We are in the final stretch before Solvency II goes live – a good time for a ‘mini’ gap analysis.
The European Insurance and Occupational Pensions Authority published the second set of draft Implementing Technical Standards (ITS) and Guidelines for Solvency II on 6 July 2015. The ITS have been submitted to the European Commission for scrutiny and endorsement, and there is little doubt that both the ITS and Guidelines will be applied from 1 January 2016. A significant number of EU countries have yet to write Solvency II into national laws, so maximum harmonisation of the Solvency II directive across the EU may be slower than expected, but the UK is ‘all systems go’.
The Prudential Regulation Authority has been highly active post transposition in March, publishing a number of supervisory statements and consultation papers – all a good, solid read but containing little that is new. The real challenge is likely to come after 1 January 2016 when the PRA starts its programme of Solvency II supervision in earnest: firms need to be ready to demonstrate compliance in all relevant areas. We certainly expect Solvency II compliance attestations to be more frequent in 2016 and beyond.
The focus for most firms in the coming quarter is likely to be less on Pillars 1 and 2 but more on Pillar 3, as this is markedly different to current PRA reporting. Smaller firms not included in Pillar 3 dry-run submissions earlier this year should have applied for a quarterly reporting waiver by now. But even where PRA category 4 and 5 firms gain quarterly reporting exemptions, a large number of annual QRTs must still be submitted under SII. This requires implementing an effective Pillar 3 process and procedure, which smaller firms are still struggling to address as a strategic priority. The burden of submitting and disclosing large volumes of data, some of which requires statistical or actuarial judgement, should not be underestimated.
With so many elements of Solvency II to implement across all three Pillars, and given the long ‘gestation’ period leading up 1 January 2016, it would be wise for firms to carry out a ‘mini’ gap analysis on areas which may have been sitting on the back burner. This could identify any glaring gaps and also assess the robustness of the Solvency II processes and controls that are expected to be working at full pace in three months’ time.
For more information, please contact Omar Ripon.