Solvency II implementation likely to be delayed: Guy Carpenter

The implementation of Solvency II will likely be delayed from its intended Jan. 1, 2013 start date, Guy Carpenter reported.

In its Oct. 20 edition of GC Capitalideas.com, Guy Carpenter noted that the results of fifth the quantitative impact study (QIS5) and a three-month Solvency II stress test launched by the European Insurance and Occupational Pensions Authority (EIOPA), shed light on the real-world implications of the new regime, raised issues that should be addressed before it goes into effect and, “in large part, sparked the debate that is likely to lead to a delay in its implementation,” the report says.

Participants of QIS5 hold EUR395 billion of adjusted excess capital above the solvency capital requirement (SCR), and adjusted excess capital of EUR676 billion above their minimum capital requirements (MCR) under the Solvency II directive. But, the exercise showed a reduction of (re)insurers’ capital surplus of 44%, compared to the calculation under Solvency I.

EIOPA’s stress test modelled the MCR under three scenarios: a market deterioration mirroring the one seen between Sept. 2008 and Sept. 2009, a more-adverse scenario assuming a prolonged recession, and a scenario assuming an increase in inflation followed by rapid interest rate hikes by central banks.

Ninety per cent of the insurers met the proposed MCR under the most adverse scenario. Failure rates in the baseline and inflation scenarios were nine and eight per cent, respectively.

“The QIS5 results produced a spirited debate between industry participants and administrators over its methodology and implications. This has led EIOPA to identify areas where further guidance seems necessary and where the feasibility and complexity of Solvency II proposals should be addressed to ensure proper implementation,” the report says.

“While a preliminary review of the [EIOPA stress test results] shows them to be generally positive, we expect there to be ongoing discussion as they are further examined and digested by the market.”