 3 continues to lag behind Pillars 1 and 2. Only 25% of insurers have selected or designed a system to meet Pillar 3 requirements, and 66% of respondents note that data and systems are not designed to support ORSA assessments beyond the normal reporting cycle.
Jan Leiding, partner in Financial Services, Europe, Middle East, India and Africa at EY, adds “Not surprisingly, the decision to freeze or place programmes into “business as usual” means that only limited progress has been made in data and IT across all pillars in the last 12 months. Rapid gap assessments, prioritization and strong project leadership are needed to meet deadlines.”
Given the two-year delay in Solvency II implementation, insurers appear more confident in the approval of their models for day 1 use; 67% of the companies surveyed believe they will be ready. This reflects the extra time they have had to finalize their programmes.
As a general trend, the proportion of insurers planning to use a (partial) internal model has dropped since the previous EY survey. However, partial internal models have shown the most noticeable reduction, and companies adopting full internal models are more likely to be continuing with their plans.
While the overall frequency of interaction with regulatory bodies is considered largely adequate, insurers expect more in terms of support in the interpretation of regulatory requirements(79% are not satisfied) and in terms of the amount and quality of feedback on company-specific implementation(75% are not satisfied). This might reflect the fact that supervisors are understaffed as they cope with the new regulation. In addition, 61% of the surveyed insurers are not completely satisfied with the size of their supervisory teams.
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