Responding to the results of the fourth Solvency II quantitative impact study (QIS4) published by CEIOPS and the FSA today, Deloitte, the business advisory firm, identified some key areas that still need to be resolved ahead of the introduction of the new capital regime in 2012.

Catherine Barton, insurance partner at Deloitte said:  "The QIS 4 results have been published at a time when the insurance industry is facing massive economic uncertainty. Insurers, regulators and analysts need to consider whether the analysis and planning done so far for Solvency II stands up in the current economic climate.

"Further consideration should be given to the quality of capital. Recent market developments, including the emergence of the sub-prime crisis, may influence the views of what types of capital are appropriate when considering Insurers' solvency. There is a pressing need to understand the real risks of different asset classes.

"In our view, CEIOPS should reconsider the findings of the QIS studies to date in the context of the current economic climate to ensure that the proposals are sufficiently robust. For example, 13% of companies said they plan to use the standard formula when calculating their capital, but questions are now being asked about whether the calibration of the standard formula is sufficient.

"There is still a lot of work to be done between now and the planned implementation date in 4 years' time. Concerns remain regarding the interaction of the IFRS accounting standards, national GAAP and Solvency II balance sheets. How companies will transition themselves and the changing shape of their balance sheet for a Solvency II basis will differ between countries. The tax implications still need to be considered, as do reporting considerations. This is a challenge for not just insurers but also for analysts. Understanding this change will be very challenging and companies need to start preparing for this change now.

"In the results of QIS4, there is no clear indication that any further impact studies will be undertaken. However, given the recent economic developments, regulators will need to review critically the proposed framework to ensure it is sufficiently risk sensitive. Whilst US and Asian regulators have been closely monitoring the progress of the Solvency II proposals, the global nature of the insurance industry means questions are now being asked about whether the regime should be extended beyond Europe to a global basis. Solvency II, if implemented robustly, has the potential to shore up the balance sheet of the insurance industry across not just Europe but globally."

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In this press release references to Deloitte are references to Deloitte & Touche LLP which is among the country’s leading professional services firms, providing audit, tax, consulting and corporate finance services. Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein whose member firms are separate and independent legal entities.  Neither DTT nor any of its member firms has any liability for each other’s omissions.  Services are provided by member firms or their subsidiaries and not by DTT.  Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.  The information contained in this press release is correct at the time of going to press.