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Bichard: insurers at risk of Solvency II failure

Bichard: insurers at risk of Solvency II failure

The head of PwC’s UK insurance regulatory team has warned that several insurers are “now at real risk” of not complying with Solvency II in time.

Jim Bichard, a partner at the consultancy firm, said that with seven months to go until the introduction of a single EU-wide insurance regulatory regime, the industry will be working flat out.

He said: “Some firms are also starting to think about a plan B.

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“Failure to secure full model approval and hence moving to a partial model or standard formula basis could have significant capital implications for some businesses, which could put a severe dent in their price competitiveness, reputation and share values.

“The window to make changes, respond to feedback or learn from others is closing fast, so the pace has definitely quickened.”

He added that many life and pensions businesses face the further challenge of convincing the PRA to let them use a matching adjustment for their long-term guarantees or other transitional arrangements.

Failure to get capital relief, Mr Bichard said, would be “a fresh jolt” the sector after the government’s reforms of the pension industry.

Solvency II is due to come into effect on 1 January 2016 and will introduce economic risk-based solvency requirements across all member states for the first time.

Mr Bichard said: “Analysts, rating agencies and investors are keen to know what Solvency II means for an insurer’s strategy, risk sensitivity and return on capital.

“It’s becoming clear that it is not realistic to wait until statutory Solvency II disclosures are due in 2016 before providing some kind of answer - the markets will simply draw their own conclusions from the silence.”

In March, the FCA issued its final rules, stating that the regulator was amending some of its regulations, “both to transpose some of the articles and to harmonise our rules with the directive”.

In the 126-page document, the FCA said: “The PRA is now responsible for the prudential supervision of insurance firms, in which the new Solvency II requirements play an important part. The changes we are making to our conduct rules have minimal direct impact on retail consumers or consumer groups, as they largely have the effect of continuing provisions contained in the previous insurance directives.”

Industry view

A spokesman for the ABI said: “Insurers are continuing to work hard to meet the requirements of Solvency II and to receive model approval by the end of the year.

“It is too soon to start predicting outcomes but, as the PRA requires, firms applying to use an internal capital model are also developing contingency plans.

“The sector hopes the PRA provides further guidance in some of the remaining areas of policy uncertainty.”

A spokesman for the PRA declined to comment.