FSA, SOLPRU and Costs

Just when you thought it had gone quiet, the FSA throw out a 200 pager covering the regulator's transposition to Solvency II!

Some important pieces in this on;

Cost

• FSA has budgeted £110m over the 5 years 2008-2013 for Solvency II implementation (which supports their statement back at a June FSA management meeting where they commented that contingency would need to be enacted (p3) if go-live date was extended past 2013). They had said in their business plan for this year that the estimated implementation cost would be £100m-£150m, so they are on the light side of that estimate. 
• Frighteningly, they are budgeting for another £178m of spend between 2014 and 2016 (on nursing internal models through assessments and  improving IT) before reverting to current equivalent levels - for those people who got a special levy refund this year, you might want to cancel the trip to Vegas!
• Estimating cost to the industry (of around 550-600 undertakings) of £1.9bn, with this estimate creeping up due to extra contractor and IT cost.

At 200 pages, some of the detail can wait, but those 2014-16 FSA costs (which will be the PRA by then I guess) are an eye opener, particularly for anyone in IMAP who will (possibly?) be coughing up a special levy for the model assessment-related element.

FSA - Annual Report and Accounts - Solvency II and other bits

Few noteworty bits from the FSA's Annual Report and Accounts published today;

• Solvency II consultation paper for the UK industry due "later this year" - still can't be specific, I guess for the same reasons that the EU can't be!
• Will  be "assessing the efficiacy of firm's reverse stress testing exercises" over the next year - as per my last post, get started early by going through the Cass Business school paper!
• References both in the paper and in the press here and here. 
• Fines revenue up from £33.5m to £91.2m - a 'fine' achievement, if it means the bad guys are paying an appropriate share
• Over budget by £3.4m on contractors for "project activity" - not certain if Sol II is in that number or not.
• One very sharp piece in the Enforcement Annual Performance Review about "credible deterrence" and their increasing wish to use the threat of custodial sentance.
• Risk department up in headcount from 672 to 880 people in one year - the kind of recruitment numbers the Central Bank of Ireland would be delighted with!
• Cost of the Risk department up from £112m to £155m - at least the fines money is up to cover some of that.
• Solvency II revenue of £16.0m booked, against £5.8m the previous year. Those were the days...

FSA Special Projects fees - additional info

Just a few bits of additional information from the FSA special project fees for Solvency II

• Focusing IMAP fees on confirmed model applicants only means small internal model applicant companies will obviously suffer the twin agony of losing the industry-wide "subsidy" for model application costs, as well as paying standard non-IMAP fees for 2011/12
• No refunds if anyone withdraws mid year!
• Straight line recovery based on premiums and liabilities
• Any late entrants who try to join the model approval process will be levied
• Difference in FSA costs between provisional and final budget is nearly £5m - is this vast difference due to the number of model application drop-outs (which must be around 20 companies)?
• Some sniping comments from industry in the consultation responses, saying the differences between budget and requirement showed the FSA "had not budgeted effectively", are spending too much, and should give a more detailed cost breakdown.

I guess all of these comments were gathered before the two-tier approach was revealed last month. I suspect some smaller companies would be happy for the FSA to spend some of this underrun and staff ongoing model validation during 2011, rather than go fishing for more consultants!