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Insurance
More insurers expected as higher capital levels kick in
capital under S2, but nowhere near as much as Gibraltar has had to make up ahead of S2, and if the UK sector does not raise rates, I am not sure it will impact on premiums”, she said.
Brian Morrissey, a KPMG actuarial partner, was emphatic: “Ultimately policy- holders will have to pay, shareholders won’t. With the raft of rules and regulations across S2, including emerging conduct areas, there also may be less choice and less innovation, as consolidation will continue apace.”
New public reporting of insurers’ financial condition required by S2 “will be totally irrelevant to policyholders,” Quinn held. “They will say ‘what’s this, it doesn’t mean anything’ - there is so much in there and it’s so complicated, it will only help analysts,” she added.
Another predicted pressure on insurers from S2 will be a higher audit fee, because of the greater complexity and specialisms required, as companies strive to meet S2 public reporting obligations for the first time.
Jon Tricker, KPMG (Gibraltar) managing director and audit partner, emphasised the importance of auditors reviewing the opening S2 balance sheets “in order to expose any issues early on. The nightmare scenario is an external audit occurring for the first time in 2017 and capital issues then surfacing”, he warned.
However, Quinn, who also is an accountant, ventured: “There are so many assumptions and judgments involved in S2 balance sheet preparation, if any of the assumptions are changed only slightly, a totally different outcome would result - and both could probably be justified”.
“We could end up without a level playing field within the same jurisdiction, let alone within the rest of Europe,” she charged. Highlighting another effect, Quinn maintained: “Gibraltar has a relatively small audit industry and doesn’t have the technical expertise that is needed for this, so other people need to be brought in as reporting deadlines get shorter over the next few years.”
The FSC will consult with the insurance industry on what constitutes “proportionate”, high quality reporting, Perdoni assured, and whilst the UK’s Prudential Regulatory Authority (UKPRA) had gone further by requiring formal opinions on the soundness of insurers, “it depends on what the rest of Europe has to say on this, because we want to ensure that our approach is consistent with other jurisdictions”.
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Gibraltar’s insurers today are far better prepared to protect consumers against any potential failure of their businesses after meeting tighter European-wide industry capital and risk requirements from 2016. Introduction of the Solvency II (S2) Directive may well present new business opportunities, Ray Spencer finds
requirements from January”. Self-assessments and work by firms to
meet capital requirements had demonstrated that the majority of firms had made significant progress towards compliance; the FSC had made clear that access to so-called transitional provisions would be available “only in exceptional cases” to lighten the financial burden of the new requirements for a limited period.
Gibraltar International understands the FSC was closely monitoring only a handful of cases – maybe half a dozen – both large and smaller businesses.
The insurers, managers and administra- tors meeting at Gibraltar’s Finance Centre round table all strongly agreed that Solvency 1 (S1) - was “no longer fit for purpose”.
As Perdoni remarked: “We are happy that S2 provides a level playing field across the EU, and as a National Competent Authority we will be supervising to the same standard as every other member state. That helps this jurisdiction.”
Highlighting consumer effect
But Danny Gibson, chief executive of suc- cessful private employers’, public and prod- ucts liability insurer, CGICE, noted: “Gibraltar writes insurance for 1-in-6 UK cars, and - given more capital is now required and therefore the return to shareholders is less, - the consequence is that rates will rise, although that is exactly what the UK government does not want to happen.
“S2 is good for the consumer, because insurance companies are a lot more solid, but in my opinion it will probably have to be paid for with higher insurance premiums.”
Liz Quinn, a director of Quest Insurance Management that looks after ten insurance companies from small owner-managed enterprises to FTSE-250 and NASDAQ listed concerns, disagreed.
“The UK motor industry has not made a profit in the UK for the last 20 years and no-one has put their rates up as a result. The motor industry can be very irrational in the way it behaves and in the last ten years it’s all been about turnover.”
She pointed out that Gibraltar’s insurers compete with UK providers. “Anecdotally, they may have had to put in a little more
The Solvency II effect absorbs insurance discussion
At the second in a series of industry- focused round table discussions led by accountancy and auditing firm, KPMG (Gibraltar) in association with Gibraltar International Magazine, key insurance sector players were both concerned at the administrative and extra cost burdens of implementing S2, but also excited at the down-stream potential for further developing their businesses.
Joe Perdoni, Head of Prudential and responsible for insurance companies and S2 at the Gibraltar Financial Services Commission (FSC), revealed there had been “no decline in the number of applications from insurance businesses in Gibraltar; if anything it’s gone the other way. We have seen more people interested in the jurisdiction than before.”
How well insurers comply with S2 requirements is being closely monitored by the FSC, which felt confident – having taken “quite a firm stance with insurers over our expectation – that they would meet capital
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