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Solvency II implementation likely delayed a year Business Insurance 1, 2013, the Council of the European Union recommended delaying full implementation of the rules until 2014 in a “presidency compromise” that was reached in late June. Under the council's proposed compromise on the Omnibus II directive, which proposes ... See all stories on this topic » Solvency II implementation likely delayed a year 0 SARAH VEYSEY BRUSSELS—It appears likely that full implementation of Solvency II will be delayed a year, but experts say insurers, reinsurers and executives overseeing company-owned captives should continue working to comply with Europe's revamped risk-based capital rules. Advertisement While the most recent deadline to implement Solvency II was Jan. 1, 2013, the Council of the European Union recommended delaying full implementation of the rules until 2014 in a “presidency compromise” that was reached in late June. Under the council's proposed compromise on the Omnibus II directive, which proposes transitional arrangements to adopting Solvency II, regulators would not have to transpose Solvency II into national laws until March 31, 2013, and the Solvency I rules would not be repealed until Jan. 1, 2014. In the compromise plan, the council also recommended that insurers and reinsurers be able to gain formal regulatory approval of tools such as internal models in the latter half of 2013, but with an effective date of Jan. 1, 2014. Under the plan, regulators would require insurers and reinsurers to provide an implementation plan by July 1, 2013, that includes evidence of the progress they have made toward complying with Solvency II. The European Parliament is expected to vote this year on Omnibus II and report whether it believes the rules should be delayed. If the parliament agrees to the council's proposal, which industry experts say they expect to happen, then implementation of Solvency II would be delayed until 2014, with several elements being phased in. But the one-year delay would not necessarily give lobbyists more time to bring about changes to the rules, experts say. And insurers and reinsurers should not let up in their efforts to be ready for the upcoming rules. The Brussels-based Comité Européen des Assurances, which represents insurers and reinsurers in Europe, said it still favors a Jan. 1, 2013, implementation for Solvency II. But the CEA also said it sees the merits of a “soft launch” of Solvency II. “This would ensure that regulators and the insurance industry have sufficient time to prepare for the new regime,” the CEA said in a statement. Aon Benfield Inc., the reinsurance arm of Chicago-based brokerage Aon Corp., surveyed attendees at a recent client conference and found that 60% believe that 2014 would be a better start date for Solvency II than 2013. Of the 100 reinsurance managers and analytics experts surveyed, 61% said they did not believe their national regulator was “up to speed” with internal models that many insurers will use for their Solvency II capital calculations, according to the Aon Benfield survey. While the delay “may give both companies and supervisors welcome breathing space to design and implement their Solvency II plans, we note any resulting delay to the internal model approval process may be a cause for concern amongst companies already well-advanced in this area,” the London-based arm of actuarial and consulting firm Milliman Inc. said in a statement. “While many in the industry will welcome the delayed implementation, there is a significant proportion that have invested heavily in preparing for the original deadline and would now prefer to move quickly to the new regime,” said Phil Smart, U.K. head of Solvency II at KPMG L.L.P. in London. This is particularly true of companies that have been working to win approval of their internal risk models so they could start seeing a return on that investment, he said. Any delay “has massive implications for the costs of introducing Solvency II, both for consultancy and in-house costs, as well as the uncertainty it brings,” said John O'Neill, head of the insurance consulting practice at actuarial and consulting firm Barnett Waddingham L.L.P. in London. The biggest risk of any delay would be insurers and regulators taking their “foot off the pedal” in preparing for Solvency II, Mr. Smart said. While many insurers are well into preparing for Solvency II, significant uncertainty remains regarding the final rules that will be imposed, said Marc Beckers, head of Aon Benfield Analytics for Europe, the Middle East and Africa. “When it is unclear what the regulatory landscape is going to be like, it is quite difficult for companies to determine what the best strategy will be,” he said. “There is still a lot of work to do, but people know they need to focus on their risks,” Mr. Beckers said. “That must continue. It is not the time to take your foot off the gas.” Delaying implementation of Solvency II should give companies time to “do a better job” in preparing, he added. Solvency II rules have not yet been finalized for several areas said Paul Clarke, global head of Solvency II at PricewaterhouseCoopers L.L.P. in London. While a delay in implementation likely also would help national regulators prepare, there is unlikely to be much extra time for insurers and reinsurers to influence the shape of the directive, he said. Related Content: Regulation