Posted on Jun 29, 2011 by Sergio Ulloa
Aon Benfield, global reinsurance intermediary and capital advisor for Aon Corp., has released figures from a survey it conducted at its International Analytics conference that reveal 60 percent of all European insurers believe 2014 would be a better starting date for Solvency II. Europe's foremost insurance underwriters, reinsurance managers and senior analytics experts have expressed doubt that EU regulators are ready to implement the new capital regime.
Solvency II is the European Union's updated set of financial frameworks that will stress risk-based capitalization and require insurance and reinsurance companies based in Member States to set aside sufficient capital for investments that regulators deem risky. The rationale behind these solvency rules is to ultimately develop a singular market for insurance services in Europe and offer adequate protection for all policyholders within. However, many countries have been critical of the EU's requirements and have instituted their own reforms, leading to a muddled patchwork of market regulations across the continent. Short term concerns persist that Solvency II could lead to insurers increasing their capital position at the expense of tackling new business ventures and damaging their overall competitiveness on the global insurance marketplace
The release of Aon Benfield's survey results follow last week's news that the Council of Europe, on which the EU member states sit, had agreed a proposal that would push the Solvency II start date to 1 January 2014. The new capital regime was due to be implemented in January 2013 but concerns over the preparedness of some countries, industry players and regulators have forced a rethink. The European Parliament has yet to put forth their own recommendations and it is unlikely the issue will be fully resolved until later this year. The ongoing economic crisis in Greece could further complicate matters as it undecided who could manage the additional capital requirements needed for bailing out more insurance companies.
A delay to the current Solvency II timetable has appeared likely as Omnibus II, approved modifications to the regime, have yet to be passed into legislation. The European Commission cannot formally adopt implementation measures and proper industry guidance until that is completed, as Aon Benfield notes on its website: "All of these components have to be passed into legislation following the required consultation periods, ahead of Solvency II's inception."
While a majority of Aon's conference attendees would support this development, 31 percent of surveyed industry delegates felt the date should not be deferred and were working towards the original Jan. 1, 2013 implementation date. The remaining 9 percent of respondents thought "maybe" the date should be delayed.
Furthermore, insurance companies revealed doubts over the level of understanding their local regulator has of the modern insurance business. The poll found that 61 percent of European insurers surveyed thought that their industry regulator was not up to the mark with regards their internal capital models. A majority of those polled, 54 percent, also expressed doubt that their local regulator understood the latest underwriting risks and in particular catastrophe risks, which have been particularly relevant given the unprecedented string of natural disasters occurring earlier this year
Aon Benfield is committed to working with insurance companies to ensure the entire industry is prepared for the eventual introduction of Solvency II. Mark Beckers, Head of Aon Benfield Analytics EMEA, recognized in a statement that "Insurers are juggling a plethora of pressures to comply with Solvency II. We are helping clients to prioritize their efforts by concentrating on the areas that really impact their capital charge. For example, the Cat Task Force has been forced to review the standard formula for non-life catastrophe risks as the results were deemed too volatile. However we have little hope for fundamental change before the start of Solvency II."
Gareth Haslip, Aon Bedfield's Head of Risk and Capital Strategy UK & EMEA, added that it would be vital for insurers press ahead with their current plans and timetable, concluding: "Insurers need to take strategic decisions and be prepared to change their business model in order to be ready in time. By meeting the 2013 deadline, companies that have a good grasp of Solvency II will have more time to focus on how best to operate their business for the benefit of their shareholders in this new environment. Being prepared will also bring a competitive advantage."
The scope and ambition of Solvency II is considerable, as are the problems currently affecting many members of the EU. For the worldwide insurance industry, this new regulatory framework presents both a wide range of opportunities and ample considerations
. Once initiated, Solvency II will pass fundamental changes in the way the European insurance industry evaluates risk and risk management practices. The EU's new capital requirements will force a convergence of all aspects of risk quantification and decision making processes within the insurance trade. All businesses that have operations and affiliates in Europe, offer insurance products in Europe or do other business with European insurers, should now be preparing for these across-the-board changes.
Insurance Company Mentioned
Aon Benfield Analytics is an industry leader in actuarial, enterprise risk management, catastrophe management, and rating agency review. Aon's track record of innovation and world-class position in analytics, modeling and client-facing technology helps companies to optimize their portfolios. Proprietary tools include ReMetrica, CatPortal, and ExposureView. Also, their Impact Forecasting team develops tools and models that help companies understand financial implications of natural and man-made catastrophes around the world. The company has an international network of over 80 offices in 50 countries.