Monday, 5 December 2011

UK Treasury - Consultation on Solvency II

I have had a look through the UK Treasury's transposition of Solvency II consultation paper today (the purpose of this is to ultimately confirm which UK law and statute changes will need to be made to accommodate it, rather than the FSA's consultation, which was focused on replacing the existing handbooks with SOLPRU).

Strangely, at 100 pages, it is a pretty good read, and you should not be shy in purloining some of their idiot's guide material at the start for board presentations and staff briefings. However, the really meaty stuff comes in around halfway through, where they get to cost/benefit analyses (much of which leans heavily of the E&Y research referenced by the FSA numerous times already).

A few things jumped out, namely;
  • £1.53bn as ongoing cost to UK industry (NPV over 10 years) - that's to go alongside the £1.9bn of transition costs!
  • Sat alongside £3.52bn of "key monetised benefits", NPVd over 10 years - I'm no mathematician, but I guess that means it's a winner for the industry!
  • Between 550 and 600 UK firms expected to be covered (Lloyds syndicates included) - this seems much lighter than the CEA figures from the other week, which had over 1,000 UK insurance entities. Are there relly that many below the de minimus level?
  • No "gold plating" of Solvency II - bare minimum "copy-out" approach confirmed.
  • Table included which shows the scale of the changes for firms with comparable data between Solvency I, ICAS and Solvency II.
  • Still includes an estimate of 100 model candidates who will "ultimately" use an internal model, though it states that only a third of these will look for day-one approval. I'm struggling to reconcile this [100 in IMAP at outset, now down to 77, but only 33 will be approved on day 1!]
  • Shows all the detail of how the FSA came to £110m as the cost between 09/10 and 13/14 (based on timesheets!) and the ongoing costs post-2014, broken down by FSA business area. Important note here is that half of the ongoing costs from 2014-2016 are for actuarial resource to assess internal models. Nice to know the logic behind the special project levies for those years
Plenty of flannel towards the back, which you are probably familiar with, but if not, knock yourself out!

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