The Chief Executive of the PRA, Andrew Bailey, has recently expressed his concern
regarding the implementation of the Solvency II directive. One of the key features of
the Solvency II directive is the requirement for insurers across the EU to match the
assets they hold to the risks they underwrite. However, the directive has been
criticised in recent times for the long delay in its implementation and the unnecessary
detail which keeps pushing this implementation date back even further.

On 30 April 2013, the House of Commons Treasury Committee published letters
between the committee chairman, Andrew Tyrie MP, and Andrew Bailey. In the letters,
Andrew Bailey warned the committee that the Solvency II directive had become overly
detailed and extremely expensive. Mr Bailey expressed his concern that a great deal of
money was being spent by companies to prepare for the directive even though there was
no promise as to when, or in what form, it will be implemented. It has been estimated
that the implementation of Solvency II will cost UK companies £3billion and this figure
is likely to keep rising the longer this directive is delayed. UK regulators have tried to
address these cost concerns by allowing companies to adopt certain elements of the
directive in advance. However, this has done little to silence the criticism surrounding the
directive. In his reply to Andrew Bailey, Mr Tyrie said that he took the concerns raised
seriously and planned to investigate the matter in the forthcoming months.

Although most insurers support the plan to replace a patchwork of local rules with a
single EU-wide standard, there are ongoing objections surrounding the practice details of
the directive. One of the largest concerns is regarding the treatment of EU life insurers,
which typically have a very large asset worth. The concern is that placing onerous capital
charges on these products will cause a severe disruption in the capital markets. The
pan-European regulator in charge of writing the standards, EIOPA, is conducting a study
into how long-term guarantees in life insurance policies will be treated under the new
regulations. This study is due to be completed in June. It is likely that the tackling of
these objections is likely to cause even more delays in the implementation of the directive,
the date of which is now estimated to be some time in 2016 at the earliest.