As we all know Solvency II has been a much discussed subject for many run-off carriers for the last few years.  But discussion is likely all that has been happening.  Now, however, with many companies receiving letters from the FSA requesting certain information regarding the companies' preparedness, the regulatory reform is likely moving up the boardroom agenda.

As the FSA state in their recent letter "The expectation is that most Run-Off Firms will be within the scope of the Directive...".  The exceptions are small entities (refer to the Directive for parameters) or pure reinsurers in run-off prior to 31 December 2007.  The FSA letter goes on to say "Notwithstanding these exemptions the FSA intends that all firms will need to maintain and demonstrate adequate capital resources and to maintain appropriate risk management structures."

Whilst it is too early to determine what penalties, if any, the FSA could employ to those run-off carriers who do not adopt Solvency II, it is likely that if a run-off carrier wants to transfer business, propose a scheme of arrangement or look to extract capital the FSA will want a Solvency II calculation. 

The ARC Board feel it is appropriate to investigate an initiative where ARC members collaborate to address the implementation of Solvency II for run-off carriers.  The level of documentation to assess and interpret the new regulations is vast and a working party that can divide the work amongst themselves and produce combined responses has got to be worth the effort.  Whether this ultimately leads to the development of a Solvency II model for run-off, in a similar manner to that adopted for ICAS, is too early to say.  However, having spoken to the FSA they are very keen for the ARC membership to provide what they think is an appropriate interpretation of the regulation rather than the FSA having to shoe horn them into a standard model.  Needless to say I also feel that the membership would  prefer to advise what they feel is appropriate.

I am therefore seeking volunteers from across the membership to mobilise this initiative.  Stephen Osborne of Riverstone has kindly offered to lead the ARC Working Party and we have indicative input from Enstar and R&Q yet we would like more representatives to share the workload.

I hope that you agree with me that this is a wholly worthwhile initiative and will save much time and effort for individual members.  I very much look forward to your expressions of interest.

Needless to say, this email should be passed on to the CFO, compliance officer or chief actuary in your organisation as applicable. 

Kind regards 

Paul Corver

ARC Chairman