Thirty months to Solvency II

April marks the 30-month point in the run up to implementation of one of the biggest changes in insurance history: Solvency II.

This major piece of legislation will rewrite insurance laws across the EU and fundamentally change how insurers and reinsurers calculate their capital regulatory requirements.

Successful implementation is a priority for Lloyd’s and the aim is to implement it in a way that protects, and where possible, enhances Lloyd’s capital structure and efficiency.

Under Solvency II, every insurance firm will be able to calculate its solvency capital requirement (SCR) using its own internal model – but only if that model has been approved in advance by the supervisor. The alternative is to use the EU-wide standard formula, which could result in many firms’ SCR being more than double today’s – which would have a huge impact on the whole industry.

Therefore, Lloyd’s is working closely with the FSA to gain approval for the internal model. However, Lloyd’s CEO Richard Ward says achieving approval poses a challenge for each managing agent as well as the Corporation.

“Under this approach, each syndicate will also be required to have an internal model which meets Solvency II standards, and each syndicate’s model will be a component and integral part of the Lloyd’s internal model.

“This poses a challenge, and we will be working closely with the market and the LMA in the run up to implementation in October 2012. To help, we are conducting an internal model ‘dry run’ exercise starting this summer, in which we will work alongside each managing agent, with the FSA’s oversight, to help them achieve the standard before Lloyd’s formally applies for internal-model approval itself.

“Managing agents have now submitted their implementation plans to Lloyd’s, and we are reviewing them and providing detailed feedback to agents,” he adds. “We will also be providing themed workshops for managing agents in the second quarter of this year and have provided each managing agent with a dedicated Solvency II contact at Lloyd’s.

“This milestone is a good time to remind members of the market that Lloyd’s is here to work with them on the successful implementation of Solvency II.”