Solvency II may be delayed until 2014

With the deadline for individual company submissions on Solvency II’s fifth quantitative impact study (QIS5) imminent, the industry is facing the prospect of potentially having to do it all over again, according to Marc Beckers, head of Aon Benfield Analytics for Europe, the Middle East and Africa.

“There is no doubt in my mind that there will be a further quantitative impact study, whether it is a QIS6 or a QIS5 bis [a partial re-run of QIS5 with updated figures],” Beckers told Global Reinsurance at the Baden-Baden meeting this week. “There are too many things that aren’t clarified.”

He says that regulators are currently steering a new Solvency II exercise in a bid to gather further information and calibrate the parameters again. “The fact that they are recalibrating indicates that they are going to have to do some tests to see what the outcome is,” Beckers said.

The Solvency II deadline will determine whether there is a QIS5 bis or a full-blown QIS6, according to Beckers. “In the current timeframe, there is no time for QIS if they want to keep the timetable,” he said.

However, there is a good chance that Solvency II, currently expected to come into force in January 2013, will not take effect until 2014. The revamping of financial regulators in some countries, notably the UK’s FSA, is adding an additional twist to an already complex undertaking. The small number of staff within regulators, typically a handful, that are dedicated to Solvency II is also adding strain.

There are also still a number of adjustments required to the spreadsheets being used by companies to make their submissions under QIS5, Beckers said. The spreadsheets were originally due to be issued in August, but did not appear until 6 October.

The quantitative impact studies and the resulting capital models are only one ‘pillar’ of Solvency II. The other two pillars, which tackle supervision and disclosure respectively, will then need to be worked on.

“There are so many things happening on top of the existing complexity that it is going to be very hard to keep the timetable,” Beckers said. “I was always pretty positive that they would keep it but in the last month I have changed my mind somewhat.”

While Solvency II is causing the industry a lot of pain – Beckers described the QIS5 process as “an absolute nightmare” – the outcome of QIS 5 could be a pleasant surprise in terms of capital requirements. “It is a much more cumbersome exercise than we expected for a lot of clients, but in terms of results it isn’t as bad as we on the analytics side expected,” Beckers said.

He also thinks Solvency II will be worth the effort, not least because it will sharpen the industry’s focus on the risks it is assuming and improve transparency. “There are a lot of positives in Solvency II,” said Beckers. “I don’t want to downplay that at all.”