Solvency II briefing: survey results

Deloitte conducted a survey on Solvency II among market participants during its briefing on 15 September 2009. The results indicate there is a broad variation of preparedness across the industry. Given the scale of work involved and the compliance timeframe, companies have much to plan for to ensure they can break down their progress into manageable steps.

Forty-four responses were involved, covering direct insurers, reinsurers and captive companies in life, non-life, health and composite sectors.

Internal planning

In terms of the general state of Solvency II internal planning, things were reasonably positive, with 64% stating they had established an internal team to consider Solvency II implications. Included in these were the 9% who confidently said they had developed and implemented a detailed strategy towards Solvency II and its implementation. However, 25% said they have done little to date and for them there may be much to learn. At least some 45% had responded to the Financial Regulator’s Letter of 5 August 2009 but as the survey included many more who should have responded – captives have until November – some may be getting reminders shortly.

Benefits of Solvency II capital model

Most of those surveyed were positive in their attitude to Solvency II, with 68% seeing the benefit of a greater awareness of risks and financial linkages within their company and 66% thinking it will improve capital management and planning.

QIS involvement

Many in the survey had increased their Solvency II planning over the years, with some 64% taking part in the QIS4 exercise and improvement over the 43% who took part in QIS3 (internal exercise and/or submission). What was surprising was that only 59% intended to take part in QIS5. This is planned to be the final QIS study before full implementation in 2012. This QIS5 is expected to be very close to the finalised Solvency II SCR model and we would expect that many regulatory authorities will be expected or demanding the highest possible response rate.

Standard vs partial/internal model

Only 14% of the respondents had decided to go for a full internal model approach, while 41% had decided that the standard model would meet their needs best. Some 23% were electing to go for a partial internal model but 23% had not yet made a decision on which model to use. For those electing for a full or partial model it will require regulatory approval ahead of Oct 2012; most regulators are asking for companies to contact them early to discuss the details, plans and processes for approval testing.

Main priorities for Solvency II

Those responding saw the subject of risk governance as being the number one priority, with documentation and applying standard model as being the other key focus areas. Training and data/reporting issues were next on the list of importance. This is certainly consistent with an acceptance of the equal importance of the three Pillars of Solvency II.

Major skill gaps and challenges

On the question of the major skill gaps and challenges facing the industry in its preparation for Solvency II, training and involvement across the whole of the company was considered by 57% as the major issue. A further 52% saw challenges in ensuring there was a full understanding of the SCR risks and their interaction. Thirty-two per cent expressed concern about the general level of clarity and lack of information, while a similar number felt that ensuring data and reporting systems were Solvency II compliant was a serious challenge.

IFRS involvement

With one of the principles of Solvency II to be compatible with IFRS, those 51% who said they were already on IFRS may have an easier time adapting to Solvency II. The 3% who intended to integrate or align their preparations for SII and IFRS may find things easier than the 24% that had separate projects in place for Solvency II and IFRS, unless they share some of the development challenges and ensure structures are compatible. The 22% with no IFRS plans in place yet might have a lot of work to do over the next few years.

In summary, the majority of the insurers, reinsurers and captives present at the briefing were aware of the challenges that face them with Solvency II and the significant level of effort that will be required to ensure implementation is smooth. The danger is that October 2012 will come around very quickly, particularly for those who are not getting their preparations well in hand. For those in that position, they will need to make a significant investment of effort and time to ensure the October 2012 target is met.

Deloitte’s new Solvency II website aims to provide a useful link to recent Solvency II developments and offerings that will aid and assist companies in their preparation for Solvency II.

Deloitte has gap analysis tools for setting and validating risk and process governance requirements and has developed a simple Pillar I analysis tool for non-life insurers, reinsurer and captives based on their Irish regulatory returns.

Please contact Dick Tulloch on T +353 1 417 2576 if you have any questions or concerns about Solvency II and your company’s preparation for October 2012.