CompaniesMay 15 2013

Don’t panic – embrace positives of Solvency II

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      Disclosure is a key principle underlying Solvency II but there remain issues to be resolved about appropriate levels of disclosure for the various different audiences – regulators, advisers, analysts, policyholders, shareholders and so on.

      The question of delays and in fact whether or not Solvency II will come into force or (in regulatory terms) at all is a notable one.

      Solvency II was initiated by the European Commission in 2000 and until recently the intention was that it would come into force in 2014. However among other things a key vote has now been pushed back to October 2013 and there are now huge doubts about the start date. Some, including the new Prudential Regulatory Authority, have forecast an eventual start date of 2015 or, even more likely, 2016.

      However for advisers an important thing to realise is that Solvency II, unlike RDR, is a pan-European regulatory initiative that puts it firmly in the world of pan-European politicking.

      One day the French may want this or that and the next the Germans realise something else and eventually a seemingly totally unconnected issue on Italian fish quotas necessitates some bargaining which throws a risk-based capital framework either in or out of the melting pot entirely. Oh and then half the politicians involved are replaced by new ones.

      So it is politically as well as technically complex. And, as a result, delivery for Solvency II remains uncertain.

      However much work has been expended and as a result, in the UK at least, insurers have much of the Solvency II toolkit already in their hands. What implementation looks like or when and whether it lands has to be qualified by the fact that insurers are already in many instances running their business according to a Solvency II framework. Understanding this is key today in understanding insurers.

      What does it mean for advisers in particular?

      While creating major issues and requiring significant application of money and resources for providers in the development phase, Solvency II, fully implemented and fully operational, has the potential to bring major benefits for all stakeholders – regulators, providers themselves, clients and advisers.

      The following is more related to the consumer and their advisers.

      There are a number of potential benefits and challenges for clients and their advisers, including:

      • Improved understanding and monitoring of risk will mean that Solvency II should reduce the risk of failure or default by an insurer, providing the consumer with greater reassurance and security.

      • Where risks are identified, more prompt and timely action should be possible which will further mitigate risk to policyholders.

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