Solvency II disclosure and capital management have been ranked as the top two priorities for UK life insurers in 2016, according to an audience poll at the Fitch Ratings Insurance Roadshow in London.

Of the 100-strong audience 33% said Solvency II disclosure was the highest priority for UK life insurers in 2016, with 29% opting for capital management.

Products and distribution and investment performance came second and third at 21% and 17% respectively.
The implementation of the Solvency II EU legislative programme, which became effective on 1 January 2016, has dominated much of insurers’ time and investment in recent years.

For example, the Association of British Insurers (ABI) has cited the UK government as saying the one-off implementation costs across the UK will reach £2.7bn, ($4.1bn) with annual ongoing costs of £200m.

With the transitional arrangements for Solvency II varying from country to country, David Prowse, senior director at Fitch Ratings, explained it will take until 2032 before Solvency II is fully in effect.

Looking ahead, Fitch said among its Solvency II predictions are:

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  • Nearly all insurers will be solvent
  • Asset and product mixes will shift gradually
  • There will be more M&A in 2016
  • Internal models will reduce capital requirements
  • In Feb /March 2016 – the market will punish insurers that fall below expectations

Prowse told the audience that currently Solvency II means: "The playing field is not level at all. There is a north-south divide. Over the several years we expect to see gradual harmonisation."

He added: "As insurers know how strong, or how weak their capital positions are, look out for M&A in 2016 triggered by Solvency II.

"How insurers communicate to the market and how insurers react is a key risk for the insurance market. Solvency II gives us new insights, but it should be handled with care."

Speaking to Life Insurance International (LII ) in late 2015, Chris Finney, a partner at law firm Cooley (UK) LLP, explained that Solvency II will almost certainly change before the transitional provisions have expired.

He said the European Commission will be looking at how the minimum capital requirement (MCR) and the solvency capital requirement (SCR) are working in practice; and whether anything needs to be adjusted or re-done to make the capital requirements work as intended.