On 15 February 2010, the FSA published the “Solvency II – IMAP Update towards pre-application” which provides information on key developments as firms start to enter the “pre-application” phase of the Internal Model Approval Process (“IMAP”). The key points are as follows:
- we are now almost exactly half way through the process with the implementation date still being 31 October 2012. The next 18 months will be critical for those firms intending to follow their internal model route for calculation of their solvency requirements;
- the FSA will have written to all firms intending to apply to use an internal model by the end of February. The FSA will provide a standard template, which the firm must complete one month before they intend to start pre-application. The timing of a firm’s entry into pre-application will be subject to them meeting the qualifying criteria;
- the FSA has carried out a pilot programme with a number of different types of firms which has indicated that the pre-application will be an exacting activity for the firms and for the FSA. It is also evident that “groups” issues, not just for the IMAP but also for many other elements of Solvency II, will be more complex than originally expected; and
- in December 2009, the FSA asked all insurance firms that indicated they intend to use an internal model to fill in a questionnaire. From those responses, risk management was the topic where firms rated themselves as closest to the standards required. Firms scored themselves weakly when it came to being able to explain the limitations of the internal model and defining their own validation policies.