2012 implementation deadline fast approaching
UK insurers are still unsure how to tackle Solvency II, with 13% unable to decide whether they will use an internal model, according to a survey by business and financial advisers BDO Stoy Hayward LLP.
Kirstie Gordon, insurance specialist within BDO Stoy Hayward’s Financial Services Group says: “We were disappointed that 13% 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.”
The survey also found that only 15% of insurers surveyed were planning to use the standard formula under Solvency II, whereas 68% planned on using their own internal model or a partial internal model.
“Firms need to perform a realistic assessment of the viability and cost-benefit analysis of using an internal model,” said Gordon.
“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.”
The standard formula could prove to be the most practical answer for some, Gordon added. “But firms will not know this until they have assessed their own individual situation.”