In preparing to meet the various provisions of Solvency II, a large number of British insurers failed to indicate they will be ready to meet Pillar 3 by the end of this year, according to the results of an industry poll conducted by Grant Thornton UK LLP. The reform, which provides these financial institutions with more stringent capital and reporting requirements, becomes effective Jan. 1, 2016.
Cost of Solvency II
Industry participants have recognized that Solvency II will certainly come with its advantages, but that implementing the regulatory regime will present buy-side firms with a cost, according to Reuters.
Some companies have already run up significant expenses preparing for the regime, with Frankfurter Allgemeine Zeitung reporting in February that Munich Re, the world’s largest reinsurer, spending between 200 and 300 million euros on bolstering its technological resources over the last decade.
Many firms unsure about status
The Grant Thornton survey, which culled the responses of senior industry executives, showed that 18 percent of participants revealed they were unsure whether they would be prepared on time, and another 5 percent indicated they would not be ready by the end of 2015.
While this fraction – which fell short of one-fourth of participants – indicated their concerns about being in the right place in terms of the Solvency II Pillar 3 requirements, another 77 percent predicted their firms would be set up to comply with the regime when it becomes effective next year.
While a large fraction of respondents indicated they would be ready by the deadline, a higher portion – 93 percent – revealed they consider the requirements associated with Pillar 3 either burdensome or unnecessary.
“93 percent stated Pillar 3 requirements are burdensome or unnecessary.”
When asked about the biggest obstacles in implementing the guidelines, 98 percent of participants identified both the quantity and granularity of detail needed, as well as the resources needed to gather this information.
In addition to these difficulties, insurance firms could run into trouble extracting the data they need if they are still using either spreadsheets or legacy systems. Buy-side firms forced to upgrade their technological infrastructure could incur an additional expense at a time when they are already facing numerous cost pressures.
Insurance firms could encounter difficulty with reporting, as 92 percent of participants in the Grant Thornton poll stated that deadlines associated with providing this information could end up being a mid – or large-sized barrier.
Simon Sheaf, Grant Thornton UK LLP’s head of General Insurance Actuarial and Risk, emphasized the challenges that financial institutions could encounter in a statement.
“It is clear that insurers have made significant progress on Pillar 3 over the last six months,” he stated. “More than three-quarters of all respondents expect to be ready for Pillar 3 by the time Solvency II goes live – an accomplishment which is to be welcomed. However, that still leaves a significant minority who may not be ready for Pillar 3 on time, which is concerning at this relatively late stage in the preparations for the new regime.”