Complacency amongst UK insurers about the impact of Solvency II, and a failure to take part in the Quantitative Impact Studies (QIS) taking place, risk the UK losing its established advantage as a leading insurance market in Europe, according to Deloitte, the business advisory firm.

Yesterday, CEIOPS launched QIS 4, the fourth in a series of detailed technical studies investigating the structure and calibration of the Solvency Capital Requirement calculations under Solvency II regulations. In previous studies, participation by UK insurers has been lower than hoped, with many insurers believing that the effort required was too high.

Commenting on the latest consultation phase, Rick Lester, insurance partner at Deloitte said: “QIS 4 provides probably a last chance for those UK firms who have shown a certain amount of apathy and complacency in previous QIS exercises to understand and shape the capital adequacy standards by which all EU firms will be regulated from 2012. 

“Many critical areas are being tested this year, such as the use of internal models, diversification benefits under group capital support and the much debated Minimum Capital Requirement calculations. UK insurers have already gained valuable experience in developing internal models through the ICAS regime. However, QIS4 provides an excellent opportunity to compare and align existing capital models to the proposed Solvency II architecture and to consider how these can be embedded to support the wider reporting disclosures under Solvency II” said Lester.

The approval process for internal models is clearly an important area going forward. According to a recent Deloitte Solvency II Survey, 86% of the participants are planning to use either a full or partial internal model for Solvency II.  A questionnaire on internal models has been included in QIS4 to gather information regarding the state of development.

Alex Marcuson, a director in Deloitte’s insurance practice specialising in internal models, said: “A significant number of insurers have been put off by the complexity of the analysis that the QISs have appeared to require.  In fact, the key for insurers is to take an 80/20 approach to find out which bits really matter for their business.  This is particularly important for those insurers who do not think that they will be in a position to get regulatory approval for their internal models by 2012 or those who plan to rely on the   standard formula approach.  For them, limitations in the calibration of the Solvency II standard formula may result in straight additions to their capital requirements.”

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