Solvency II Survey 2012: Where are insurers heading?

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The Omnibus II Directive, due to be voted on in September, will set the date of enforcement of the Solvency II regime. The current working assumption is that the responsibilities of supervisors and the European Insurance and Occupational Pensions Authority (EIOPA) will take effect on 1 January 2013 and the Solvency II requirements for insurers will be switched on from 1 January 2014. This leaves insurance companies limited time to get their systems and processes ready to meet tough new capital and risk management requirements, yet uncertainty persists over the final Solvency II framework, and much of the policy is still not finalised. Over the rest of 2012, the Level 1 Directive and the Level 2 implementing measures should be approved and Level 3 formal consultations will come to an end, but until Level 3 guidance is released by the EIOPA, insurers are still operating without complete clarity. As companies enter this final stage of preparation, what are their key areas of focus and concern, and how has the delay in setting the final requirements impacted their businesses?

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Solvency II Survey 2012: Where are insurers heading?

  1. 1. Solvency II Survey 2012Where are insurers heading?GO
  2. 2. ForewordForeword I am delighted to present this year’s edition ofIntroduction the Deloitte Solvency II Survey. As the industryAbsorbing the impact progresses towards the implementationFocus and concern deadline, a subtle change in insurers’ strategicThe internal approach focus and differing levels of preparation areMaking it work coming to the fore. But one constant remains;Capitalising the new regime eroding confidence that the industry can comply on schedule.ConclusionContacts As in the previous three years, this research has been conducted on our behalf by the Economist Intelligence Unit (EIU) who interviewed 60 insurers with UK operations during February 2012, producing this report based on their findings. Through their fully anonymous survey process, the EIU is able to offer an insightful and impartial view of the true state of play for UK insurers. s Watch video highlights
  3. 3. This year’s survey identifies some interesting developments in insurers’ approachesForeword to Solvency II, as well as highlighting the financial and business impact caused by the delay to full implementation. During the year, significant numbers of insurersIntroduction have chosen to revise their approach to Solvency II and previous talk of wholesale restructuring has made way to strategies such as re-pricing of products. Whilst theAbsorbing the impact majority of insurers expect tangible benefits from their Solvency II preparations, the overriding sentiment is one of growing unease as to whether the industry as a wholeFocus and concern will meet the current compliance deadline.The internal approach We are very grateful to the EIU and to all participants for their contribution to this research. I hope this report gives you the insight and data you need to enhance yourMaking it work understanding of where insurers are heading.Capitalising the new regime Please do contact me if you would like to discuss any aspect of the survey.ConclusionContacts Rick Lester UK Solvency II Lead Partner rlester@deloitte.co.uk
  4. 4. IntroductionForeword 2012 is a critical year for European insurers as they prepareIntroduction to meet the requirements of Solvency II, which aims toAbsorbing the impact establish a revised set of EU-wide capital requirements andFocus and concern risk management standards that will replace the current solvency requirements. sThe internal approachMaking it workCapitalising the new regimeConclusionContacts
  5. 5. The Omnibus II Directive, due to be voted on in Figure 1. Where is your head office domiciled?Foreword September, will set the date of enforcement of the Solvency II regime. The current working assumption is 8%Introduction that the responsibilities of supervisors and the European 8% Insurance and Occupational Pensions Authority (EIOPA)Absorbing the impact will take effect on 1 January 2013 and the Solvency II 8% requirements for insurers will be switched on from 1Focus and concern January 2014.The internal approach This leaves insurance companies limited time to get 75% their systems and processes ready to meet toughMaking it work new capital and risk management requirements, yet uncertainty persists over the final Solvency II United Kingdom Other Europe North America OtherCapitalising the new regime framework, and much of the policy is still not finalised. Source: Economist Intelligence Unit.Conclusion Over the rest of 2012, the Level 1 Directive and the Level 2 implementing measures should be approvedContacts and Level 3 formal consultations will come to an end, but until Level 3 guidance is released by the EIOPA, insurers are still operating without complete clarity. As companies enter this final stage of preparation, what are their key areas of focus and concern, and how has the delay in setting the final requirements impacted their businesses? s
  6. 6. For the past three years the Economist Intelligence Figure 2. Where does your group operate? (Select all that apply)Foreword Unit, on behalf of Deloitte, has interviewed insurers to 90% ascertain their readiness and preparedness for Solvency II. 80%Introduction 70% The 2012 survey polled 60 insurers, of which 25 were 60%Absorbing the impact non-life and 35 were life companies. Respondents 50% were grouped in size from the very largest with more 40%Focus and concern than £1bn in net written premiums (NWP); medium 30% sized-companies with between £300m and £1bn in 20%The internal approach NWP; and the smallest insurers with less than £300m 10% in NWP. l 0%Making it work UK only Other Middle East/ Asia Latin North Europe Africa America AmericaCapitalising the new regime Source: Economist Intelligence Unit.ConclusionContacts
  7. 7. Absorbing the impactForeword Solvency II forces insurers to analyse the risks they runIntroduction across their organisations and to determine the level ofAbsorbing the impact capital held accordingly.Focus and concern This framework presents businesses with anThe internal approach opportunity to better manage risk, and it seems that many insurers have already looked at how to takeMaking it work advantage of this opportunity. Last year’s survey found that 65% of respondents said they would introduceCapitalising the new regime new risk mitigation techniques, however, this year just 35% of respondents say they will do so in the yearConclusion ahead. The largest insurers are three times more likely than their smallest counterparts to be looking for newContacts ways of managing risk, and non-life companies (44%) show a higher likelihood than life companies (28%). In another change from last year’s survey, insurers have switched their focus from restructuring and reorganisation to product price and mix. Just under one-quarter (23%) of respondents say they will restructure or reorganise, compared with nearly one-half (47%) in 2011, although this fall can be explained in part by insurers having had the last year to conduct and complete this activity. s
  8. 8. An increase in re-pricing products is seen most Figure 3. As a result of adopting Solvency II, do you envisage yourForeword significantly in non-life companies, with 36% of organisation will need to do any of the below? Select all that apply (all respondents) respondents expecting to re-price products, compared Introduce new riskIntroduction with 17% in 2011. However, life companies are more mitigation techniques Re-price products likely to say that they plan to change their product mix,Absorbing the impact with 26% saying they will do so, compared with 8% of Reorganise/Restructure non-life companies, as they are not subject to the same Launch new productsFocus and concern proposed Solvency II capital charges as life companies, Redesign existing products 2011 which offer guaranteed products. Change product mix 2012The internal approach Significantly change investment strategy* Since the capital requirements relating to particular Not decidedMaking it work asset classes are still not clear, relatively few None of the above respondents (17%) expect to change investment RelocateCapitalising the new regime strategies significantly as a result of the Directive. As more becomes clear about the capital charges, 0 10% 20% 30% 40% 50% 60% 70%Conclusion one would expect insurers to turn their attention to *New response category for 2012 survey investment strategies. Source: Economist intelligence unitContacts 2012 has already seen one high-profile instance of an insurer saying it is considering re-domiciling dependent on the final outcome of Solvency II, which could make sense where large swathes of business are conducted outside of Europe. However, this year’s survey shows that few firms expect to take this action. Deloitte comment
  9. 9. Deloitte comment: Roger Simler, Partner, Actuarial & Insurance Solutions “ most companies’ Solvency II programmes have matured As significantly since last year’s survey, one senses that their attitude towards Solvency II mitigating strategies has also matured. Fewer companies are talking openly about full scaleForeword restructuring or re-domiciling than before. The preferenceIntroduction appears to be to concentrate on the more immediate strategiesAbsorbing the impact such as re-pricing, de-risking or changing the mix of business.Focus and concern This is perhaps indicative of a greater understanding of the levers that can be pulled to influence the solvency capitalThe internal approach requirement under the Directive.Making it workCapitalising the new regime That said we are seeing an increasing number of companies looking at managing the impact of Solvency II throughConclusion potential acquisitions of books of business to gain greaterContacts diversification benefits. In addition, significant work is being undertaken on the use of reinsurance and other hedging mechanisms to lay off the more capital intensive risks. There is, of course, no ‘one size fits all’, and each company should consider a range of options as they assess the implications of Solvency II and their own response to it.” l
  10. 10. Deloitte comment: Rick Lester, UK Solvency II Lead Partner “ t the time the survey was completed there was a marked increase from A last year in the number of respondents who expressed concern with the industry’s ability to meet the 1 January 2014 compliance deadline for insurers. The subsequent announcement of delay to the European Parliament vote on Omnibus II is likely to heighten this concern and lead toForeword stakeholders looking to secure a pragmatic solution to achieving theIntroduction compliance date, for example by using transitional arrangements to allow the entire industry additional time after the effective date to reach the ‘end state’.Absorbing the impactFocus and concern The majority of insurers highlighted the additional costs that have already resulted from the delay to Solvency II. Any threat of additionalThe internal approach delay will lead to further challenge in the Boardroom the costs associatedMaking it work with the new regime and the benefit to stakeholders that the delay and increased costs bring. Insurers are looking to expedite the transition ofCapitalising the new regime their Solvency II preparations into the ‘business as usual’ environmentConclusion and to realise their planned benefits from embedding the arrangements.Contacts However, for Internal Model firms there is still the overhead cost associated with the Internal Model Approval Process which would increase in the event of further delay to Solvency II. The vast majority of insurers anticipate increased costs once Solvency II has been implemented and is operating in the ‘business as usual’ environment. However, given the uncertainty of the final requirements and the fact that many insurers have not locked down their target operating model and organisational design in a Solvency II world, there are likely to be ongoing cost surprises.”
  11. 11. Focus and concernForeword The most pressing area for insurers’ attentions over the nextIntroduction six months is the Own Risk and Solvency AssessmentAbsorbing the impact (ORSA).Focus and concern One-half of all survey respondents say they will focusThe internal approach on the ORSA, which is an internal risk assessment designed to capture current and future risks to insurers’Making it work solvency. The ORSA is of particular importance to the largest insurers (60%) and to life companies (57%).Capitalising the new regime Tristan Garnons-Williams, policy adviser at theConclusion Association of British Insurers (ABI), says: “The ORSA is an important part of Solvency II because it represents aContacts chance for the firm to really show they understand their own risks. They can use that knowledge to feed into their decision-making, which should make for a more efficient running of their businesses.” s
  12. 12. Embedding and use were the next critical area for This year governance slipped down insurers’ agendas.Foreword attention identified by the survey. Almost one-half In the 2011 survey risk governance systems were (48%) of respondents say that this will need attention cited as a major area for attention, but only 12% ofIntroduction in the coming six months and that it is of particular respondents in the 2012 survey plan to focus on this importance to small insurers (53%) and life companies area in the next six months.Absorbing the impact (57%). In terms of concerns about Solvency II, as insurers areFocus and concern Risk appetite is another key area of focus for two-fifths already bearing the brunt of implementation delays, it is of respondents, since the Directive will force insurers to unsurprising that their biggest worries centre on changesThe internal approach articulate their attitude to risk and how this translates to the current legislation. More than two-fifths (42%) into business activity. Risk appetite is of the greatest say they are most worried about the impact potentialMaking it work interest to the largest insurers (80%). changes to the Solvency II regulations could have on their business.Capitalising the new regime Jonathan de Beer, policy adviser at the ABI, says: “Risk appetite is an essential part of Solvency II. It flows into One-third of respondents say their primary concern isConclusion business decisions about understanding which risks you clarification from European and local regulators of the are willing to write and which you aren’t.” precise requirements, while another one-third are worriedContacts about consistency of approach across Europe (32%). As in previous surveys, data quality and documentation of the internal model feature prominently in With so much disruption to the original Solvency respondents’ expected areas of focus. Nearly two-fifths II schedule, unease has grown among insurers of insurers (38%) will look at these elements in the next as to whether the industry as a whole will meet six months. the compliance deadline. Thirty-seven percent of respondents are somewhat or very concerned, compared with 24% last year. s
  13. 13. Figure 4. Which of the following areas will your organisation be focusing on most in the next six months? (Select five)Foreword Top 10 – 2011 Top 10 – 2012Introduction 1 Implementation planning, Personal incentivisation and reward (joint) ORSA (Own Risk Solvency Assessment) 2 Risk governance system Embedding and useAbsorbing the impact 3 Data infrastructure and data handling processes Risk appetite 4 Culture Data qualityFocus and concern 5 Data quality, Risk appetite (joint) Documentation 6 Performance measurement Data infrastructure and data handling processesThe internal approach 7 Documentation, Embedding and use (joint) Performance measurement 8 Internal model pre-application approval, ORSA, Internal model Culture development (joint)Making it work 9 Management information Control environment, Technology, Management information (joint) 10 Control environment Personal incentivisation and reward, Internal model development, InternalCapitalising the new regime model application (joint) Source: Economist Intelligence Unit.Conclusion Levels of confidence are highest among the largest Figure 5. How confident are you that the EU insurance industry as a whole will be able to achieve compliance with Solvency II by the end of 2013?Contacts insurers (50%), while non-life and life companies are equally confident with 44% and 43% respectively. Not sure 7% Very concerned 5% Levels of confidence rise to nearly three-quarters (73%) Concerned 32% of respondents when questioned about their own Still waiting to make up ability to comply with Solvency II, which corresponds my mind 13% with last year’s survey. s Confident 40% Very confident 3% 0 10 20 30 40 50 Source: Economist Intelligence Unit.
  14. 14. Counting the cost of delay Figure 6. What additional costs are going to be incurred by your company asForeword The postponement of Solvency II’s effective date has a result of the delay to full implementation of Solvency II to 1 January 2014? (all respondents) come at a price for insurers. One-third of respondentsIntroduction say they are concerned about the additional Incremental costs unknown 13% cost of delays to Solvency II, while 73% say that No additional costs 13%Absorbing the impact implementation setbacks have taken a toll on their Incremental costs less than 1% of 3% previously budgeted programme costs original budgets. Incremental costs of 1% – 5% ofFocus and concern previously budgeted programme costs 28% Incremental costs of 5% – 10% of The smallest insurers have suffered the biggest dents previously budgeted programme costs 37%The internal approach in their original budgets, while non-life insurers Incremental costs in excess of 10% of 5% previously budgeted programme costs have incurred bigger hits than their life companyMaking it work counterparts. 0 10 20 30 40 Note: Figures do not add up to 100% due to rounding. Source: Economist Intelligence Unit.Capitalising the new regime In addition to rising expense, the delays to Solvency II have created a host of other concerns for respondents.Conclusion More than one-third (35%) of insurers are concernedContacts about the impact of delays on their ability to transition the new regime into ‘business as usual’. This is a particular concern for the smallest insurers (47%) and for non-life companies (44%). s
  15. 15. Nearly one-half (45%) say they are worried about theForeword practical implications of simultaneously complying Deloitte comment: Rick Lester, UK Solvency II with the existing Individual Capital Assessment (ICA) Lead PartnerIntroduction regime and the forthcoming Solvency II regulations. “nsurers concerns about transition into I The two regimes will run in parallel in the year between business as usual are likely to stem from theAbsorbing the impact initial introduction for supervisors in 2013 and full practical challenges of maintaining business implementation for insurers in 2014. This is a concern engagement and willingness to absorb intoFocus and concern cited by 80% of the largest insurers and represents a business as usual when there is continuing key worry for nearly one-half of life companies (48%). delay and uncertainty surrounding the preciseThe internal approach regulatory requirements.” In December 2011 the Financial Services Authority (FSA)Making it work said it was aware of insurers’ concern, and the director of insurance, Julian Adams, invited firms to “considerCapitalising the new regime how they think their work on their Solvency II modelConclusion could be used to meet those current rules, thereby removing the need for parallel running of two More than one-third (35%) different models”. l of insurers are concernedContacts about the impact of delays on their ability to transition the new regime into “business as usual”.
  16. 16. The internal approachForeword Last year’s survey found that one-half of respondents hadIntroduction decided on a full internal model to calculate capitalAbsorbing the impact adequacy requirements, 30% had opted for a partialFocus and concern internal model and the remaining 20% had chosen toThe internal approach adopt the standard formula. However, this year’s surveyMaking it work shows that more than 50% of insurers have since changed their minds. sCapitalising the new regimeConclusionContacts
  17. 17. The majority (31%) of those who have changed tack are Figure 7. Have you changed your planned approach (full internal model/ partial internal model/standard formula) to Solvency II in the last 12 months?Foreword opting for a more sophisticated approach to Solvency (all respondents) II. Nearly one-fifth (19%) say they will move from a Increasing sophistication 7% 5% 19%Introduction partial to a full internal model. This represents a logical change, as once an insurer has initiated the mechanisms Reducing sophistication 5% 7% 9%Absorbing the impact necessary to calculate a partial internal model, it might No change 49% make more sense to move to a full internal model. TheFocus and concern survey also shows that insurers are moving away from 0 10 20 30 40 50 Yes, standard formula to partial internal model the standard formula. Twelve percent of respondents say Yes, full internal model to partial internal modelThe internal approach they will move from the standard formula to a partial Yes, standard formula to full internal model internal model (7%) or a full internal model (5%). These Yes, partial internal model to standard formulaMaking it work shifts will add pressure on regulators, who must approve Yes, partial internal model to full internal model Yes, full internal model to standard formula all insures’ internal models. No changeCapitalising the new regime Note: Figures do not add up to 100% due to rounding. Of those reducing the sophistication of their approach, Source: Economist Intelligence Unit.Conclusion life companies are far more likely than their non-life counterparts to move from a full internal model to theContacts standard formula, with 15% saying they would do this, Mr De Beer says: “Firms will use an internal model where compared with 0% of non-life respondents. However, they think it will provide a better indication of the risks this has more to do with size than the life/non-life than could the standard formula, but Solvency II says distinction. One-quarter of non-life respondents are in there should be a level playing field between any firms the smallest category and are therefore more likely to that go down standard or internal model route. There is stick with the standard model rather than upgrading to a cost to using an internal model, but then there will be a more sophisticated approach. benefits because you get a better indication of your risks – you understand them better, which may ultimately lead to lower capital implications.” s
  18. 18. Where internal models are being used, insurers are A further 30% say there will be some planned usesForeword preparing for the internal model approval process prior to IMAP, while 38% say there will be no use (IMAP). The IMAP process has been extended in line of the internal model until the approval process isIntroduction with the revised Solvency II compliance deadlines, complete. This latter group is likely to receive significant which is reflected in the survey responses. push back from the regulators, who currently view useAbsorbing the impact of the internal model as being one of the qualifying Just 9% of respondents say they expect to enter the criteria for approval.Focus and concern IMAP process in the second quarter of this year, 19% say they will enter in the third quarter and fewer than Mr De Beer says: “A key part of IMAP is satisfying theThe internal approach 25% say in the fourth quarter. Twenty-four percent say use test; that you are actually using your internal model they will enter IMAP in 2013. to inform decision-making. So insurers need to satisfyMaking it work that before they will get approval for their internal In terms of putting internal models into use, nearly model.” lCapitalising the new regime one-third of respondents (32%) say all or the majority of the model will be used for business decision-makingConclusion before entering IMAP.Contacts Figure 8. If adopting the full or partial internal model, when are you planning to enter into the IMAP? Q2 2012 9% Q3 2012 19% Q4 2012 25% Q1 2013 9% Q2 2013 9% Q3 2013 3% Q4 2013 3% 0 5 10 15 20 25 30 Note: 24% of responders are not adopting an internal model. Source: Economist Intelligence Unit.
  19. 19. Making it workForeword When it comes to implementation, nearly two-thirds ofIntroduction respondents (63%) in the survey are somewhat or veryAbsorbing the impact confident their business processes and tools will be adequateFocus and concern to meet the working-day timetable once Solvency II is introduced. sThe internal approachMaking it workCapitalising the new regimeConclusionContacts
  20. 20. There are high levels of confidence among the non-life That said, nearly a third of all companies have yet toForeword insurers, with more than three-quarters (76%) saying decide on what approach to use to aggregate and their tools and processes would withstand Solvency II, attribute their solvency capital, with more than oneIntroduction compared with 54% of life insurers. in five life companies and nearly two in five non-life companies being in this position.Absorbing the impact Two respondents say they have already transitioned their Solvency II programme to ‘business as usual’, while 7% As in previous years’ surveys, insurers are integratingFocus and concern say they will be in the same position within the first half Solvency II implementation programmes with other of this year. parallel European-wide or worldwide regulatoryThe internal approach changes. Two-fifths of respondents will have a single Nearly one-quarter (23%) of respondents say they will integrated programme to implement Solvency IIMaking it work have transitioned to Solvency II by the second half of and manage the transition to the new International 2012, and 62% will transition in 2013. Financial Reporting Standards (IFRS), including thoseCapitalising the new regime on insurance liabilities (IFRS 4 Phase II) and investments Figure 9. How confident are you that your operational processes and tools and derivatives (IFRS 9). Just over one-third (35%) ofConclusion will be adequate to meet your working-day timetable once the Directive is in effect? (all respondents) respondents will not integrate the two programmes, with the medium-sized insurers least likely to do so.Contacts Not sure 0% Mr Garnons-Williams says: “If a firm is happy to do Very concerned 7% a single programme and can find a way of making it Concerned 13% work, then there would be cost and efficiency benefits. Still waiting to make up 17% But [IFRS and Solvency II] are two different regimes, my mind which are not developing at exactly the same pace, so Confident 48% it may not be something all firms are looking to do.” Very confident 15% 0 10 20 30 40 50 More than one-half (57%) of respondents say they will align the reporting close processes for Solvency II with Source: Economist Intelligence Unit. IFRS, while more than one-third said they will align with the European Embedded Value (EEV) and Market Consistent Embedded Value (MCEV). Deloitte comment
  21. 21. Deloitte comment: Francesco Nagari, Global IFRS Insurance Lead Partner “ uilding the Solvency II infrastructure is a significant investment for all B insurers interviewed with expensive new systems being deployed to calculate insurance liabilities and to report asset and liability data to the regulators and the market.Foreword Making it work on day one and ensuring it has the necessary flexibility to work for other future requirements is an imperative that all Solvency IIIntroduction programmes must take on board now that system build activities are peaking.Absorbing the impact The next major requirement that will impact insurers within the EuropeanFocus and concern Union will be the adoption of a series of new financial reporting standardsThe internal approach (IFRS) demanding a new, more transparent and consistent way of accounting for insurance liabilities (IFRS 4 Phase II), assets (IFRS 9) and revenues (IASMaking it work 18 Revised) with far reaching impact on how IFRS profit are determinedCapitalising the new regime and reported.Conclusion In particular, IFRS 4 Phase II offers some similarities with Solvency II that could save substantial amounts of implementation costs if they are factored inContacts the completion stages of the Solvency II preparation. ‘IFRS-proofing’ the Solvency II infrastructure is a key activity for 2012 that far-sighted companies have just started and that aims at mitigating the risk of re-opening the complex Solvency II infrastructure shortly after it is released to BAU and to maximise implementation synergies from a cost and knowledgeable resources standpoint.” l
  22. 22. Capitalising on the new regimeForeword Survey respondents show relatively high levels of optimismIntroduction that Solvency II will lead to tangible business benefits,Absorbing the impact either now or in the future. sFocus and concernThe internal approachMaking it workCapitalising the new regimeConclusionContacts
  23. 23. More than one-half (53%) say they expect either some Figure 10. What business benefits are your Solvency II preparations providing? (all respondents)Foreword or significant tangible benefits from Solvency II, with Significant tangible business benefit an additional 20% expecting some benefits in due 15%Introduction course. However, more than one-quarter (27%) of Some tangible business benefit 38% respondents are more pessimistic and say the Directive No tangible business benefit butAbsorbing the impact presents no tangible business benefits either now or some expected in due course 20% in the future, with the medium-sized insurers the least No tangible business benefit and none 27% expected (other than regulatory compliance)Focus and concern optimistic (30%). 0 10 20 30 40 Source: Economist Intelligence Unit.The internal approach Mr Garnons-Williams says: “In terms of tangible business benefits, I can see insurers’ points that a lot of SolvencyMaking it work II’s costs are more upfront and obvious. But you expect to see positive business results through things likeCapitalising the new regime improved risk management, better understanding of risks and through the ORSA processes. It’s reasonableConclusion to expect those benefits to manifest over a longer time horizon, which is maybe why people cannot see themContacts as quantifiable at this stage”. s
  24. 24. Figure 11. What are the cost implications of Solvency II once implemented and operating in the business as usual environment? (annual additional cost Whatever the perceived benefits brought by Solvency II,Foreword as a percentage of implementation costs) the majority expect it to come at an annual additional cost. Two-fifths (47%) of respondents anticipate theIntroduction No additional operating cost 13% additional annual costs of operating Solvency II to be at least 5% of the implementation costs.Absorbing the impact Less than 1% 10% 1% to 5% 30% Mergers and acquisition opportunities have emerged asFocus and concern a result of Solvency II for only 8% of respondents, while 5% to 10% 35% none of the non-life companies say they are activelyThe internal approach looking. Nearly three-fifths (58%) of respondents say In excess of 10% 12% they are not considering this kind of transaction at all.Making it work Deloitte comment 0 10 20 30 40 50 Source: Economist Intelligence Unit.Capitalising the new regimeConclusion Figure 12. Is Solvency II likely to lead to you undertaking more MA? (all respondents)Contacts No – we are not currently 58% interested in MA Possibly – we would consider it if the right 33% opportunity came along Yes – we are actively looking for MA 8% opportunities 0 10 20 30 40 50 60 Note: Figure does not add to 100% due to rounding. Source: Economist Intelligence Unit.
  25. 25. Deloitte comment: Stephen Ross, Partner, Corporate Finance “ t is clear from the survey that the majority of participants see tangible I benefits arising from Solvency II. 73% of the businesses surveyed believed that they are now seeing or will see benefits from Solvency II. These benefits will include a better understanding of their businesses with a focus on areas such as improved enterprise risk management, capital allocation andForeword improved pricing and product strategies. Some businesses have embracedIntroduction Solvency II such that they believe competitive advantage can be driven from its successful implementation. For those businesses which do not foresee aAbsorbing the impact benefit, it will be a missed opportunity not to extract strategic value from the significant investment being made in Solvency II.Focus and concernThe internal approach The survey has interesting results with regard to corporate restructuring and MA. The survey suggests that a quarter of businesses are looking toMaking it work restructure their businesses as a consequence of Solvency II. In terms of suchCapitalising the new regime restructuring, we see Solvency II as one of the important catalysts that are driving businesses to consider their corporate structures as well as the needConclusion to drive for more efficient structures from a tax, capital and organisational perspective.Contacts The survey suggests that the drive to MA directly from Solvency II has not materialised as previously expected. Whilst this has been the case for some insurance groups, which have been concerned over uncertainty related to Solvency II on targets, it has not been a significant deterrent to others in the insurance industry who continue to use MA to drive their strategic agendas. It is of note that Solvency II readiness is now one of the key due diligence items which buyers look at in a transaction to ensure that the targets will meet the Solvency II regulatory requirements and deadlines.” l
  26. 26. ConclusionForeword UK insurers have endured much in their preparations forIntroduction Solvency II; delays, rising costs and a shifting frameworkAbsorbing the impact have all taken their toll over the past four years.Focus and concernThe internal approach Confidence that the UK insurance industry as a whole will meet the compliance deadline is waning, particularlyMaking it work as the final regulations have still not been clarified. Yet in spite of these obstacles, insurers continue toCapitalising the new regime make progress towards compliance, and where possible they have already put systems and processes in place.Conclusion However, inherent dangers remain in implementing and embedding solutions when the regulations have notContacts been locked down. The emphasis now is on the EU regulators to honour their commitment to the 2013 implementation deadline and give insurers across Europe the promised guidance on the requirements necessary for them to hit their own compliance date in 2014. l
  27. 27. Contacts Rick Lester Roger SimlerForeword UK Solvency II Partner, Actuarial Lead Partner Insurance SolutionsIntroduction 020 7303 2927 020 7303 3292 rlester@deloitte.co.uk rsimler@deloitte.co.ukAbsorbing the impactFocus and concern Francesco Nagari Stephen RossThe internal approach Global IFRS Insurance Partner, Corporate Finance Lead Partner 020 7303 2185 020 7303 8375 steross@deloitte.co.ukMaking it work fnagari@deloitte.co.ukCapitalising the new regimeConclusionContacts
  28. 28. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, and its network of member firms, each of which is a legally separateand independent entity. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.Deloitte LLP is the United Kingdom member firm of DTTL.This publication has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particularcircumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this publication. Deloitte LLP would be pleasedto advise readers on how to apply the principles set out in this publication to their specific circumstances. Deloitte LLP accepts no duty of care or liability for any loss occasionedto any person acting or refraining from action as a result of any material in this publication.© 2012 Deloitte LLP. All rights reserved.Deloitte LLP is a limited liability partnership registered in England and Wales with registered number OC303675 and its registered office at 2 New Street Square, London EC4A 3BZ,United Kingdom. Tel: +44 (0) 20 7936 3000 Fax: +44 (0) 20 7583 1198.Designed and produced by The Creative Studio at Deloitte, London. 18564AMember of Deloitte Touche Tohmatsu Limited

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