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October 4, 2011 8:09 pm
The UK’s financial regulator has acknowledged for the first time that new European capital rules for insurers are now likely to come into force in January 2014, a year later than expected.
However, it stopped short of saying UK insurers would avoid running two sets of capital models and reporting standards in parallel during 2013, when the Financial Services Authority runs its triennial capital adequacy test of the industry.
European political authorities are expected to delay the full implementation of Solvency II, the new capital regime for insurers, by 12 months to the start of 2014 to give more time for many countries’ regulators and local industries to prepare for the rules.
The FSA said on Tuesday its revised planning assumption was that the regime would still have to be transposed into local law by the start of 2013, but that “January 1 2014 is when the Solvency II requirements would be switched on” for insurers.
The Lloyd’s of London insurance market and the Association of British Insurers have been pressing the FSA for clarity on its launch plans for Solvency II in recent weeks. The biggest UK insurers expect to be ready by the start of 2013, which is when the rules were supposed to come into force and when they are due to run the UK’s unique Individual Capital Adequacy test.
The FSA did say it would extend the period when insurers could submit their Solvency II capital models for approval, which starts at the end of next March, but instead of closing two months later will now run until mid-2013.
The regulator will hold meetings with individual companies in the coming weeks to discuss their progress and whether they can expect to be near the front, or further back in the queue for approval.
Jim Bichard, insurance partner at PwC, said most insurers not in the top tier would have to wait even longer for any kind of feedback from the regulator about their progress. “It is good they have gone on the record, extended the window for approvals and admitted Solvency II will not start until 2014,” he said. “But it will be disappointing to those who are not right at the front of the queue.”
Sean McGovern, Lloyd’s general counsel, said: “We urgently need clarity on how firms will be treated in 2013 if we are to avoid significant, unnecessary and duplicative expense ... we hope the FSA will be pragmatic and allow us to move from the current ICAS system to Solvency II ahead of the 2014 date.”
Otto Thoresen, director-general of the ABI, echoed this view, saying it was asking that insurers should be able to use their Solvency II model as a proxy for their ICAS model during 2013.
“An early FSA opinion on this point is required,” he said.
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