The FSA’s revised implementation assumption that Solvency II will not come into force for firms until 1 January 2014 is a belated acceptance of delay in the negotiation of the Omnibus Directive and the European legislation which had been known in Brussels for months. At the moment the European Commission and ECOFIN (the Council of European Finance Ministers) probably have more urgent problems than the finalisation of Solvency II second level legislation.
The delay will not be welcome for the London Insurance Market which is well advanced in its preparations for Solvency II. Millions of pounds have been spent by insurers and managing agents getting their internal models ready to run at the end of this year. As a result of the delay there will now be at least two years when insurers will have to carry on running their existing ICAS models, whilst at the same time test running a Solvency II internal model. Operating two models will increase costs, not to mention actuaries’ stress levels.
The Solvency II reforms are happening at the same time as the UK’s reforms of its regulatory structure, with the replacement of the FSA by the PRA (to be the prudential regulator of insurers, including managing agents) and the FCA (to be the conduct regulator of insurers, and the sole regulator of insurance intermediaries). The Government is still expecting the new Financial Services Bill to receive royal assent before the end of 2012 and come into force in 2013. If that timetable is achieved, then it will fall to the new PRA to implement Solvency II. On any basis the fact that these two massive reforms are happening at the same time poses an enormous challenge to regulators and the regulated community.