As reported in last month’s insurance bulletin, the chief executive of the Prudential Regulation Authority (PRA), Andrew Bailey voiced his concerns over the implementation of the Solvency II directive. Bailey warned the House of Commons Treasury Committee that the Solvency II directive had become overly detailed and extremely expensive.
In the letters addressed to the committee, Bailey stated that the costs of implementation would be "staggering" and that the EU had simply assumed that firms and regulators would spend large amounts of money preparing for the implementation of something that carried "no promise in terms of when or in what form it will be implemented". Bailey cast light on Germany in particular, which although supportive of the agreement, was requesting a lengthy transitional period to allow for its insurance firms to adjust. Despite the criticisms levelled by Bailey in his letters, he did break the good news that the total regulatory expense of implementing Solvency II is considered to be almost half of what the FSA initially predicted, currently estimated to be £88m compared with the £150m initial prediction. This news has been warmly welcomed by the Chairmen and CEOs of the major insurance firms. Bailey commented that the PRA had taken steps to mitigate the risk of such a high expense but he did highlight the ‘root of the cause’ being the convoluted EU process.
However, despite the concerns voiced in Bailey’s letter about the implementation of Solvency II, recent reports suggest that the EU may, in fact, be nearing a deal on the long-delayed directive. A British member of the European Parliament, Peter Skinner, commented that the EU is close to finalisation with the suggestion that ‘transition’ periods will be the likely way forward for the regulator to roll out Solvency II. EIOPA’s head of policy, Justin Wray, has also commented that the signs indicate that "we are much closer to reaching an agreement on Solvency II". The chief executive of the PRA himself still remains hopeful that the directive will be implemented in some form. Bailey stated that the EU could not operate long term without harmonised standards in the insurance sector and, therefore, it was more a question of what form the directive will take rather than a question of whether it will be implemented at all.