Despite June deadline UK insurers still unsure how they will tackle Solvency II

As insurers prepare to meet the June deadline of indicating to the FSA whether they plan to use an internal model, a survey undertaken by business and financial advisers BDO LLP has shown that 13 per cent of the UK’s insurers are still unsure as to which approach they will use.

Interestingly, only 15 per cent of insurers surveyed plan on using the standard formula under Solvency II, whereas more than two thirds (68 per cent) plan on using their own internal model or a partial internal model.

Kirstie Gordon, Insurance Specialist within BDO’s Financial Services Group says: “We were disappointed that 13 per cent of insurers still hadn’t thought about their preferred approach to Solvency II.  While many might think that October 2012 is still a long time away, the reality is that Solvency II is a large project which will need significant planning and resource.  Many insurers stand to benefit from using their own internal model, but to do so they will need to assess the options open to them and leave sufficient time for a model to be developed, tested and approved by the FSA.”

“Firms need to perform a realistic assessment of the viability and cost-benefit analysis of using an internal model.  At first sight, an internal model may appear very attractive but the cost of developing this may prove to be prohibitive, especially if the resulting capital requirement does not differ significantly from that given by the standard formula.  Use of the standard formula may prove to be the most practical answer but firms will not know this until they have assessed their own individual situation,” continues Gordon. 

”Firms should also take into account the fact that they will be expected to use the standard formula alongside their own models, at least initially.”

It is of paramount importance that firms start thinking about Solvency II at the earliest possible opportunity to ensure that they take the right decisions for their businesses,” she concludes.

BDO will be holding a breakfast briefing on 2 July from 8am-10am to outline further results from the survey, the benefits of Solvency II, data quality, costs and corporate governance issues.

ENDS

For more information, please contact Dee Crooks at BDO on 020 7893 2761 / 07815 172 051 or email dee.crooks@bdo.co.uk

To attend the seminar, please contact Gerard Bannon on 020 7893 2083.

Notes to editors:

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