Short delay A delay in implementation to 2015 has probably been anticipated by most, and many firms plan for such an event. Standard Life, for example, regularly preforms scenario analysis to identify the consequences and mitigating actions of a delay. Bruce Porteous, Head of Solvency II, said the firm’s medium term plans are unlikely to have a material change in the event of a delay to January 2015. “We would continue to deliver most of our Solvency II deliverables, asset quality and systems of governance requirements for example, on schedule. Other Solvency II requirements, such as the internal model application and reporting requirements, might need to be deferred and we would expect to roll these out into the appropriate business area for delivery once the rules have been finalised.” Others would agree that the main impact of a short delay is to a firm’s planning timeline. According to Peter Skjødt, Executive Director, Danish Insurance Association, if certainty about 2015 can be reached the implications will be limited given the anticipated delay. “The problem is the uncertainty,” he said. “It makes it hard for companies to decide on their speed of adjustment.” Uncertainty also makes it difficult to transition out of project mode. According to Jan Piekoszewski, Solvency II Programme Manager, Atradius, “The continued uncertainty has cost implications as it is not possible to transition to ‘business as usual’ while the regulatory framework has not been finalised.” Questions will also be raised about the state of the current rules. Paul Clarke, Global Solvency II Leader, PwC, said. “From a practical perspective existing regimes will remain in force although we expect regulators to progressively accept Solvency II output in substitution for some features of the existing regime such as ICAS in the UK.” But behind the timeline uncertainty lurks a bigger beast – uncertainty about the shape of the final rules. The current delay is due to disagreement on a number of key elements of the Directive. Topping the ‘outstanding issues chart’ are the treatment of long-term guarantees (LTG), equivalence, certain calibrations of the standard formula, and reporting requirements. It is this uncertainty that is especially worrying because of its knock-on effects. For example, failure to finalise Pillar I capital requirement rules means firms are unable to calculate their final capital requirements. In the case of long-term guarantees, for example, this could represent significant changes to available capital, which in turn could have implications for investment decisions and asset allocation. Such implications and their consequences are amplified the further the deadline is pushed into the future.