Solvency II implementation - from design to delivery
Fri 04 Mar 2011
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Lloyd’s – both the Corporation and managing agents – continues to make good progress towards Solvency II, which is one of the key priorities in the 2011 Strategic Plan. Much remains still to be done however to complete the work, in the build up to Solvency IIs 1 January 2013 start date, as proposed in the draft Omnibus II Directive published by the European Commission (EC) earlier this month, subject to adoption by the European Union (EU).
Syndicate dry run – Lloyd’s briefs market and publishes detailed plan as we move into the next phase
Lloyd’s has completed its review and provision of feedback to managing agents for the first three qualitative stages of the dry run. Progress among managing agents towards implementation continues to be generally good, with Lloyd’s able to upgrade its assessment of agents’ readiness in a number of cases.
The dry run has now moved into the next phase with further work required by managing agents leading to the provision of a capital number to Lloyd’s from each syndicate, produced from its internal model, in October. This next phase will conclude with Lloyd’s assessing each syndicate as to whether it meets Solvency II standards at the end of this year. We have taken account of ours and managing agents’ experiences of the dry run last year in refocusing our approach for 2011. The dry run plan for 2011 adopts a more risk based approach by Lloyd’s whilst placing greater onus on managing agents to self-assess their implementation work.
Lloyd’s issued the detailed dry plan on 18 February following market briefings. A key part of the plan is a series of workshops which Lloyd’s shall conduct throughout 2011 as it works through the dry run with agents.
The first workshops, on systems of governance, risk management and use test took place on 1 and 3 March.
More information about the 2011 dry run plan can be accessed here.
Lloyd’s continues to lobby on standard formula following results of QIS5
The results of QIS5, a test of the standard formula for calculating capital which an insurer would use if it does not have an approved internal model, showed that for Lloyd’s, syndicates’ capital requirements would on average be considerably more than double the current regulatory levels, ie ICA.
Although Lloyd’s expects to achieve internal model approval and requires each syndicate to achieve Solvency II standards, and thus would not use the standard formula for capital setting, it remains important for the standard formula to be credible. Lloyd’s is thus continuing to lobby key policymakers in the UK and EU, working with industry peers, and has proposed refinements to the formula to address its main concerns, specifically in relation to the captial charges for catastrophe risk and the currency risk charge which discourages matching of currency liabilities with assets.
No change to implementation timetable following publication of transitional measures
The draft Omnibus II Directive, published by the EC in January 2011, contains provision for the EC to enact broad ranging transitional measures which could, if implemented, delay full implementation of aspects of Solvency II by up to ten years.
Lloyd’s view, supported by the LMA, is that implementation must continue to the current timetable. This is because there is much uncertainty over what form and to what extent the transitional measures will take. The Omnibus II Directive itself is draft and subject to EU adoption. The EC may choose to adopt a much narrower range of measures than those potentially available to it; the details of the specific transitional measures proposed will not be published until later this year.
For more information on Lloyd’s Solvency II implementation and guidance to managing agents, please visit www.lloyds.com/solvencyII
If you have any questions relating to Solvency II, please email solvency2@lloyds.com or contact your Solvency II account manager.
