European economic turmoil creating Solvency II turmoil as well

Recent economic turmoil in Europe has further exacerbated the delay and uncertainty of the implementation date of Solvency II, potentially creating a huge strain on companies during 2013, said Nick Dexter, a partner in KPMG’s UK operations.
Dexter offered a Solvency II update during KPMG’s 20th Annual Insurance Issues Conference in Toronto on Nov. 24.
The original implementation date of Jan. 31, 2012 has been pushed back to Jan. 31, 2013 and now there is talk of extending the deadline another year to Jan. 31, 2014, Dexter said.
“The impact of Solvency II in certain parts of Europe is going to dramatically increase the capital requirement [of insurers],” he said. “There is concern that a lot of companies, particularly in the current environment in which it is difficult to raise capital, are going to struggle to meet the requirement. So, there has been a lot of lobbying for transitional provisions.”
But some Members of Parliament have staked their political careers on the successful implementation of the Solvency II directive, he continued. “So they don’t want to move the implementation date back too far. So, in good political style, we have a fudge.”
Regulators will be required to use Solvency II from the 2013 implementation date, but firms won’t have to comply until 2014. “So, you can imagine what that means for 2013 – it’s a real dog’s breakfast.
“It means that firms will be still developing [their Solvency II systems], but the regulators can at any time during 2013 ask them for numbers on a Solvency II basis. It also means that companies can’t switch off their Solvency I-style calculations because they won’t be rescinded during 2013. And because of IFRS, you might have to be running Solvency I numbers for a few years yet.
“So, the overload on companies to produce all of this is huge. 2013 is going to be quite chaotic.”