Pillar 1, 2, 3 readiness

European Solvency II survey

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The current time frame for Pillar 3 is an ambitious target given the process, IT and other challenges facing insurers.

European insurance companies are reasonably well-prepared to implement Pillar 1 balance sheet and standard formula requirements.

Yet, while many have assessed their risk management systems under Pillar 2, significant gaps remain in establishing an Own Risk and Solvency Assessment (ORSA). Most companies are still in the early stages of implementing Solvency II reporting under Pillar 3.

Our survey reveals a good state of readiness for Pillar 1. Over 60% of insurance companies calculated their Solvency II balance sheet and standard formula capital requirements in 2011. By their own assessment, Spanish and German insurers believe they are best prepared; 81% of Spanish insurers expect to be compliant for all three pillars in 2013. By comparison, Polish insurers lag behind slightly in Pillar 1 readiness. Despite a positive Pillar 1 position, uncertainty remains over long-term guarantee (LTG) impact assessment, which is a key principle underlying Solvency II.

More than half of insurers meet at least most Solvency II requirements. The UK, Germany and the Netherlands are the most prepared for Pillar 2, while southern and eastern European countries lag. The most significant Pillar 2 gap lies in establishing an ORSA, which only 30% of companies have achieved - highlighting the work needed in this area. Only 17% of companies have assessed the effectiveness of their risk management systems in relation to outcomes. This presents a risk that insurers are overestimating their readiness.

Nearly 80% of insurers say they have made little progress in implementing Pillar 3. This is due to the complexity of requirements and the process and system changes that will be needed. Insurers in the UK, the Netherlands and France are relatively well prepared. Yet even in those markets 60%-70% of insurers have yet to meet most of the requirements for Pillar 3. The current time frame for Pillar 3 is an ambitious target given the process, IT and other challenges facing insurers.

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