08 November 2012

Risk.net: Norwegian regulator to ease internal model timetable in wake of Solvency II delays

The Norwegian financial regulator, Finanstilsynet, is set to change its timetable for the pre-application process for internal model approval, in response to the expected delay to Solvency II. The French regulator is also considering adjusting the pre-approval schedule.

The French regulator, the Autorité des Marchés Financiers (AMF), is also understood to be considering making adjustments to its pre-approval timetable given that a one- or two-year delay to Solvency II is now seen as inevitable.

The Norwegian regulator is the latest national supervisor to change its implementation assumptions for Solvency II, despite there being no official change in the regime's implementation date of January 1, 2014. The UK Financial Services Authority (FSA) announced last month that it would negotiate revised ‘landing slots' for firms in the IMAP (Internal Model Approval Process) up to December 31, 2015.

The possibility that Solvency II could be delayed until 2016 – or even later – has also prompted national supervisors to revise plans to ‘soft launch' the governance and risk management aspects of the new regime with tests to assess insurers' level of preparedness, say experts.

Paul Clarke, global leader of Solvency II at PricewaterhouseCoopers (PwC) in London, says: "We are getting strong indications that most European regulators are going to expect some indications of preparedness well before 2016. Whether that is looking at preliminary Pillar III reporting or essentially beginning to think along Pillar II lines for risk management processes remains to be seen."

There are also calls for the Solvency II regime to be split with some elements implemented ahead of schedule. Consultancy KPMG argues that Pillar II [risk governance] should be adopted early in order to continue the efforts to develop a harmonised regime across Europe, while the debates over Pillar I run their course.

The UK Financial Services Authority (FSA) is already forging ahead with integrating elements of Solvency II into its existing regime by allowing firms to use their Solvency II internal models to calculate their individual capital assessment (ICA) for the FSA current solvency regime, Icas.

This move is intended to save firms the effort of running two capital models, although the FSA has yet to explain in detail how the new system will operate. Uncertainty lingers over exactly what impact moving towards a Solvency II balance sheet for current solvency purposes will have on UK insurers' capital requirements, such as whether a Solvency II risk margin would be imported into the current Icas requirements.

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