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Update on the new solvency requirements for insurers
Simon Spencer, from the Insurance Consultancy team in the London office, reports on recent developments on EU solvency requirements for insurers.
Almost exactly one year ago to the day, I reported on the publication of the EU "Solvency I" Directives that will amend the regulatory solvency requirements of insurers (click here to see that report). The FSA has now published details of how it intends to implement these Directives in the UK.
The substance of the proposals is exactly as required by the Directives. The FSA has said that it has no intention to introduce stricter rules than required, and this is borne out in practice. The detailed proposals can be found in my earlier report.
The one area of interest, where precise details were absent from previous publications, is that of transitional arrangements. The Directives allow member states to provide a period of up to five years from the commencement date of the Directives (i.e. to February 2007) for firms to fully comply. The FSA has decided, however, that no transition period will apply in the UK since it believes that most firms will be able to comply immediately anyway. The FSA recognises that this may be difficult for some, particularly small, firms, and so will allow firms to apply for waivers from these requirements. Any waiver request will then be considered and treated on its own merits.
While this is still at a consultation stage, there is little time left for the FSA to be persuaded to change its mind about any of the proposals. Final rules must be in place by 20 September 2003, and will take effect for financial years beginning on or after 1 January 2004. Firms are required to meet the solvency requirements at all times, not just at the financial year end, so insurers will have to have addressed the issues by the end of this year.
Simon Spencer, June 2003