KPMG welcomes run-off sector concessions under Solvency II

Mike Walker, head of KPMG's UK insurance solutions team, commented: "The run-off sector has been lobbying for Solvency II concessions, arguing that the costs of implementation are disproportionate for their businesses. The concessions, which will lead to a significant proportion of the run-off sector being exempt for at least three years post implementation, will be broadly welcomed."

The proposals, issued on 14 June 2011, only relate to (re)insurance undertakings which have ceased to write new (re)insurance contracts. They also apply to firms that are in some form of insolvency or restructuring procedure where an administrator has been appointed (where the exemption period proposed is five years). However, this is not a blanket exemption - in particular, companies that are part of a group will not be able to avail themselves of this exemption unless the entirety of the group has also ceased writing new (re)insurance contracts.

Janine Hawes, a director in KPMG's Solvency II technical group, commented: "Given the proposal is for full exemption from all three pillars, there are inevitably conditions attached. Supervisors need to be comfortable that full termination will be effected within the period of the exemption, and they have the power to shorten that period if they are not satisfied with the progress being made. As part of monitoring this, firms will be required to provide the regulator with an annual report setting out what progress has been made in terminating its activity."

Mr Walker continued: "There will be some run-off companies that will still need to comply with Solvency II and it is also not clear what additional evidence supervisors will require to support the progress that is being made towards terminating activity. However, the new transitional arrangements will clearly be welcomed by the vast majority of the run-off sector. As a consequence of the new provisions we are also likely to see run-off entities revisiting schemes of arrangement and other finality options in an effort to benefit from the new run-off exemptions."