Insurers’ views vary on costs of Solvency II readiness: PwC report

Insurers’ views vary considerably about the costs involved in preparing for Solvency II, prompting a PricewaterhouseCoopers (PwC) survey to question whether the total outlay related to Solvency II will exceed initial projections of EUR3 billion.
Due to take effect in January 2013, Solvency II is a fundamental review of the capital adequacy regime for the European insurance industry.
PwC conducted a survey on a range of topics related to Solvency II readiness, soliciting responses from 115 companies located in 22 countries.
“Of those who have already launched their Solvency II programmes, 83% have spent less than 20% of their overall budget, indicating that the majority of the effort will come in the next two years,” the PwC reports says.
PwC notes a wide variety of opinion on the costs required to become compliant with Solvency II.
“There are mixed views on where the major costs will lie,” the report says. “Just over 20% believe that most costs will come from IT spend (although a significant majority of respondents think that less than 50% of the costs will be technology related).”
The second most highly ranked expenditure item related to the recruitment of expertise and/or training of staff.
“However, in line with the results above, a significant number of respondents (22%) are as yet unsure of the likely expenditure.”
The report notes spending on Solvency II initiatives is unclear in part because Solvency II budgets may be bundled up with other major initiatives, such as ERM or economic capital, or because budgets are allocated centrally for local entities.
But “clearly expenditure on Solvency II is comparatively low to date for most,” the PwC report notes. “Of the 51% whose Solvency II projects are underway, this may be a result of a reluctance to move too swiftly given a continued lack of certainty around the detailed rules in the Level 2 implementing measures (due Spring 2011).”