S&P Warns EU Insurers Not to Ignore Solvency II

Standard & Poor’s Ratings Services has issued a report – “Beware Solvency II: As The 2010 Implementation Date Looms Closer, European Insurers Should Ignore It At Their Peril” -, warning the EU’s insurance community that the impact from the implementation of the Solvency II regulations is closer than they think.

The new regulations, which will impose a risk-based analysis to determine capital and reserve levels, are, according to S&P a global revolution, “which is changing the competitive landscape.” While the rating agency sees Solvency II as promising “much for market efficiency in Europe,” the EU’s “insurers and supervisors are far from ready, according to a Quantitative Impact Study 3 (QIS3).”

The reforms were originally scheduled to go into effect this tear, but that proved impossible. The “Framework Directive” is likely to be published in July, and, as S&P notes, “with no sign yet of slippage in the planned 2010 implementation date, Solvency II is beginning to loom large.”

“We believe it will have a profound impact, although many insurers have yet to evaluate its effect on them, feeling that it is not sufficiently imminent to warrant a full analysis,” stressed S&P credit analyst Rob Jones. “This is a stance they may come to regret.”

The actual drafting of the highly complex regulations involves the European Commission, European Parliament, Council of Ministers, and Europe’s supervisors, all of whom “will need to proceed cautiously with Solvency II’s implementation to allow an orderly transition,” said S&P. “Further quantitative impact studies, with fully representative participation, will be crucial in determining the financial and operational readiness of Europe’s insurers.”

The report is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor’s credit ratings, research, and risk analysis, at: www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to research_request@standardandpoors.com.

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