Nearly 80 percent of European insurers expect to meet Solvency II requirements, intended to codify and harmonize insurance regulations, before January 2016, according to Ernst & Young's “European Solvency II Survey 2014.” However, data and systems readiness are lagging, the consulting firm said.

Ernst & Young’s (EY) survey found a consistently high level of readiness to implement the balance sheet requirements, referred to as Pillar 1, and to meet most systems of governance requirements, referred to as Pillar 2. But Pillar 3, which focuses on transparency and disclosure requirements, still presents a major challenge for many European insurers, E&Y said.

See also: Regulatory Changes Hindering Growth

Just 25 percent of insurers said they have designed or selected applications to meet Pillar 3 requirements, E&Y said, and 66 percent said data and systems are not designed to support Own Risk and Solvency Assessment (ORSA) evaluations beyond normal reporting cycles.

See also: ORSA May Be the Next Big Tech Test

"Not surprisingly, the decision to freeze or place programs into 'business as usual' means that only limited progress has been made in data and IT across all pillars in the last 12 months,” said Jan Leiding, partner in financial services, Europe, Middle East, India and Africa at EY. “Rapid gap assessments, prioritization and strong project leadership are needed to meet deadlines."

The two-year delay in the implementation of Solvency II has enabled insurers to be more confident in the approval of their models for day-one use, EY said, and more than two-thirds said they would be ready, reflecting the extra time they have had to finalize programs.

The proportion of insurers planning to use partial internal models has declined since EY conducted a similar survey last year, but partial internal models have shown the most noticeable reduction, and companies adopting full internal models are more likely to be continuing with their plans, EY said.

European insurers surveyed said their frequency of interaction with regulators is adequate, but 79 percent said they are not satisfied in terms of support in the interpretation of regulatory requirements; 75 percent said they are not satisfied in terms of the amount and quality of feedback on company-specific implementations, which EY said could reflect the fact that supervisors are understaffed as they cope with the new regulations. In addition, 61 percent said they are not completely satisfied with the size of their supervisory teams.

Most European insurers said they had made little progress in terms of disclosure and transparency requirements, EY said. Almost 76 percent said they do not currently meet most or all Solvency II reporting requirements.

"The level of implementation readiness has made little progress since 2012,” said Martin Bradley, EY's global insurance risk and regulation leader. “Uncertainty in implementation and timing delays may explain the lack of progress but it is now critical to accelerate these projects in 2014. Given the current status, the reality for many is that the 2015 transitional reporting will need to be done largely on a manual basis."

Overall, Dutch, UK and Nordic insurers are the best prepared, EY said, and French, German, Greek and East European insurers are less confident.

"Postponing the Solvency II regulatory deadline to 2016 has bolstered insurer confidence that they can meet the requirements in the time frame,” Bradley said. “However, as companies become more realistic about their implementation readiness, it is clear that some are less prepared than they had expected - many simply delayed their plans by at least one year, which might cause them issues now. While insurers are sending a strong message that they are seeking to improve their risk management effectiveness, they have a long way to go in terms of reporting, data and IT readiness."

European insurers said they generally are well prepared on all aspects of Pillar 1, which relates to quantitative requirements; French, Dutch and Italian companies said they are approaching compliance, and Greek, Portuguese and Central Eastern European insurers showed a lower level of readiness, EY said. However, almost 85 percent said there is room for improvement in meeting Pillar 2 requirements.

"Insurers know that they need to tackle embedding risk culture at the front line more effectively,” Martin said. “The top four improvements identified by insurers as delivering improved risk management effectiveness all related to interface with the front line, but these changes were also ranked as being the hardest to achieve."

In regard ORSA, EY said there is a significant difference in readiness from the most to least prepared, with the Netherlands, Nordics and UK more prepared, and Greece, Portugal and central and eastern Europe less prepared.

EY’s survey of 170 insurance companies was conducted last fall and updates of EY's 2012 pan-European survey, spanning 20 countries including Europe's largest insurance markets.

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