New research from leading business and financial adviser Grant Thornton UK LLP has found that support for Solvency II (SII) has waned over the past several years, as the UK's insurance community continues its progress against the various elements of the new regime.
Based on a survey* of the insurance market, Grant Thornton's report finds that only a quarter of respondents believed Solvency II is clearly the best way to run their business. This compares with 31%, when surveyed in 2014.
Whilst the majority (91%) believed that the principles of SII were appropriate, nearly 70% thought that the principles have been ruined by the implementation of the regime. Moreover, two thirds of respondents felt SII is too complicated and a similar proportion believed that SII is still using up resources that could be better deployed elsewhere. Almost 40% suggested that SII continues to distract senior management from running the business.
Only 17% of respondents felt that Solvency II has been worth the effort – representing only a third of the corresponding result from the firm's 2014 survey.
Simon Sheaf, Head of General Insurance Actuarial and Risk at Grant Thornton UK LLP, commented: "Clearly, the implementation of Solvency II has been met with varying degrees of enthusiasm; but despite the increasing negativity towards the regime, there has been an overall acceptance of the inevitable and insurers have had to 'bite the bullet' over the past few years. The survey results, when compared to previous years', show a clear waning in support for Solvency II, despite the impressive progress made by the sector in its implementation."
Whilst only less than 20% of respondents had completed the transition of Solvency II into 'business as usual', nearly 80% believed SII had improved the governance of their firm. Similarly, nearly three quarters thought that the new regime had led to an improvement in their firm's risk management.
With regard to implementation and compliance costs, only 9% of respondents believed these were reasonable. Two thirds of respondents agreed that the costs of SII were disproportionate to the size of their business and more than 70% believed that the value attained from SII did not justify the cost.
Simon Sheaf continued: "Respondents were surveyed in the weeks leading up to the UK's referendum on EU membership, and since the Brexit result, we've seen calls to re-examine the regime's application in the UK, including the recently announced Treasury Committee inquiry. Nevertheless, there remains a significant chance that a Solvency II equivalent regime will continue to apply in the UK. And, what is more, whatever the eventual outcome of the deliberations on the future of insurance regulation in the UK, it is clear that Solvency II will continue to apply for several years."
*About the survey:
Grant Thornton UK LLP surveyed a sample of 77 senior executives (including Chief Executive Officers, Chief Actuaries, Chief Financial Officers and Chief Risk Officers) operating in the UK general insurance, life and health insurance markets. The survey was conducted in May and June 2016.