Regulator confirms European solvency standards for insurers will be delayed until 2014

The Financial Services Authority (FSA) said that it had updated its implementation assumptions for the Solvency II Directive (155-page / 3.7MB PDF), which sets out stronger risk management requirements and dictates how much capital insurers must hold in relation to their liabilities.

Rather than coming into force next year as originally planned the Directive will be transposed into UK law by 1 January 2013 when the responsibilities of the European Insurance and Occupational Pensions Authority (EIOPA) take effect. The new standards will come into force for UK firms on 1 January 2014.

"We have revised our implementation assumptions in light of the discussions in Europe about the splitting of the implementation dates for Solvency II. We will only revisit these assumptions if there is a significant change in the dates to beyond 2014," the FSA said.

It stresses that the changes "do not mean a delay of a year" and that it intends to "maintain the momentum and stay focussed on implementation".

The FSA said that it would still be ready to receive applications from firms who wish to use their own system for calculating capital requirements from 30 March 2012, but that firms could now have until mid-2013 to apply depending on complicating factors. Firms using the standard process would be able to apply from 1 January 2013, but that it would exercise its discretion to deal with more complex issues earlier.

The regulatory position for smaller firms not covered by the Directive remains the same, it said.

"We will consider our regulatory approach when we have greater clarity on our approach for firms within the scope of the Directive. Any proposals would be subject to our usual consultation process," the regulator said.

Insurance law expert Bruno Geiringer of Pinsent Masons, the law firm behind Out-Law.com, praised the FSA for the "pragmatic" way it had revised its timetable.

"Most UK insurers will have had projects in place over the last few years to prepare for the start date which, remember, was originally the end of this month and then was pushed back to January next year," he said. "Firms now have until January 2014 which will allow them to accommodate other issues which are currently affecting them in the same timeframe such as volatile markets, the RDR changes and the implications on their pricing arising from the Test Achats case on gender discrimination."

"The key thing for insurers is to contact their supervisors now about their implementation plans or, if they are a small insurer, to attend the Smaller Insurers Seminar on 20 October where the FSA will give more details," said Geiringer.

Otto Thorensen of industry body the Association of British Insurers (ABI) agreed that the statement was a "sensible way forward" from the regulator.

"If full implementation of Solvency II is to be delayed until 2014, the UK insurance industry needs a pragmatic approach from both UK and EU regulators, which works on a firm by firm basis. It is not the case, as has been reported, that the UK industry has pushed for full implementation by 2013 and we welcome this clarification from the FSA," he said.

The ABI was pleased to see the regulator highlight issues still needing to be addressed at a European level, including the approach to groups, equivalence, reporting and transitionals, but Thorensen added that a solution for long-term guaranteed products such as annuities also had to be found.

He said that the previous timetable would not have left sufficient time for firms to be fully prepared for a 2013 implementation date. However, he added that the UK insurance industry remained "committed to an implementation of Solvency II as soon as it is practically possible".