Lloyd's and the London market are unprepared for increasing regulation as premium rates show signs of decline, claimed a report from Ernst & Young
Lloyd's and the London markets are unprepared for increasing regulation as premium rates show signs of decline, claimed a report from Ernst & Young.
The company said its survey of Lloyd's and London market chief executives had revealed a market unprepared for increased regulatory and compliance costs at a time when premium rates showed signs of decline.
Ernst & Young said the next 11 months before FSA regulation would be particularly challenging for smaller organisations in the market which currently had only limited resources and expertise to cope with the changes.
Nearly all (90%) of the chief executives surveyed, accounting for two-thirds of Lloyd's capacity, believed a significant overhaul of their existing management information systems would be necessary as a result of regulation.
In addition, 80% felt that a significant effort would be required to meet the new risk-based requirements, said Ernst & Young.
It said the uncertainty of the impact of FSA regulation was compounded by 100% of respondents saying that future EU regulatory requirements were opaque.
The survey revealed that 60% of companies had not yet undertaken a formal GAAP analysis of any likely changes with only half having made any kind of estimate as to the impact of new capital requirements relating to the market, credit, liquidity, operational and group risk.
Ernst & Young partner and insurance specialist, Tim Leggett, said: "The timing of these new regulations is challenging for the sector and some companies are by and large unprepared.
"Implementing these changes is likely to be difficult enough for large insurers given the specialist knowledge needed to translate the FSA's principles into meaningful action as was experienced by those in the life industry.
"For smaller players in the Lloyd's and London markets, dealing with the new regulatory regime will be a really significant burden at a time when their primary focus is maintaining the profitability of the last few years."
