Standing Still Is Not An Option

This Discussion Paper ("DP") is a "must read" for boards and senior managers in the insurance industry. It is especially useful as it aims to be functional, rather than academic. Readers should note that the DP invites feedback by 31 December 2008 and the FSA will be engaging with firms by March 2009 in respect of the transition to the new Solvency Regime (see below). Readers may review the DP by following this link: http://www.fsa.gov.uk/pubs/discussion/dp08_04.pdf

Key Points

Companies should be undertaking gap analysis now, to identify shortfalls in the "emerging" Solvency II requirements. This will of course necessitate the devotion by companies of resources to continue to monitor operations in the context of Solvency II until it takes a final form (indeed the paper refers to "the uncertainty that accompanies all international negotiations and policymaking"). The FSA believes that the risks of delay outweigh non compliance, and the possibility of getting the implementation wrong.

Those that have not taken part in QIS4 should now devote their best efforts to complete the relevant spreadsheets.

By June 2009, companies should indicate to the FSA whether they want to use their own internal model (instead of the standard formula) to calculate their regulatory capital.

Finally, an individual at board or senior management level should be accountable for the effective implementation of Solvency II. In March 2009, companies will be asked about their implementation planning, and progress made, including details of their governance arrangements.

Comments

Readers will have spotted that the FSA states in one paragraph of the DP that the internal model decision will be queried by March 2009, but in another paragraph suggests an internal model indication will be invited by June 2009.

The discrepancy is likely to be of limited practical consequence.

Many companies will already be considering their approach to this issue, and to the multitude of other issues raised by Solvency II. Many readers are already addressing the issues raised in the DP. For those that are only now turning full attention to the topic (and demands on attention are understandably various at the date of this newsletter) our recommendation is that a senior and dedicated resource is devoted to Solvency II as a matter of urgency.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.