Lloyd’s has been preparing for Solvency II since the late 2000s and further progress was achieved in 2014. At the heart of this work is the need to secure approval from the Prudential Regulation Authority (PRA) for the Lloyd’s Internal Model to set its regulatory solvency capital requirement. Both the Corporation and the market need to meet Solvency II standards for this to be achieved. Failure to secure approval could, in a worst case scenario, mean a significant and immediate increase in regulatory capital requirements with negative implications for capital efficiency and the reputation of Lloyd’s.
The Corporation liaised closely with the PRA during 2014 and there was also strong cooperation with each managing agent. The expectation is that the vast majority of agents will have met Solvency II requirements by the time Lloyd’s makes its approval application to the PRA.
Given the importance of securing the approval, Lloyd’s advised agents in July 2014 that it intended to impose prudential measures in the form of capital loadings where progress is inadequate. These have subsequently been applied for the 2015 capital setting process.
As the 2016 deadline approaches, preparations are also being made to meet supervisory reporting and disclosure requirements. In particular, Lloyd’s and other large insurers must make interim disclosure submissions to their supervisor by the end of June 2015. To prepare for this, Lloyd’s conducted a market dry run in the autumn of 2014.
Under Solvency II legislation, the decision to approve an application must be made within six months of submission. Lloyd’s will continue to work closely with the PRA once the formal review process begins, addressing queries and providing further clarification as needed.
Contingency plans are in place should they be necessary but it is hoped that the hard work of both the Corporation and each managing agent will help ensure Lloyd’s Internal Model approval.