Solvency II implementation date pushed back
Insurance industry professionals will unlikely be surprised to learn that the FSA has revised the implementation date of Solvency II to the 1st of January 2014.
FSA Revised implementation assumptions
Given industry rumours surrounding Solvency II delays it came as no surprise that on 3rd October the FSA announced its revised implementation dates for Solvency II.
The FSA has stated that it expects the responsibilities of the EU financial supervisors and European Insurance and Occupational Pensions Authority (EIOPA) to be ‘switched on’ as planned on 1st January 2013. However, Solvency II requirements are then expected to come into effect for companies one year later on 1st January 2014.
“Many issues yet to be resolved”
The decision has been made in light of “the challenging timelines” and the need to ensure sufficient time is given “for all supervisory processes to be in place when the regime is implemented”.
Whilst small and medium-sized firms will have breathed a collective sigh of relief, it is important that these firms continue to develop their Solvency II solutions and not lose momentum in their implementation plans.
How should firms use the extra time? For firms that are lagging behind this is not an issue but there may be complacency with leading firms as they take their ‘foot of the gas’. Firms will now have more time to validate their models and embed best practice and this opportunity should not be wasted.
Internal Model approval
The Internal Model application process window will no longer close on 31st May 2012 but will continue until mid-2013. The FSA are to hold meetings with firms to determine preparedness and decide when they will enter the process. This will potentially be disappointing to those firms who feel that they are ahead of their peers as they may have to wait longer for feedback on progress and those not in the top tier will undoubtedly be further back in the process.
Companies following a Standard Formula approach can now submit applications to the FSA from 1st January 2013. However, the regulator has stated that it “may exercise discretion to deal earlier with more complex issues”. Firms should therefore stay focussed on implementation and potentially expect further changes.
Clarification is still needed from the regulator as to what will happen in 2013? Will the FSA expect the parallel running of the ICAS regime alongside a new Solvency II regime? Will firms be able to use their Solvency II models as a proxy for ICAS?
Larger firms who are advanced with their implementation programmes (e.g. Lloyds of London) will be keen to move to Solvency II ahead of the 2014 deadline but will this be allowed by the regulator? Smaller firms that are lagging behind will welcome the delay but the potential requirements of running parallel regimes would be a further drain on the already limited resource availability.
In summary, the announcement will be very good news to many firms but the industry as a whole should continue to work towards the Solvency II regime with the same focus in order to maximise the considerable investment it has made in respect of this EU prudential regulatory regime.
More information can be found at the FSA website.