There is still a great deal of uncertainty about future capital requirments under Solvency II

And so the Solvency II bandwagon rolls on. While confusion and indecision still surround the exact nature that the directive’s requirements will take in their final form, one thing at least is clear. As we explain in our cedants feature, 'Inner workings', any cedant worth their salt should be preparing to develop their own internal model for compliance and submit it for regulatory approval.

If they fail to do so, they will be left subject to the standard model and its much higher capital requirements. Of course, smaller companies may struggle to find the money and human resources needed to achieve this, which could in turn prompt a new wave of M&A in the market.

Meanwhile, Ceiops is attempting to allay fears in the insurance community. The publication of the draft QIS5 in April looked like good news on the face of it, with concessions on the allowance for non-proportional reinsurance and a reduction in the amount of capital insurers will have to set aside for volatility in the market.

Ceiops is making further conciliatory noises. As we report in our news digest, secretary-general Carlos Montalvo has claimed that most insurers will not need to raise additional capital under the rules, while chair Gabriel Bernardino has been at pains to stress how the body is listening to the industry.

This is all good, but it still leaves a lot of room for doubt – and mutterings that the directive’s 2012 deadline is beginning to slip are growing louder. While they might not wish to say it publicly, over-capitalised reinsurers are holding on fast to cash, reluctant to return it to shareholders in the midst of uncertainty over future capital requirements.

The sooner the industry and its regulators, not to mention their paymasters in Brussels, can come to an agreement on these all-important technicalities, the sooner the market can reshape itself accordingly. And then we can all sit back and wait for Solvency III …

Ellen Bennett, executive editor, Global Reinsurance