Introduction
Solvency II is the biggest regulatory challenge currently facing European insurers. By October 2012, as a market we must show that we meet all of its requirements. Successful implementation requires close co-operation between the Corporation and the businesses in the market.
Solvency II: a work in progress
Solvency II is an EU legislative package to reform insurance regulation by aligning capital requirements more closely with insurers’ risk profiles. It replaces 13 existing EU insurance directives. EU member states must transpose Solvency II into their own national laws by 31 October 2012.
When finalised, the Solvency II legislative package will have three levels:
- Level 1 - the Framework Directive. EU institutions agreed the Directive text in April 2009 and it is due to be officially released shortly. A copy is available at www.lloyds.com/SolvencyII.
- Level 2 - Implementing measures. These are the detailed requirements for insurers and will be finalised by the end of 2011. Clearly, the task of preparing for Solvency II is not made easier by key requirements in the implementing measures being works in progress but this does mean that there are still opportunities to influence their development.The European Commission asked the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) to provide advice on these measures and CEIOPS is publishing its draft advice for consultation in three separate tranches.
- Level 3 - Supervisory guidelines. This is guidance for national supervisors, to ensure the consistent interpretation and application of Solvency II throughout the EU. They are also due to be finished by December 2011.
Lloyd’s input into the process
CEIOPS released its second tranche of consultations on implementing measures in July, 2009 for comment by 11 September. Although many of CEIOPS’ proposals appear reasonable, European insurers, including Lloyd’s, are concerned that in some key areas the requirements are significantly more onerous than envisaged when the Directive was finalised. CEIOPS has received over 20,000 comments from interested parties, including Lloyd’s, which, with the LMA, drafted responses to relevant proposals.
Lloyd’s approach to lobbying on the implementation measures is outlined in a September 2009 Regulatory Communications article, available here.
Lloyd’s Implementation Programme
Lloyd’s Implementation Programme aims to ensure that Solvency II is successfully implemented on time and that Lloyd’s competitive position is maintained. The Programme is led by Luke Savage, Director of Finance, Risk Management and Operations, with Sean McGovern, Director and General Counsel, responsible for negotiations on legislative provisions.
Forthcoming Solvency II activities
Solvency II implementation is a demanding and resource-intensive project for Lloyd’s and managing agents alike. It requires a wide range of different objectives to be achieved, some pro-active, some in response to regulatory timescales. Managing agents should note the following deadlines, initiatives and events in the near future:
October - December 2009
October
- FSA Thematic Review on Internal Models.It is expected to cover qualitative and quantitative standards, model validation, data and stability.
- Level 2 Implementation Measures. The third tranche of CEIOPS consultation papers is expected at the end of October for comment by 11 December. As with earlier tranches, Lloyd’s and the LMA will work together to provide responses on behalf of the market.
November
- 4 November - Lloyd’s market briefing.. Invitations outlining the subject matter went out recently.
December
- Lloyd’s feedback on managing agent gap analyses. Following discussions with the FSA, Lloyd’s will provide this feedback to managing agents by December 2009.
- Managing agent implementation plans - copies of Solvency II implementation plans must be submitted to Lloyd’s by 31 December, 2009. This is necessary to ensure inclusion in the internal model dry run process (see below).
January - June 2010
- Internal model pre-application process (the “dry run”). Obtaining FSA approval of LIM is a fundamental objective. Approval by October 2012 requires Lloyd’s and managing agents to participate in the first wave of the FSA’s internal model dry run process. Lloyd’s has agreed with the FSA that this will take place in June 2010. Lloyd’s is discussing detailed plans and timings for this process with the FSA and the outcome will be communicated to agents at the briefing mentioned above.
July - December 2010
- QIS5. A fifth Solvency II Quantitative Impact Study - QIS5 - is scheduled for August - November 2010. Lloyd’s and Lloyd’s managing agents will be required to participate in this exercise.
- Level 2 implementing measures. The European Commission expects formally to adopt the level 2 implementing measures by December 2010.
This is a high-level account of some significant activities and deadlines and managing agents will have their own schedules of activity, in line with their implementation plans. Lloyd’s aims to ensure that managing agents are kept fully up-to-speed on Solvency II developments: as well as providing regular updates to nominated managing agent contacts. Further information can be found at www.lloyds.com/SolvencyII.
Managing agents with any queries or issues on Solvency II’s implementation should contact their Lloyd’s Solvency II account manager in the first instance.
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